During the boom decade of 2000-2010, the larger emerging markets were growing at vastly faster rates than developed economies, so it seemed that some of them would rapidly achieve ‘middle income’ status. In particular, it appeared that the BRICS grouping was going to attain a dominant role in the world economy. However, a few years on the picture has changed dramatically. Now only India and China are now achieving strong growth: Russia, Brazil and South Africa are all in the doldrums, and it is not even clear that they have reached the bottom of the trough yet. It is worth comparing the situations in Brazil and South Africa, both of which are suffering from painful economic slowdowns, corruption crises and political attacks on the independence of the judiciary.
Brazil and South Africa
Both Brazil and South Africa are in a deep economic funk. The International Monetary Fund projects that Brazil’s economy will decline by 3.5% this year, while it forecasts just 0.7% growth in South Africa. While South Africa may appear to be growing (slowly), a rate of 0.7% really means falling per capita GDP for its population, due to much higher levels of fertility than in the West. In reality, both countries have contracting economies. The economic slowdown in Brazil is especially severe; it is in the worst crisis since the Depression of the 1930s. By the end of 2016, this country may have suffered eight consecutive quarters of economic contraction, meaning it will have met the technical requirements of a new Depression. How did these countries end up in such dire straits?
In Brazil, the main problem has been massive political corruption within all layers of the Brazilian financial and political elite, but especially the Left-Wing Workers’ Party. As the Petrobas scandal has continued month after month, it has brought Brazilian society into an acute state of crisis. Virtually all policy making has been paralyzed by the mounting number of arrests and investigations into prominent politicians who allegedly took illicit payments from Petrobras, the vast state-controlled company. In recent weeks, Lula, the previous President has been the subject of corruption allegations relating to the Petrobas scandal too. Rather than allowing the rule of law to take precedence, President Dilma Rousseff, Lula’s handpicked successor, has tried to give him immunity from prosecution by appointing him as Cabinet Chief of Staff. This blatant disregard for the independence of the judiciary has made Rousseff seem even more tin-eared to public anger over corruption. Her approval rating is at a miserable 12%, the worst of any President since the end of the military junta in 1985. Trying to protect her mentor from allegations of corruption in the midst of massive anti-corruption protests shows she does not get the gravity of the situation. Even many former supporters are now calling on her to resign for the good of Brazil.
Yet even if she resigns, her successor will inherit a huge mess. Apart from the rapidly shrinking economy, inflation of more than 10% is reducing real wages. The unemployment rate has nearly doubled since 2014 (though it is still less than 10%). One in five young Brazilians is without work; economists warn of a “lost generation”. Brazil is still in a far better situation than Veneuzela, at least: some export-oriented industries are thriving thanks to the weak currency. But for most companies and workers the outlook is grim. What this shows is that a country needs to do more than just coast when commodities hit peaks and hope the good times will last forever. Brazil is also a cautionary tale about the need for a robust judiciary and anti-corruption officers. Without these, the sleaze would not have been exposed, and the economic crisis would have been even more seismic when it arrived. Yet it is certainly worrying that Rousseff’s impulses seem to be to attack the judiciary rather than reform her own party.
Zuma’s Crony Capitalism
In South Africa, the script has many similar themes. Corruption, attacks on the judiciary and poor economic management are slowly eroding the reputation of South Africa, which was once expected to be a major emerging power. The most worrying of recent developments have been the so-called Gupta Scandal. In December 2015, President Zuma of the ruling ANC fired a respected finance minister and replaced him with a little known member of parliament. That produced strong protests in the domestic media and very negative reactions in financial markets. Zuma then announced his third finance minister in five days, appointing former minister and revenue commissioner Pravin Gordhan. This is where the intrigue really starts.
In recent days, a letter has been leaked to the South African press suggesting that Gordhan is being investigated by the elite branch of the police for alleged irregularities in tax revenue service and that the police may prosecute him for obstructing justice. That was bad enough in itself but on March 16, deputy finance minister Mcebisi Jonas issued a public statement where he warned against “state capture” and revealed that he had been offered the post of finance minister last December by members of the Gupta family (three brothers with sprawling business interests that are said to be friends of President Zuma and who employ his son, Duduzane Zuma, in their enterprises). The picture that is emerging is of massively corrupt crony capitalism between Zuma’s family and the country’s business elite.
It is no longer just White voices that are critical of the ANC. In recent days the BBC (Black Business Council) have issued a very public rebuke to the ANC. Mohale Rlebitso of the BBC urged President Jacob Zuma and the ruling party to deal decisively with these allegations and reassure the nation that the country’s sovereignty has not and will not be hijacked by private interests. The idea that the Gupta family are telling the President who to appoint as Cabinet members is a shocking allegation which seems to confirm all the worst suspicions about how cronyism is undermining the country. If these trends were dangerous in the boom days of last decade, they are doubly so now. South Africa is already one of the slowest-growing economies on the African continent, so they can ill afford worsening conditions in terms of corruption and lawlessness.