South Africa’s adverse socio-economic conditions: between motives and the truth

Categories: | Author: SuperUser Account | Posted: 5/24/2011 | Views: 12959

In his Phenomenology of Spirit, G.W.F Hegel interrogates the commandment: “everyone ought to speak the truth at all times, according to his knowledge and conviction” (1807:254).

The Congress of South African Trade Unions (Cosatu) has recently blamed a host of entities (including government, the reserve bank and business) for contributing to the spiralling rise in oil and food prices, Eskom’s electricity price hikes and for rising interest rates.

The labour federation then organised a national stay-away on 6th August this year, which was indeed a resounding success. Statements such as “Away with Tito Mboweni, away!” were used to charge up supporters who took part in marches across the country.

As it would have been expected, the mass action received wide media coverage, thus enabling union leaders to communicate their messages to the entire nation. Understandably, all of these leaders lamented the high cost of living with which workers and the poor currently have to cope.

But Cosatu messages cast the spotlight disproportionately on local factors, and thus missing the bigger picture: the fact that a larger part of our current socio-economic turbulence has more to do with a combination of exogenous than endogenous factors.

When the US subprime crisis reared its ugly head last year, it did not take long before the rest of the world began to catch the cold.

By August 2007, outsourcing companies that process mortgages in India already started noticing a slow-down in orders and began experiencing revenue losses; from about 10% to 7% as a direct result of the ripple effect of the situation in the US.

Between July and October the same year, Barclays Capital – an investment arm of Barclays – lost 1.3 billion British Pounds, also linked to the US subprime crisis. It should be noted that Barclays has a 32 percent stake in ABSA, a bank operating on our shores.

USB (Switzerland’s biggest bank) has already written down more than $37 billion on its subprime related positions.

Indeed, the US subprime crisis has seriously rocked the boat for international stock markets. In early August 2008, stocks in Tokyo plunged 23.6 percent; 20.7 percent in Paris; 13.6 percent in Ney York; 12.2 percent in Frankfurt; and 12.1 percent in London.

This financial crisis coincided with another more serious situation: the skyrocketing of oil prises. It now appears unbelievable to recall that in 2004 a barrel of crude oil cost a mere $40. Five years later (in 2008), it crossed the historic threshold of $140, a record level few analysts would have predicted.

But why rehash these well-known facts? That they are well-known is precisely the reason why we should wonder why Cosatu leaders chose not to explain to workers and the poor how these international factors manifest themselves locally.

While there could be some validity in a suggestion that cautions against the overstatement of the impact of the US subprime crisis on our local conditions, the same cannot be true about oil prices.

As the African Development Bank observed so appositely in 2006, “The high price of oil impacts directly on firms, consumers and the government. …. [It] increases the domestic price of petroleum products, raises the cost of many intermediate inputs, and as a result leads to higher production costs.” Indeed, South Africa has and continues to experience all of this.

It is a simple economic logic that when production costs go high, retail prices also go high. In a situation where wages and salaries are not hiked to match rising prices, as it has been the case in South Africa, workers and the poor can no longer afford basic commodities.

A rise in oil prices also impacts directly on the ability of workers to afford transport. If in 2004, when a barrel was $40, a return ticket in a taxi from Soweto to Johannesburg were R5.00, it follows that in 2008, when a barrel hovers above $100, a worker would have to pay a lot more.

Food prices are also directly affected by the rise in oil prices. The World Bank estimates that food prices have risen by about 45 percent since the end of 2006. Indeed, we see evidence of this whenever we visit local food stores: R200.00 no longer throws the same amount of food it used to throw into our basket a year ago. Also, the farmer now spends far more than he used to spend to fuel a truck transporting cabbages from his farm to the market.

But a poor South African watching Zwelizima Vavi on TV may rightfully ask: what do all the local entities Cosatu is campaigning against have to do with the skyrocketing of oil prices?

The deregulation argument notwithstanding, honesty compels us to tell a correct story of international demand and supply dynamics that determine fluctuations in the price of oil. The subjective and objective workings of OPEC also need to be factored into the equation.

Given our dire food security situation, the call to zero-rate basic foodstuffs indeed makes sense. But the problem with those making the call is that they do not tell the public all the truth about the current state of VAT zero-rating. Here are some of the already zero-rated foodstuffs: brown bread, maize meal, samp, rice, mealie rice, vegetables, vegetable oil, milk, milk powder, fruit and so on. The debate around chicken notwithstanding, this list to some extent already mirrors the poor’s standard grocery.

Critically, our current situation illustrates the fragility and unsustainability of a consumer-based economic growth trajectory. These days, every second item on the shelves of our shops bears the label: “Made in China”. While an element of protectionism should not be entirely ruled out, we aught to ask: what happened to the competitiveness of South African products?

Indeed, Tito Mboweni has been severely criticised for hitting the poor hard by raising interest rates. For some reason, such criticisms are not accompanied by practical proposals on what to do with our middle class, who have been living beyond their means and stubbornly ignoring calls for them to start saving. One also wonders if those who say “Away with Tito Mboweni, away!” fully appreciate the impact of uncontrolled inflation on the poor.

Cosatu is right in blaming government for the electricity crisis we are currently experiencing. It is now common knowledge that government ignored warnings, back in 1998, that we would be in darkness in 10 years. This is a situation too serious to be brushed aside with a mere apology from President Mbeki.

However, it is striking that, for the past ten years, Cosatu has not been campaigning for the private sector to pay more on electricity in order to cater for the upgrading of our generation capacity; assuming that the federation new that the private sector –the main user of power – has been enjoying the cheapest electricity in the world.

Ultimately, very few would argue against the analysis that we now find ourselves in the clutches of an extremely unfavourable global economic environment, and that this situation accounts for many of our current socio-economic difficulties.

When all the political posturing is over, it becomes necessary to borrow from Hegel: “Are leaders of Cosatu speaking the truth according to their knowledge and conviction?” If the answer is ‘yes’: how, then, do we explain Cosatu President’s statement on SA FM in early August that oil prices are beginning to come down because of his organisation’s campaign? Could it be that OPEC, for example, considers Cosatu more than international demand side factors?


Mashele is Executive Director of the Centre for Politics and Research, and a member of the Midrand Group. This article was written in 2008 and was not published.

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