Business

Inequality threatens Mandela legacy

by Mike Cohen

Bloomberg

Nelson Mandela emerged from 27 years in apartheid jails in 1990 pledging to seize South Africa’s mines and banks. Four years later, his government slashed spending and courted foreign investors, paving the way for the longest period of growth in the country’s history.

The former president, who died Thursday at the age of 95, was instrumental in getting the African National Congress, which led the fight against apartheid and has ruled ever since, to embrace an open economy. “Only a Mandela could have realigned the ANC’s economic policy from the mindset of the 1950s, with the development state, with socialism, with nationalization, to the world of the 1990s and beyond,” said Robert Schrire, a politics professor at the University of Cape Town. “He recognized that for the poor to prosper, the rich had to feel they had a future in the country.”

Yet Mandela’s legacy of economic stability is beginning to come under attack as the country fails to slash unemployment and reduce inequality. The jobless rate remains 24.7 percent, while average earnings for black households are a sixth of their white counterparts. The ANC’s youth wing last year waged a campaign for the nationalization of banks and mines, the very policies ditched by Mandela in 1994, and poor communities have staged a series of protests against a lack of housing and basic services.

“We still have racial unemployment, racial poverty and racial inequality,” said Sidumo Dlamini, president of the 2.2- million-member Congress of South African Trade Unions, the country’s largest labor grouping and a member of the ruling alliance. “Our country is still in white hands.”

Mandela’s embrace of spending rigor and foreign capital allowed the economy to expand for 15 years, until the third quarter of 2008, when the global financial crisis pushed it into recession. That growth and rising tax receipts enabled the post-apartheid government to extend welfare grants to about 16 million people and give more than 85 percent of households access to electricity, up from 45 percent in 1996. Instead of nationalizing companies, Mandela coaxed foreign investors into the country. His ideological shift laid the groundwork for Lakshmi Mittal’s LNM Group to buy Africa’s biggest steelmaker in 2004 and Barclays PLC to take control of South Africa’s largest consumer bank in 2005.

Restoring confidence in South Africa’s economy in 1994 was a significant achievement. Apartheid had turned South Africa into a pariah state, subjected to international sanctions and boycotts. The economy was hemorrhaging foreign capital, had only enough reserves to cover 10 days of imports and was running a budget deficit of 9.1 percent of gross domestic product. Mandela asked Chris Liebenberg, who had just retired as chief executive officer of what is now Nedbank Group Ltd., the country’s fourth-largest bank, to become finance minister. He accepted the job on condition that South Africa would have a market-related economy and exercise fiscal discipline. “Those were tough times,” Liebenberg said. “We were heading for bankruptcy. Mandela was very mindful that the ANC having not been in government would not be as astute in managing the economy as it should be.”

In his first budget, Liebenberg raised taxes, equalized the tax system for all racial groups and slashed the defense budget. Those measures helped the government to raise $750 million in 1994 in its first post-apartheid international bond sale, 50 percent more than originally planned. By 1999, the Finance Ministry had reduced the budget deficit to 2.3 percent of GDP.

Mandela also persuaded Chris Stals, the central bank governor, to postpone his retirement by five years to help manage the country’s transition. “We made steady progress from day one on for those first five years,” Stals said. “Our main task was to bring us back into the world economy. Mr. Mandela certainly made a major contribution to that. The trust people had in him and his policies certainly enabled us to lay a very good foundation.”

That trust was hard won. Mandela was sentenced to life imprisonment after being convicted of treason in June 1964. His economic thinking was framed in terms of the ANC’s 1955 Freedom Charter, which called for the country’s mineral wealth and banks to be transferred to the ownership of the people.

“The question of nationalization of mines is a fundamental policy of the ANC,” Mandela said shortly after his release. “I believe the ANC is quite correct in this attitude and we should support it.”

A year later, he assured foreign companies their investments were safe following talks with then-Chinese Premier Li Peng, who told him nationalization wasn’t viable and that China was considering selling state companies. “The world had changed while Mandela was in jail,” said Iraj Abedian, an economist who helped craft the Mandela’s administration’s 1996 hallmark economic policy, which won praise from international investors. “His engagement with the role players in the political, economic and financial world brought that reality home.”

Still, the stability that Mandela engineered in those early years after apartheid never made South Africa an economic dynamo. Economic growth has averaged 3.5 percent since 2004, compared with 10.5 percent in China and 7.7 percent in India. Mandela did the best he could for the country under the circumstances, Abedian said. “Very few people appreciated what unstable macroeconomic conditions apartheid had left behind,” he said. “In that type of environment what was critical was to have a credible, not necessarily an instant, solution. Mandela realized what steps had to be taken to normalize and stabilize the economy.”

Coronavirus banner