Global Insight: Zuma’s pragmatic start

The spectre of a communist advance still haunts many South Africans

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The world may be becoming less anxious about South Africa’s president Jacob Zuma and the prospect of a lurch to the left in Africa’s biggest economy. But as the new president moves to accommodate the groups that backed his election campaign, the spectre of a communist advance still haunts many South Africans.

The resignation from government two weeks ago of Joel Netshitenzhe, a widely respected policy guru who had been close to former president Thabo Mbeki, sparked talk of “political shockwaves”.

So did a decision by Mr Zuma to exclude Trevor Manuel – the former finance, and current planning, minister – from a new ministerial body designed to improve co-ordination of policies.

By contrast, Ebrahim Patel, a favourite of Mr Zuma’s trade union and Communist party allies who runs a new economic development ministry, is characterised as the rising star of the government’s economic team.

At first glance, last week’s budget policy statement – the first indication of Mr Zuma’s fiscal plans since his election in April – seemed to suggest the leftwing advance was gathering momentum. Pravin Gordhan, who took over from Mr Manuel in May, signalled a change in approach, telling MPs the new government would “not hesitate to do things differently”.

The size of the government’s planned fiscal deficit is up to 7.6 per cent of gross domestic product, compared with an anticipated 3.8 per cent when Mr Manuel announced his last budget in February.South Africa’s fiscal response to the crisis was said Mr Gordhan “one of the largest [in the world]”.

It might be, however, that Mr Gordhan, a former tax administrator, has been just about as cautious as his predecessor. Most of the new deficit financing planned was mainly because South Africa faces a fall in tax revenue as a result of the recession. Compared with February, spending is to rise only R14bn ($1.8bn, €1.2bn, £1.1bn), less than 1 cent of GDP.

Expensive election commitments that frightened the private sector, such as a planned national health insurance scheme, are on the back burner.

“We are a lot less panicked,” said an analyst at one of the country’s successful private health insurers. “We are pretty comfortable with their plans.”

For all the talk of dangerous levels of indebtedness, South Africa’s liabilities as a percentage of output are expected to rise from 23 per cent in March this year to 41 per cent of GDP by 2013, modest compared to the kind of expansion under way in some other parts of the world. Moreover, as Mr Gordhan pointed out, because South Africa’s banking system remained so relatively solid throughout last year’s credit crunch, the government is not faced with a big bail-out bill. Much of its spending – on World Cup-linked road and rail infrastructure and new energy plants, for example – will enhance the country’s capacity to grow.

What is more, Mr Gordhan’s concessions to the left were matched by a decision to ease exchange controls. South Africa, like other emerging markets with heavy reliance on raw material exports, has seen its currency appreciate this year as a result of rising demand from China and high minerals prices.

But at a time when countries such as Brazil are slapping on new taxes to deter short-term capital inflows, Mr Gordhan took a more liberal tack, opting to make it easier for foreign companies and individual investors to move money in and out of the country, and therefore reducing the distortions that many reckon have aggravated the extent of rand appreciation.

That does not mean the political battles between the ANC’s pragmatic core and its Communist party and trade union allies will end soon. But it underlines the need to put those clashes into context.

Twenty years after the Berlin Wall fell, political debate remains heavily ideological. Many on the left still blame colonialism for the country’s ills, while some business people fret about the influence of trade unionists and Marxist ideologues.

Maybe it is a result of the decades of isolation, but in South Africa the day of reckoning always seems to be around the corner. While many questions remain unanswered, if the first six months of Mr Zuma’s presidency are any guide then the country looks set to continue on a more pragmatic course.

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