The engine of the South African political dynamic is the persistent unemployment that has grown since the transition to democracy in 1994, so it becomes illuminating when key facts are superimposed onto the foreign direct investment flows into the country over time.
The journey starts at with the Sharpeville Massacre. This triggers the birth of the armed struggle and sees South Africa become a republic, taken out of the British Commonwealth by a triumphant HF Verwoerd. The impact on foreign investment is manifest as a sharp decline for half a decade, as the republican government implements the policies of Grand Apartheid.
In 1966 HF Verwoerd is assassinated, ending an era of great uncertainty for the majority, but which was mostly presented as a triumph for Afrikaner nationalism. The Commission of Enquiry into Water Matters is constituted, and the Orange River Project is launched, with the express intention of restoring investor confidence and creating economic opportunities in the Eastern Cape, the heartland of the armed struggle. This immediately restores investor confidence as capital flows back into South Africa, then enjoying a gold mining boom. Water resource management becomes a demonstrably successful economic enabler during this time. This is a potential lesson for the future.
In 1970, gold production peaks but there is not an immediate impact on the flow of capital into the country, until the Portuguese coup d’état creates regional instability, as various wars of liberation in Lusophone Africa turn into power vacuums that eventually become festering civil wars.
South Africa gets drawn into Angola in Operation Savannah, and this starts to drain resources on the back of declining gold revenues to the state. On the water side of the mining equation, the government negotiates the Fanie Botha Accord in 1975. This nationalises the environmental liability of mining, by stimulating profits, so that increased taxes can keep the government afloat. From this moment on the state ceases to be a regulator of mining, becoming a partner in a strategic alliance designed to maximize profits by externalizing liabilities.
The implications of this are grave. The response is a long slow hemorrhaging of confidence, punctuated in 1976 by the Soweto school uprising. This opens a second front for the South African security forces, who are now embroiled in external operations in the so-called Front-Line States (FLS) with special force operations more-or-less a constant factor. This triggers the creation of the Southern African Development Coordination Conference (SADCC) in April 1980, to isolate South Africa.
The SADCC takes a few years to get their act together, but in 1984 there is a spontaneous uprising in many of the townships. This triggers a harsh response from the government that causes a total loss of investor confidence. The outflow of foreign direct investment turns negative at this time, bottoming out at about -5% of GDP, where it stays for more than a decade. It is this outflow of capital that creates major pressure on the government to seek a negotiated solution, because the demands of a war economy on a conscripted army – funded by taxes, under growing pressure from the declining gold sector - become too much to bear.
For this reason, Operations Modular, Hooper and Packer become the last major engagement of the Bush War, with security force attention increasingly focused on internal operations from 1987. A series of special operations launched by National Intelligence Service (NIS) create an enabling environment for a negotiated transition to peace, and CODESA is born.
The impact on our national science, engineering and technology capacity is also manifest at this time as a peaking in the number of employees at the CSIR in 1985, followed by the peak in parliamentary grant money needed to sustain the council in 1989. This triggers a slow, but constant, decline in national scientific capacity that has not yet been reversed in three decades.
The transition to democracy in 1994 sees no improvement in the movement of foreign direct investment. In 1996 the Constitution is ratified, followed immediately by the Water Services Act in 1997 and the National Water Act in 1998. Policy certainty triggered a reversal in the flow of foreign direct investment in 1999, thus ending a fourteen-year capital drought, that forced regime change.
The significance of this in current times has yet to be assessed by leadership in government. This legal reform reinforces the Madiba Magic that accompanied the Presidency of Nelson Mandela, as the climate for investment improved slightly. This optimism was curtailed somewhat when in 2002, it became evident that we had allocated 98% of our total national water resource.
Economic development is constrained from this moment onwards. Problems in water-use licenses, the lack of institutional capacity to complete the necessary comprehensive reserve determinations, and the inability of the state to roll out the nineteen Catchment Management Agencies (CMAs) called for in the National Water Act, become a pervasive problem that is ignored when the Accelerated and Shared Growth Initiative for South Africa (ASGISA) is launched in 2004.
These structural constraints are not recognized, and scientists raising concerns are ignored and sidelined. The result is the inability of the democratic government to attract more than 20% of net foreign direct investment expressed as a percentage of GDP. This continues to frustrate government because it means that economic transformation is not possible, and this manifests as an increased radicalisation of the political process during the first decade of the 21st Century.
This frustration boils over in August 2012 when the Marikana Massacre occurs. This is an exact replica of the Sharpeville Massacre that triggered an outflow of foreign direct investment in 1960, but unlike that period, there is no concerted plan put in place to restore confidence. Instead, there is an increased anger manifest in policy as the benign form of “transformation” gives way to “radical economic transformation”, driven increasingly by Julius Malema after the launch of the Economic Freedom Fighters at Marikana.
Attention is focused almost exclusively on the Jacob Zuma affair from 2009, which results in the secret strategy to weaponize water in 2013. It is into this turbulent period that (Water Minister) Nomvula Mokonyane is introduced as a key player, but she has no understanding of how foreign capital markets function, so there is a constant hemorrhaging of foreign direct investment from the time that Jacob Zuma is appointed as President of the Republic in 2009.
On the water side, the last infrastructure to be developed in the Western Cape was the Berg River Dam, inaugurated in 2009. All legitimate calls made by the City of Cape Town, and the Western Cape Provincial Government to build new infrastructure are ignored, including the Grahamtek offer submitted in May 2017, and a similar proposal from Israel for a desalination plant. Amidst growing concern over the approaching water crisis in the Western Cape, blame-seeking becomes commonplace, because there is no logical answer to the fact that national government is refusing to provide the infrastructure needed.
The culmination of these events is a victory in the war against white monopoly capital, when in 2014 the net flow of foreign direct investment expressed as a percentage of GDP becomes negative for the first time since the transition to democracy. From that moment South Africa became both a water and a capital-constrained economy.
There are a few questions that arise from this victory over capital. The most important question is how will the ruling ANC deliver the 6% economic growth needed simply to create employment for the 26 million members of the Born-Free generation that will now be entering the market, in the face of an economy that is both water and capital-constrained?
The second most important question is how the ruling ANC will deal with the bloated civil service, all of whom enjoy high salaries and good benefits that can no longer be sustained off the dwindling tax base that used to be supported by white monopoly capital?
Anthony Turton is a water strategist
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