Season of hope: Economic Reform under Mandela and Mbeki
ALAN HIRSCH
Season of hope

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Season of hope

Economic Reform under Mandela and Mbeki

ALAN HIRSCH

Co-published in 2005 by:

University of KwaZulu-Natal Press

Private Bag X01

Scottsville 3209

South Africa

E-mail: books@ukzn.ac.za

www.ukznpress.co.za

ISBN 1-86914-041-9

and

International Development Research Centre (IDRC)

PO Box 8500

Ottawa, ON

Canada K1G 3H9

E-mail: pub@idrc.ca

www.idrc.ca

IDRC publishes an e-book edition of SEASON OF HOPE (ISBN 1-55260-215-5)

© 2005 Alan Hirsch

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system, without prior permission in writing from the publishers.

Edited by Sally Hines

Cover design by Flying Ant Designs

Cover photograph of Nelson Mandela by Graeme Williams (South Photographs/africanpictures.net)

Cover photograph of Thabo Mbeki by Alex Wong (Getty Images/Touchline Photo)

Typeset by Patricia Comrie

Printed and bound by Interpak Books, Pietermaritzburg

Contents

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Acknowledgements

I prepared the first draft of this book as a visiting scholar at the Harvard Business School with access to the fabulous Baker Library and Harvard's other resources, supported by Canada's International Development Research Centre. Thanks to Marc van Ameringen and Rohinton Medhora of IDRC who arranged for the sponsorship and encouraged me to undertake and complete the project, and to Professor Richard Vietor at the HBS for accommodating me. Tom Karis, Dani Rodrik, and my wife Pippa Green read and commented on parts of the early draft of the manuscript, and Pippa on later versions too. Thanks also to Bill Freund who gave me valuable advice, both as a friend to whom I sent an early draft, and also as an anonymous reader for the publisher whose insights and prose style I could not mistake. Thanks to Eddie Webster for encouraging me to persist in trying to publish the manuscript. Thanks too to the other anonymous readers. The title of the book, Season of hope, was inspired by the use of the phrase by Trevor Manuel, Minister of Finance, in his budget speech in 2005, though the phrase can be traced back at least as far as Charles Dickens' A Tale of Two Cities.

I presented early versions of Chapters Two and Three respectively at the Walter Rodney Seminar at Boston University at the invitation of Dianna Wylie, and at the World Bank at an informal seminar convened by Jeffrey Lewis and Ataman Aksoy. Thanks to Alec Erwin, then Minister of Trade and Industry, and Zav Rustomjee, then Director-General of the Department of Trade and Industry, for allowing me to take extended leave to prepare the initial draft. Thank you too to my current employers at The Presidency, especially Reverend Frank Chikane, Joel Netshitenzhe and Goolam Aboobaker for allowing me to update and publish what is not an authorised account, and is my sole responsibility. And thank you to my other colleagues in the DTI, The Presidency, TIPS (Trade and Industrial Policy Strategies) and elsewhere for their contributions to my knowledge and understanding.

This book is dedicated to Herbert and Shirley Hirsch who taught me to think critically about the way we live and the way we could live.

Abbreviations

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INTRODUCTION

'A better life for all'

When the African National Congress (ANC) came to power after South Africa's first democratic elections in April 1994, it faced daunting economic challenges: severe poverty and inequality, and economic stagnation. To fulfil its mandate to the electorate, nearly two-thirds of whom voted for the ANC, the new government had to redistribute wealth and incomes between privileged whites and deprived blacks (the latter group divided according to apartheid convention into 'coloureds', 'Indians' or 'Asians', and 'Africans'). But the economy was in decline, having virtually stagnated in real terms for a decade, with falling per capita incomes. Was there any point in redistributing a shrinking patrimony, with everyone getting poorer? And, yet, would not fuelling economic growth simply put more wealth in the hands of those who already had it? The big economic question faced by the ANC was: What would be the ideal relationship between growth and redistribution in South Africa? Or, more precisely, how could it set South Africa on the path of economic growth and at the same time ensure fair, just and politically necessary redistribution outcomes? Put yet another way: was there a way in which growth and redistribution in South Africa could complement each other?

This book describes how the new South African government addressed these challenges during the first decade of democracy, although its focus is more on economic policy and management than the distributional outcomes.

South Africa was one of the most unequal societies in the world – an almost unique 'outlier' in the unevenness of incomes as World Bank economists put it in 1994. The average per capita income of whites was about 9.5 times higher than Africans. The distribution of wealth was even more unequal than income, as a result of land alienation and laws blocking Africans' access to private and commercial property. Access to government services was similarly skewed. When measured in 1989, 52.7% of Africans were living below the poverty line, compared with 1.6% of whites (Fallon and Perreira da Silva 1994: 39–42). In 1993 the poorest 10% of the South African population received 1.1% of the population's income, while the richest 10% received 45% (World Bank 2000: 239).

The spectre of a shrinking economy imposed a terrifying parameter on the new government. Between 1984–93, average per capita incomes fell in real terms (constant 2000 rands) from R23 006 to R19 996 (SARB 2004: S155). In other words, on average, South Africans were 15% poorer in 1993 than in 1984, and the recent years of the early 1990s showed the poorest economic performance.

Economic conservatives and representatives of business frequently warned the ANC that it should 'not kill the golden goose' in its efforts to rectify South Africa's inequalities, through higher taxes, for example. But the golden goose was already rather ill. Stated more appropriately, the task of the new government was to bring the golden goose to health, and simultaneously to meet the legitimate expectations of the newly enfranchised majority.

In the Reconstruction and Development Programme (RDP), which was the election manifesto of the ANC in the first democratic elections in 1994, the ANC addressed this conundrum by positing a virtuous circle: infrastructure development aimed largely at providing access for the poor would also contribute to economic growth through opening up the domestic market and increasing the efficiency of the economy. In turn, this would allow further improvements in the lives of the voters. A set of specific and fairly ambitious infrastructure targets was set out. The manifesto also recognised the need for specific economic reforms, including new trade, industrial and competition policies, and a commitment to avoiding macroeconomic imbalances such as unsustainable trade and budget deficits and high inflation (ANC 1994a).

Perhaps not surprisingly, the response of the establishment was not generally positive. The Times of London described a late draft of the manifesto as a failure and called for the policy to be abandoned (Cape Times 26 January 1994). Johannesburg's Financial Mail headed an editorial on the draft policy 'The Road to Hell' (21 January 1994). Nico Cypionka, a banking economist, said parts of the same draft were enough to make his 'hair stand on end' (The Star 3 February 1994). The centrist, largely white Democratic Party (DP) said that the ANC's plans were fiscally irresponsible (The Argus 12 April 1994).

In broad terms, the argument of this book is that the ANC government followed a consistent economic philosophy that had the following elements: at the centre is a social democratic approach to social reform – it is the state's job to underwrite the improvement in the quality of life of the poor and to reduce inequalities, but with a firmly entrenched fear of the risks of personal dependency on the state and of the emergence of entitlement attitudes. The state exists within a market economy that depends on private investment, and therefore a successful state creates an environment that supports high levels of private investment. This does not require the state simply to step aside for business, but rather that it should work with business and labour to develop growth-oriented strategies. The expectation was that because of the limitations of the domestic and regional markets, much of the growth would be driven by exports to major foreign markets. This required both measured trade liberalisation and effective industrial development strategies. Welfare initiatives were to consist mainly of the extension of infrastructure services such as transport, housing and communication, and on the expansion and improvement of social services such as health and education. All this would take place within a responsible macroeconomic policy, as the ANC did not wish to entrust international financial institutions or international banks with the country's future.

The ANC's approach is sometimes summarised as elements of a northern European approach to social development combined with elements of Asian approaches to economic growth, within conservative macroeconomic parameters. This remains the intellectual paradigm within which the ANC operates. Some of the outcomes may have been different from expectations – the stringency of the GEAR (Growth, Employment and Redistribution) policy from 1996–99, and the relatively slow growth of the economy and employment during that period surprised some, the rapid growth of the social security system after 1999 might have surprised others, but these can largely be explained as the consequence of conjunctural circumstances, or perceptions, possibly misperceptions of those circumstances.

In writing this book it has not been my intention to suggest an inexorable logic in the development and implementation of the economic policies of the democratic government. Choices were made in the past that might have been made differently, or delayed, or avoided in the light of present knowledge and circumstances. For example, the introduction and the character of the GEAR macroeconomic policy introduced in 1996 was the result of a number of vectors – unfounded rumours about President Mandela's health; unfounded concerns about the appointment of the first ANC Finance Minister, who happened also to be the country's first 'black'1 Finance Minister; noisy criticisms of the ANC's economic leadership by labour and big business; international uncertainties leading to a teetering rand; the high interest rate policy of the South African Reserve Bank (SARB); and what the government belatedly realised was an excessively generous public sector wage settlement. Without one or several of these factors, the emphasis and orientation of the GEAR strategy might have been somewhat different. A similar argument could be made regarding a wide range of other policies and decisions. If in explaining the development and implementation of policy decisions it appears that I am arguing that the outcome was the only logical or possible one, it is simply because I am attempting to describe the factors contributing to a particular decision or policy.

South Africa's political transition cannot and should not be taken for granted. The stark backdrop to the South African transition in the early 1990s was the conflicts in Croatia/Bosnia-herzegovina, Northern Ireland, Israel/Palestine and Rwanda/Burundi. Somehow, South African leaders were able to deflect their followers' attention away from fears and selfish interests.

As Mandela marched the path of reconciliation with determination and dignity, the 'political miracle' began to enter the realm of cliché. It was almost taken for granted in phrases such as 'now for the hard part', which is the name of the final chapter of Patti Waldmeir's insightful book on the South African transition, Anatomy of a Miracle (1997). The notion, 'now for the hard part', echoed independent Ghana's first leader Kwame Nkrumah's declaration that having entered the political kingdom, the goal was now to enter the economic kingdom.

Recognising that the political miracle was neither a miracle nor easy, but rather the result of extraordinary leadership, this book is about 'the hard part'. It would have been very difficult to deal even-handedly and extensively with all aspects of growth, redistribution, development and employment. I have chosen to focus on several key issues of economic policy and the response of the private sector to the policy framework, challenges and opportunities. The first key economic issue addressed in this book is the evolution of the economic policy of the major political and social force, the ANC. In this discussion, I aim to show how the economic thinking of the ANC has evolved, and to dispel some myths. The central myth is that the ANC suddenly switched course from old-fashioned socialism to orthodox neo-liberalism some time around 1993.

In Chapter Two I aim to show that the ANC's position (whether wrong or right, or somewhere in between) was based on an assessment of the conditions of the domestic and world economies, and a preoccupation with not giving up sovereignty to international financial capital, private or multilateral. It was not, as may accord with other interpretations, simply a victim of fashion, or of the browbeating of the International Monetary Fund (IMF) or foreign private bankers. This in turn explains the significant degree of stability and credibility built into the economic stance of the South African government since 1994.

Another area of focus, covered in Chapter Three, is an account and an evaluation of the democratic South African government's track record in the formulation and implementation of macroeconomic policy – fiscal and monetary policy – looking at key moments such as the introduction of the GEAR strategy in 1996, its relationship with the RDP, and the course of its implementation. The way South Africa dealt with isolated currency shocks in 1996, 1998 and 2001 provides insights into choices that were made, and those that could have been made. Against the expectations of some bankers, The Times and the Financial Mail that the new government would spend recklessly, fiscal and especially monetary policies may have been excessively tight during the second half of the 1990s as a result of careful strategies driven by considerations of sustainability and sovereignty, and possibly due to a misreading of macroeconomic indicators by the central bank. Nevertheless, these tight policies eventually vanquished inflationary expectations and allowed for more expansionary policies in the second five years of the ANC government. Another insight to be gained from the ANC's macroeconomic policies is that because the ANC was confident of electoral success for at least 10 to 15 years, reaping the liberation political dividend, it did not feel forced to introduce risky, populist economic or fiscal policies to retain electoral support.

Chapter Four asks how the South African government decided to address the challenges of globalisation through trade and industrial policies and programmes. Many development economists will agree that this is where fundamental, though highly constrained, choices are made, and that macroeconomic strategies should be consistent with the development path that the country has chosen. A commitment towards an outward-oriented economy, modelled in some respects on the newly industrialising economies of the late 20th century was made with South Africa's offer to the Uruguay Round of GATT (General Agreement on Tariffs and Trade). Tariff rationalisations and cuts were followed by the removal of other demand-side interventions (subsidies) and the introduction of supplyside programmes intended to boost investment, innovation, sales, exports, and small business development, and hence employment. In certain respects the programme has been unambiguously successful; however, the pace of employment creation has been disappointing. Is this the result of a time lag between restructuring and real growth; is there a problem with the growth path chosen, or a lack of policy co-ordination, or simply with the sequencing of reforms?

Or was the problem in the labour market itself? Some economists, who believe that South Africa has made most of the right moves with regards to macroeconomic and trade policy, explain the lagged or slow response in investment and employment in terms of deficiencies in the labour market. It is widely agreed that South Africa is short of skilled and semi-skilled labour. The apartheid system wreaked devastation in the field of human resource development, as we shall read in Chapters One and Five. A debate still rages around wages and labour market flexibility. Some analysts believe that unskilled labour is too expensive in South Africa relative to comparable markets, and that this is a result of labour markets that are too inflexible due to labour union power and legislation. Others believe that labour is more expensive than it should be due to the costs built into the economy by apartheid, and that costs can be reduced, but not necessarily through a frontal attack on wages and union power. Some might not acknowledge that there is a cost problem, and simply argue for improving the capabilities of workers and managers through more and better training.

Recently the temperature of the debate on black economic empowerment (BEE) rose considerably. BEE is controversial, with even members of the black economic elite complaining that it is not broad-based enough and panders to a small emerging black super-rich class. Part of this stems from a conflation of the issues of empowerment on the one hand, and entrepreneur and enterprise development on the other. For this reason the issue of small business development is addressed in Chapter Six, alongside a discussion of BEE. I argue that BEE, broadly defined, is as important to the sustained success of the South African political and economic revolution as any other single factor. The bottom line is that the new democracy will not be sustainable as a market-based system without really significant success in the field of BEE – the question is how to strike the right balance between a broad-based approach and the effective development of a black business class and a black middle class, and to select the appropriate tools for each task.

The final chapter reviews the key challenges of the future. Some of this is based on reflection of the experiences analysed in this book. But to base all future strategies on the results of historical strategies is (to paraphrase a Harvard business school professor) like driving with your eyes firmly glued to the rear-view mirror. Forward-looking debates about growth and employment should concern the anticipated future sources of growth, the key employment generators of the future. Forward-looking debates about distribution and delivery are necessarily more deeply rooted in the experiences of South Africa and other countries, but are also intimately connected to the debates on growth and employment.

A concluding note brings some key issues up to date, and reflects briefly on the government's achievement of its broader socioeconomic objectives, and on the economic policies followed to achieve them.

Note

1 There are inverted commas around 'black' because I use the South African struggle terminology. All people who were not white were called 'black' in an inclusive sense, because they all suffered discrimination in South Africa. In fact, under apartheid's racial classification system, Trevor Manuel was officially classified as 'coloured', not 'African'.

CHAPTER ONE

The economic legacy of apartheid

The effect of pass laws and migrant labour

In 1955, in one of his most angry and passionate articles, young lawyer and activist Nelson Mandela wrote about a woman whose fate epitomised the economic oppression of apartheid:

Rachel Musi is fifty-three years of age. She and her husband had lived in Krugersdorp [near Johannesburg] for thirty-two years. Throughout this period he had worked for the Krugersdorp municipality for £7 10s a month. They had seven children ranging from nineteen to two years of age. One was doing the final year of the junior certificate at the Krugersdorp Bantu High School, and three were in primary schools, also in Krugersdorp. She had several convictions for brewing kaffir1 beer. Because of these convictions, she was arrested as an undesirable person in terms of the provisions of the Native Urban Areas Act and brought before the additional native commissioner of Krugersdorp. After the arrest but before the trial her husband collapsed suddenly and died. Thereafter, the commissioner judged her an undesirable person, and ordered her deportation to Lichtenburg [a distant rural town]. Bereaved and brokenhearted, and with the responsibility of maintaining seven children weighing heavily on her shoulders, an aged woman was exiled from her home and forcibly separated from her children to fend for herself among strangers in a strange environment (Mandela 1955: 46).

This was not an unusual story in South Africa between the 1950s and the 1980s. Sydney Mufamadi, now the ANC government's Minister of Provincial and Local Government, spent his early years oscillating between Venda in the far north of South Africa and Meadowlands in Soweto, near Johannesburg. As a youth he was known for his love of soccer. His mother brewed beer to supplement the family income. When she was raided by the police and her livelihood destroyed, Mufamadi found himself driven into student politics and black consciousness politics, and he became a founding member of the Azanian People's Organisation (AZAPO) in the late 1970s. Later he joined the ANC and the South African Communist Party (SACP) underground, and emerged as a dynamic and effective trade union leader (Harber and Ludman 1995: 111).

The position of African women in towns and cities was extremely tenuous – it was virtually illegal under the pass laws. Black men and children were almost as vulnerable, and many were also deported. Black people were prevented from making a living for themselves in the 'white areas', which included the towns and most of the rural areas. Even if Mrs Musi or Mrs Mufamadi had been caught making and selling bread, their activity could have been condemned as illegal, and they could have been deported.

Apartheid was a massively oppressive system that sought, amongst other things, to control the economic lives of all black people, and their residential location. Anyone without an approved job could be deported out of the urban areas. Most black workers in the urban areas, and all who worked on the mines, were annual migrants. These 'men of two worlds' were forced to reside with their families in distant rural areas, and to relocate themselves for 11 months of the year to work in the cities or on the mines.

Nelson Mandela was certain that the pass law (influx control) system had more to it than colonial racist sadism. All the major misdemeanours of apartheid, he said in 1955,

are weapons resorted to by the mining and farming cliques to protect their interests and prevent the rise of an all-powerful mass struggle. To them, the end justifies the means, and that end is the creation of a vast market of cheap labour for mine magnates and farmers. That is why homes are broken up and people are removed from the cities to ensure enough labour on the farms (Mandela 1955: 47).

The evidence strongly supports Mandela's hypothesis. Table 1.1 shows that African workers' wages on the gold mines actually declined in 'real' (accounting for inflation) terms between 1911 and 1971, from R225 (in 1970 rands, or US$300 in 1970 dollars) to an average of R209 per year in 1971. During the same period, especially during the phase of industrial development during and after the Second World War, and the phase of rapid growth in the 1960s, white mine workers' wages increased significantly. Not surprisingly, the relative number of white mine workers declined as the wage differential grew. For black mine workers, it was only after apartheid began to crumble with the recognition of black trade unions in the 1970s that black mine wages began to catch up.

At the same moment key supplies of foreign migrant labour, which made up about 70% of black labour on the gold mines in the early 1970s, were threatened by the independence of the former Portuguese colony of Mozambique (Crush et al. 1991: table A.3). Till then, apartheid had been remarkably effective in keeping black mine workers' wages at very low levels.

Apartheid had also assisted in keeping wages low on South Africa's white/Afrikaner-owned farms. From the early years of the 20th century, black South Africans were restricted from entering the urban areas without permission: they had to have a valid 'pass'. At the same time, the rural 'reserves' where black South Africans were allowed to live (later also called 'homelands' and 'Bantustans') were restricted to a very small part of South Africa – 13% for three quarters of the population. The reserves, which were poorly located areas to start with, were deliberately held in poverty through the prohibition of private property and by a huge portfolio of restrictions on the economic development of black South Africans.

The pass laws were constantly resisted. Seventeen million black South Africans were prosecuted for pass offences between 1916 and 1986, when the pass laws were finally abolished (Ramphele and McDowell 1991: 5). During the Second World War the system had weakened as labour was in short supply in the cities, and the economy was expanding in response to the war. But in 1948, when the National Party (NP) came to power and created apartheid (Afrikaans meaning 'segregation'), the door was slammed in the face of black South Africans. The law was tightened, and pass law arrests doubled in the 1950s (Wilson and Ramphele 1989: table 11.01). As Verwoerd explained it at the time, 'emigration control must be established to prevent manpower leaving the platteland [white farming areas] to become loafers in the city' (Lipton 1986: 25). Many pass offenders were also put to work as prison labour on the farms.

The capitalist connection

The connection between apartheid and cheap labour is evident. In time, most historians have come to agree on this, though until the 1980s left-of-centre historians and social scientists were identified with this position. Mandela's statements on cheap labour in the 1950s were similar to the views expressed by contemporary communists and anti-apartheid unionists (see Bunting 1969; Mbeki 1984; Simons and Simons 1969). In the 1970s, the left intelligentsia revived and substantiated this analysis of apartheid in the context of resurgence of radical social analysis worldwide, and of the revival of the popular struggle in South Africa, now through worker and student movements.

Colin Bundy (1979) tells the story of how, in the second half of the 19th century, black South African cultivators were emerging as a competitive farming peasantry. However, the Prime Minister of the Cape Colony, mine-owner Cecil Rhodes, set out deliberately to eradicate what he saw as a threat to cheap labour on the mines. Harold Wolpe (1972) explains how the prohibition of private property and therefore land sales in the reserves inhibited the emergence of a large landless class, and helped prevent the full urbanisation of black migrant mine workers. He also shows how the workers' access to communal land-holdings subsidised the cost of labour for the mines. David Kaplan (1977) and Rob Davies (1979) show how the state balanced the interests of white labour, national capital and international capital against the black workers and peasants, and how power balances in the white elite shifted over time. Mike Morris (1976) shows how apartheid served the mineowners and the white farmers by dividing the labour force into convenient exploitable segments. Wolpe, Martin Legassick (1974) and Duncan Innes (1984) stretch the argument further, claiming that other segments of capitalism, notably manufacturing, were also served by apartheid's cheap labour.

The logical conclusion, especially of the Legassick/Innes version of the argument, was that capitalism and apartheid were essentially intertwined in South Africa, and that the end of apartheid would require a socialist revolution led by the black workers. This conception helped inspire the new black trade unions that emerged in South Africa in the 1970s and 1980s, which made a huge contribution to the anti-apartheid struggle, though not through socialist revolution.

The best-known response from the liberal camp (using 'liberal' in the South African sense of socially liberal but economically conservative) was Michael O'Dowd's 'thesis', first articulated in 1964. O'Dowd argued that apartheid and capitalism were inherently incompatible and that economic growth would eventually lead to the disintegration of apartheid. Liberals tended to argue that apartheid was a sectional power play, catering to the sectional interests of Afrikaner labour and backward forms of capitalism. The essence of the liberal/radical debate in the 1970s was between these two caricatured positions: radical: apartheid and capitalism are two sides of the same coin – to fight apartheid you should fight capitalism; and liberal: capitalism and apartheid are inherently contradictory – support economic growth in a capitalist context in order to challege apartheid.

The debate about the connection between capitalism and apartheid became more nuanced in the 1980s with the contribution of work by Dan O'Meara (1983), Sam Nolutshungu (1983), David Yudelman (1983), Merle Lipton (1986) and Doug Hindson (1987), amongst others. The liberal position softened to acknowledge that the form of capitalism that predominated until the 1960s – mainly mining and agricultural – was deliberately and well served by the cheap labour system produced by segregation and apartheid. Equally, the left came to acknowledge that some more progressive capitalists had opposed apartheid, and that apartheid was beginning to curtail prospects for future capitalist growth.

Consequences for the 'beloved country'

In the meantime, apartheid had wrought havoc with South Africa, socially and economically. By critically injuring the black majority and by forcing the economy to conform to the increasingly contorted strictures of white rule, recovery from apartheid was made all the more difficult.

The great red hills stand desolate, and the earth had been torn away like flesh. The lightning flashes over them and the clouds pour down upon them, the dead streams come to life, full of the red blood of the earth. Down in the valleys women scratch the soil that is left, and the maize hardly reaches the height of a man. These are valleys of old men and old women, of mothers and children. The men are away, the young men and girls are away (Paton 1948: 13–14).

This is how Alan Paton described the ravaged hills of Natal in the late 1940s. Conditions continued to deteriorate in the reserves as the pass laws were tightened, as towns and cities were effectively policed, and as three million people were forcibly relocated to the reserves by the apartheid government between the early 1960s and the mid-1980s. By 1980, while 88% of the white population was urbanised, only 33% of the black South African population lived in the towns and cities. Population density in the black reserves was many times that in the white rural areas. The key reason was what South Africans called 'influx control'. As Colonel Stallard had put it in 1922, 'the black man' should only be in the urban areas 'to minister to the needs of the white man and should depart therefrom when he ceases to minister' (cited in Lipton 1986: 18).

The reserves, planned as labour reservoirs, and to deflect political conflict from the 'white areas', were filled beyond overflowing. Great tracts of land had become vast rural slums. The prohibition of private property meant that the land could seldom be rationally used, and human and physical degradation escalated. As Peter Fallon and Robert Lucas of the World Bank noted: 'In most developing countries, unemployment is lower in rural areas as agriculture tends to soak up excess labour supply, but this is not true in South Africa. Among Africans in particular, the probability of unemployment is much higher in rural than in urban and metropolitan areas' (Fallon and Lucas 1998: iii).

'The government [was], of course,' as Mandela saw it in 1959, 'fully aware of the fact [that] the people [in the reserves were] on the point of starvation.'

They have no intention of creating African areas which are genuinely self-supporting (and which could therefore create a genuine possibility of self-government). If such areas were indeed self-supporting, where would the Chambers of Mines and the Nationalist farmers get their supplies of cheap labour (Mandela 1959: 64)?

Access to transport services, communications, water and power was extremely unfavourable for black rural dwellers. As late as the 1990s, 74% of black rural dwellers had to fetch their daily water, many over great distances, and almost none had access to electrical power. Less than 14% of the black South African population had access to telephones, while more than 85% of white households had access to telephones. Roads and rail lines favoured white rural producers and urban commuters. In the urban areas, blacks were often forced to live a great distance from industrial and commercial centres through a residential land law called the Group Areas Act. As a result, blacks were forced to spend 40% more of their income on transport than whites, coloureds, and Indians, though the latter two groups also bore some of the brunt of 'population resettlement' (May 1998: 139–163).

Perhaps the most powerful economic restriction on black people was that they could have no private ownership of immovable property. They were totally banned from ownership of any property or business in the 'white areas' that made up 87% of the country. They were not even allowed to own shares in public companies. In the remaining 13% of the country, communal property rights, under the management of traditional leaders – chiefs and headmen – prevailed through apartheid law. The restrictions on black business ownership even in 'black areas' were also prohibitive. Essentially, black South Africans were allowed to own a small number of small businesses of certain categories in scattered locations, and not at all beyond the black townships and reserves. The most successful black entrepreneurs were those who operated within the interstices of the law, some using white 'owners' for cover. But the restrictions on property ownership meant that the controls on black competition were overwhelming in practice, and few black businesses broke beyond the survivalist stage.

What about black advancement through salaried employment or the professions? This was blocked through the 'job colour bar'. First formally introduced on the mines in 1893, the job colour bar, which prevented black workers from advancing beyond semi-skilled occupational classes, was entrenched throughout the economy during the early decades of the 20th century, and extended during the 1950s. Outside of teaching black children, preaching to black congregations, and some professions where racial restrictions nevertheless applied, the opportunities for black economic mobility did not exist.

Education and social policies

Along with economic restrictions came a string of social restrictions on black people, which not only damaged their dignity, but also weakened the apartheid economy and made a successful democratic economy more difficult to attain. By far the most serious of these acts was in the field of education. Apartheid education policy set back human capital creation more than a generation, unconsciously forming the most serious of all economic constraints on the future expansion of the economy of a democratic South Africa.

Speaking in support of the 1953 Bantu Education Act, Dr H.F. Verwoerd, the Minister of Bantu Affairs, spelt out clearly the reason why blacks were to get a separate education:

There is no place for [the Bantu] in the European community above certain forms of labour... it is of no avail for him to receive a training which drew him away from his own community and misled him by showing him the green pastures of the Europeans, but still did not allow him to graze there... [This led to] the much discussed frustration of educated natives who can find no employment which is acceptable to them... it must be replaced by planned Bantu education... [with] its roots entirely in the Native areas, and in the Native environment and community (cited in Lipton 1986: 24).

The result was that the standards that applied to the education of black children fell rapidly – education was not compulsory, schoolbooks were not free (unlike the arrangement for white children) and subject policies in languages, maths and science limited career options. In 1959, university segregation followed, with similar results. The damage done by the Bantu Education system has been far worse than South Africa's school attendance and literacy figures suggest.2 In fact many of those allegedly literate are functionally illiterate for an industrial society, and many of those listed as attending school make little real progress over many years due to low attendance and pass rates.

Apartheid in public facilities and amenities was called 'petty apartheid' by liberal whites, though it was not petty. It could be the butt of humour of the absurd, though it was not funny. As apartheid collapsed in the early 1990s, Ben McClennan, a political journalist, compiled a collection of 'petty apartheid' incidents and reports that he called Apartheid: The Lighter Side. Here is one example from a 1953 newspaper report:

If a Native [black] nurse carrying a European [white] baby has to travel by South African railways, what section of the train should she enter? The question arose at Grosvenor Station on Tuesday evening. A Native nurse carrying a European baby got into a non-European carriage in a Johannesburg-bound train. She was immediately told to alight by a conductor and, while she was stating her difficulty, the train went off without her. A senior railway official interviewed last night said: 'All I can say is that the mother of the European baby should not have left it in the care of a Native in the first place' (McClennan 1990: 27).

In 1965 the Cape Times reported on the then unfolding beach apartheid programme:

A witness asked the beach apartheid commission yesterday to declare about seven miles of Onrust River coastline White, and added that if White visitors took Coloured nursemaids to the beach, he would not like to see the nursemaids wear bathing suits. Mr PH Torlage, chairman of the commission, asked Mr H Whitely, secretary of the local Village Management Board how he would feel if a 'nanny was dressed in a bathing suit'? Mr Whitely replied: 'I would prefer to see them dressed as nannies' (McClennan 1990: 34).

The absurdity of petty apartheid did not stop the NP government from establishing a plethora of duplicated, inefficient and inferior institutions and facilities to satisfy the purity of the apartheid design and the racist selfishness of its constituents. The cost to society of building new townships, roads, railway stations, police stations, post offices, schools and management institutions was enormous. The cost to the new government of rebuilding unified institutions was very high – perhaps the most difficult was uniting nineteen separate racially and ethnically defined education departments into one national and nine provincial departments.

The apartheid economy

The economic effects of apartheid were not only the social consequences of its racial policies. Apartheid rule had long-lasting consequences on the broader characteristics and competitive capabilities of the South African economy too.

But first, the point must be made that the apartheid economy did not run into obvious problems until the 1970s. Racist capitalism seemed to work quite effectively during the period up to the end of the 1960s. By all normal indicators – rate of growth, rate of inflation, rate of job creation, rates of savings and investment – the South African economy was successful (Gelb 1991a). If one ignores the issues of the degree of equality and the standard of living of the majority, the one notable exception was the rate of profit in the manufacturing sector (Nattrass 1990a).

The success of the apartheid economy was based on a development model that ultimately proved fragile. One important element was the strength of gold as a foundation for the economy. Until 1971, the price of gold was fixed in US dollar terms under the Bretton Woods arrangement. This made gold different from other commodities; as the price was given, the only factor affecting the rate of profit was the cost of inputs. As we have seen in this chapter, the cost of the key factor – labour – was stable and low. Gold contributed more than a third of South Africa's exports, which, together with other mining, came close to half of South Africa's exports, and South Africa's share of 'western bloc' gold output remained as high as 75% with the development of a new group of mines in the 1950s and 1960s in the Free State gold fields.

The other major sector of the economy, manufacturing, had a totally different character. Built behind an increasingly complex protective barrier against imports, few South African manufactured goods, other than semi-processed primary products, were competitive enough to export. The manufacturing sector rested on an import substitution regime where consumer goods were highly protected, were consumed by the privileged white middle class and working class, and where capital and intermediate goods were imported at low or negative rates of effective protection, paid for by minerals exports. In sectors such as clothing, protectionism was so extreme, even in the 1990s, that while more than 90% of domestic consumption in clothing was locally manufactured, the local industry exported less than 10% of its output.

What caused the economic crisis that began in the early 1970s, and continued until 1994? In some respects it was no different from that of comparable developing countries at the time; the world was thrown into turmoil by the end of the 'golden age' of Keynesian capitalism, with falling growth and rising inflation (Moll 1990). However, there were factors that made South Africa different, and in some senses made it much more difficult to recover.

The fall in gold price

With the end of the gold standard in 1971, the ball game began to change for South Africa. The price of gold could fluctuate. With the onset of the oil price crisis in 1973, the price began to gyrate wildly. During the second oil crisis, which began in 1979, the gold price rocketed again, approaching US$900 per fine ounce. The Bretton Woods price had been US$35 per fine ounce. In spite of this, gold production in South Africa was declining from an annual peak of 1 000 metric tons of fine gold in 1970 to under 600 metric tons by the 1990s, due to rapidly falling ore yields. Instead of a foundation, gold had become a wild card.

Had the wild card been played well, South Africa could have protected its economy from excessive price shocks, possibly by creating special foreign exchange deposit arrangements for gold exporters. Instead, the fluctuating price was allowed to play havoc with the balance of payments and the value of the South African currency, which was floated during the late 1970s. Exchange control, and a dual rand which operated from 1960–95 with a brief break in the early 1980s, sometimes softened the fluctuations, but they were still severe.

Worse still, after the second oil crisis ended in the early 1980s, the role of gold in the global asset market changed. Under the Bretton Woods system from 1945–71, gold had been the standard of value, measured in US dollars. In the era immediately after the abandonment of the gold standard, gold remained a refuge during periods of uncertainty – and uncertainty there certainly was between 1971–84, with the oil crises, worldwide inflation, and the debt crisis that began in the late 1970s. In the mid-1980s everything changed. The liberalisation of international capital markets (alongside the liberalisation of trade barriers) meant that the role of gold as a store of value, as a refuge in uncertain times, greatly diminished. This was confirmed during the stock market crisis of 1987, and doubly confirmed during the Gulf War of 1992. The effects of these crises on the demand for gold were minimal. The gold price continued the downward drift that began in the early 1980s.

Not only had demand conditions changed, so had supply competition. New discoveries and new technologies meant that gold production elsewhere in the world, including the United States, Canada and Australia, grew during the 1980s and 1990s. Most of the new technologies could not be applied in South Africa's exceptionally deep mines. In addition, Russia, which is a major gold producer, rejoined the global market in the 1990s. South Africa's share of world gold sales fell rapidly. If this weren't enough, central banks and the International Monetary Fund (IMF) began selling gold off in the 1980s, and are continuing to do so – the creation of a European central bank sparked off yet another round of gold sales.

In short, gold had become a commodity, like wheat, coal or oil. Like most commodities in the modern industrial era, its relative price, or terms of trade, tended to drift downwards in the long run.

The manufacturing sector

Meanwhile, what had happened in the rest of the economy? The manufacturing sector grew rapidly during the post-Second World War era under an import substitution regime. Consumer industries thrived behind protective barriers on booming white incomes, and diversified into more complex durable products. Foreign investment, aimed at exploiting South Africa's protected domestic market, rose to nearly 30% of investment in manufacturing. At least as important was the investment by the government in parastatal corporations such as Eskom (electricity from coal), Iscor (iron and steel), Sasol (oil from coal) and several other producers of key inputs, such as fertiliser. The private sector also invested in input sectors, especially suppliers to the mines and energy sectors.3 Manufacturing output grew at an annual rate of between 4.5 and 10% throughout the period 1946–75. With the exception of the late 1950s, employment grew at between 3.2 and 6.6% per annum (Black 1991; Nattrass 1990a).

The rate of growth of output and employment in the manufacturing sector fell steadily from the early 1960s. By the 1980s, both output and employment in manufacturing were declining on a broad front, the only exceptions being several plants making processed primary products, such as paper and bulk chemicals. Manufacturing remained protected behind tariff and non-tariff barriers, and remained essentially uncompetitive.

In the isolated conditions of the 1980s, compounded by growing disinvestments by foreign firms, a small number of South African conglomerates seized almost total control of the economy. By the end of the decade, five groups controlled companies worth close to 90% of the stock market value of all public companies based in South Africa. Just as government had indulged business in constantly acceding to pleas for higher protective barriers around local markets, government looked the other way as competition and rivalry melted away.

The beginning of the end

The imposition of sanctions on South Africa aimed at the apartheid regime further encouraged inward-looking policies. Government, the state-funded science councils, and the parastatal companies committed considerable resources – deploying the windfalls of high gold price revenues – towards domestic self-sufficiency in food (through roads and huge dam projects), power, weapons and telecommunications equipment. The commercial spin-offs of these projects were negligible; they were barely considered in the design. Not only were the windfalls largely poorly spent, they created financing commitments that lasted long after the gold price windfalls were distant memories.

The rising costs of maintaining the apartheid state, and the weakening economy and tax base meant that from 1984 to 1994 when the democratic government was installed, current government expenditure exceeded current revenue. The government's contribution to domestic savings was negative, while government consumption spending rose from 15% of GDP (gross domestic product) in 1983 to 21% of GDP in 1993 (McCarthy 1991). Some in the political opposition saw this as a deliberate debt trap set for the new government, but the simpler explanation of fiscal irresponsibility and hubris seems more pertinent.

The private sector and parastatals had gone on an equally irresponsible foreign borrowing binge in the early 1980s, particularly in the period 1983–85 when foreign exchange controls were lifted. Foreign debt to GDP rose from 20% in 1980 to 50% in 1985. As a percentage of exports of goods and services, the debt rose from 56% to 149%, meaning that debt servicing through export revenues was under threat. Most problematic was the fact that US$14 billion out of the US$24 billion debt was short term. Heavily dependent on short-term foreign borrowings, the economy was vulnerable.

Several events precipitated a crisis. First the gold price fell from over US$500 to under US$300 per fine ounce between 1983–85 and fiscal and monetary policies failed to adjust. The rand fell fast, and borrowers who had not covered the currency risks adequately encountered payment difficulties. In 1985 President P.W. Botha made it clear in his widely publicised Rubicon speech that the government was not considering any significant political reforms. Within weeks foreign banks, led by Chase Manhattan, pulled the plug (Hirsch 1989; Ovenden and Cole 1989).

The result was a huge haemorrhaging of capital from South Africa, some of it through the withdrawal of credit lines and sales of South African assets, most of it done illegally by South African individuals and firms usually through various forms of transfer pricing. Some analysts of anomalies in the current account of the balance of payments estimate the illegal flows at more than R50 billion for the period 1985–92 (Rustomjee 1991). The bleeding only stopped in 1993 when the capital account of the balance of payments turned positive. Not surprisingly, gross fixed domestic investment shrunk every year bar two between 1983 and 1993, after which it turned positive.

A response from the South African Reserve Bank

For the late sanctions period when monetary policy recognised that the only way to counteract capital flight was by maintaining a high real interest rate policy that attacked inflation while preserving the value, or overvaluing the currency, monetary policy did not help improve the country's economic performance. Before 1989, when Dr Chris Stals became Governor of the South African Reserve Bank (SARB), the currency was allowed to drift to compensate for fluctuations in the gold price. In other words, as the US dollar price of gold declined, so did the rand in order to keep the rand profits of the gold mines healthy (Gerson and Kahn 1988).

One problem for the rest of the economy, especially potential exporters in the non-gold and platinum sectors, was that the fluctuations of the currency made the outcomes of export strategies unpredictable. The other was the overall trend for the terms of trade of non-gold products to deteriorate. As Brian Kahn pointed out, 'the effects of the gold price masked the underlying decline in the country's competitiveness'. He added that 'the terms of trade excluding gold declined consistently since the early 1970s, and by the end of 1986 they were approximately 43 per cent lower than their 1970 levels' (Kahn 1991: 62).

Governor Stals clearly indicated that his objective was to maintain the internal and external value of the rand. Stals faced a balance of payments crisis when a mini-boom in the late 1980s sucked in imports without the compensation of inward flows of capital. It was normal for South Africa to go into deficit on the current account during periods of growth, but the political and economic isolation of South Africa in the late 1980s inhibited any inflows of capital. Stals had to hike the interest rate, and add other emergency balance of payments measures. Though he usually justified high interest rates as an anti-inflationary measure, it clearly also helped slow imports by stalling domestic demand.

Until 1994, the assumption that seemed to underpin this approach – that because long-term capital would seldom enter South Africa policies had to protect short-term money – was justified. However, in the post-1994 period, long-term and direct foreign investment entered South Africa in significant volumes. It may be that Stals erred in maintaining these policies too long after 1994. These issues are explored in Chapters Three and Four. But we first need to review the apartheid legacy.

The economic inheritance from apartheid

Modern South Africa was built on one of the most vicious forms of labour exploitation in the history of capitalism. The evolution of segregation and the migrant labour system into an apartheid system, which sought to crush all black initiative and to protect all white interests, created a social system that soon fell behind world economic trends and was increasingly vulnerable to international economic shocks. The ending of the de jure gold standard and the oil crises in the early 1970s led to wildly fluctuating gold prices, foreign receipts and the exchange rate. Then the disappearance of a de facto gold standard – gold being seen as a refuge in times of international crisis – and, finally, the tightening of the sanctions noose in the early to mid-1980s, all helped to end apartheid, but left the South African economy battered and bleeding.

At great present and future cost, government social policy had turned the clock back to an era of racism and slavery when workers were seen as costs and as potentially dangerous enemies, not as human capital that rewards high levels of investment. Government economic policy helped further cripple the economy through protecting the increasingly monopolistic private sector at the expense of improvements in productivity and competitiveness, through investing in expensive political and strategic projects without reference to market considerations, and through irresponsible fiscal and monetary policies.

Not everything the apartheid government did was disastrous in all its effects. A review of South Africa's ranking in international

competitiveness ratings systems in the mid-1990s indicates that South Africa was poorly rated in labour-related indicators, but relatively strong in physical infrastructure, science and technology, and finance. In these three areas, the NP government had made major investments during apartheid, some of which remained economically valuable into the democratic era. But even in these strong sectors, the assets of the country were very poorly distributed – for example, white farmers in remote rural areas had access to tarred roads and highways of the very highest quality, while the majority of black rural and urban dwellers had to use rough-and-ready unpaved tracks to get to school or to work.

A balance sheet for South Africa at the end of the apartheid era, implicitly comparing it with other developing countries and countries in transition from socialism, would show that, at the time of transition in 1994, the assets were outweighed by the liabilities; but, with a little imagination and a great deal of determination, the assets could be used to lever up many of the significant liabilities into positive territory.

Notes

1 'Kaffir' is a pejorative term used to demean black South Africans. At the time, white readers might not have understood the Xhosa word for corn (maize) beer, uqombothi.

2 The World Bank (1996) gave figures of 84% of the population in secondary school and 18% illiteracy in 1993, which fail to reflect the poor quality of education received in the Bantu education system.

3 Fine and Rustomjee (1996) argue that investments in support industries for minerals and energy sectors characterises post-Second World War South African manufacturing more accurately.

CHAPTER TWO

From Kliptown to the RDP

The evolution of the ANC's economic policy

A moment of truth

An icy midwinter meeting in Davos, Switzerland, was the setting for the first formal statement of the economic policy of a democratic South Africa. Here, at the World Economic Forum annual meeting early in 1991, Nelson Mandela made the first really significant statement of economic policy on behalf of the ANC since it had been unbanned in February 1990 by President F.W. de Klerk. Davos, the site of annual meetings of the world's economic elite, was also the first venue where Mandela and De Klerk had shared a public stage for more than a press conference. This, in itself, was a statement, in the sense that De Klerk's decision to release Mandela had been strongly influenced by a desire to make peace with South Africa's potential investors and markets, while Mandela was signalling that he recognised that the world's plutocrats wanted to see him and De Klerk acknowledge their constituencies' mutual dependence.

Mandela's speech at his first Davos meeting was shrouded with controversy. The original draft of the speech had left space for a section on the ANC's economic policies, which was to be prepared by an ANC-allied economist in the United Kingdom. When the insert arrived from London it was included in the draft speech. However, when Mandela and his economic advisers read the section they found that it was fashioned in a traditional socialist style, virtually calling for the nationalisation of the commanding heights of the economy. Tito Mboweni, 31 years old, one of Mandela's key aides and an economist, had to redraft the economic section in great haste.

Mboweni was one of the bright young stars in the ANC. He trained in economics while in exile, first at the University of Lesotho, later at the University of East Anglia where he earned a Masters degree. He then took up a position in the ANC's department of economic planning in Lusaka, and was one of the first officials to move back to the ANC's new headquarters at Shell House in Johannesburg in 1990. Over the next few years, along with Max Sisulu, Trevor Manuel and their team, Mboweni helped to finalise and formalise the economic policy of the ANC for the real world of power.

Mboweni's rewrite of the speech tread a far more careful path, shying away from echoes of the old British Labour Party or eastern European socialism. The ANC had not held its important 1992 policy conference yet, so Mboweni had to say as little as possible while appearing to say more, without offending anyone. This he managed to do, and the version of Mandela's speech actually delivered at Davos in 1991 could best be described as carefully written, harmless and mildly reassuring for the collected band of plutocrats and international financial bureaucrats.

The difficulty of addressing potential foreign investors was summed up in an internal ANC document circulated during April 1991. The aim of the document was to advise ANC officials on how to conduct themselves in meetings with potential probing investors. 'Firstly,' instructed the briefing paper, 'we need to persuade foreign investors not to invest in South Africa until our conditions for the lifting of sanctions are met.' 'Yet,' noted the next point, 'we need to make an effort to sustain foreign investors' interest in investing in a Post-Apartheid South Africa. The South African economy desperately needs investment in new productive capacity' (ANC 1991d).

The story of Davos, 1991, might never have been known, were it not for the fact that Mandela's communications team released the first draft of the speech before Mboweni's rewrite. In South Africa the first version was published under alarmist headlines by the press, owned and controlled by whites, and close to big business. The second and final version was never as well known in South Africa as the speech that was never given.

A year later in Davos, Mandela was unambiguous and clear. Though the policy conference was still to be held in May, the position of the ANC had evolved to the point where Mandela felt he could make some definitive statements. He talked about a 'mixed economy', using a term that had been introduced into the lexicon of the ANC by economists seeking to hold on to more interventionist socialist policies, but turned the term into a synonym for social democratic capitalism. In Mandela's mixed economy, 'the private sector would play a central and critical role to ensure the creation of wealth and jobs'. The public sector would be strong, but would be modelled on western European social democracies such as France and Germany (Mandela 1992a).

Moreover, the ANC had decided to address, directly, the concerns of potential foreign investors. Without being too specific, Mandela recognised that, in order to meet its objectives of job creation and poverty alleviation, the ANC would have to 'address such questions as security of investments and the right to repatriate earnings, realistic exchange rates, the rate of inflation, and the fiscus' (Mandela 1992a).

In addition, Mandela made it clear that there was to be no rash assault on the assets of white-owned South African firms. He realised that this would also be an important signal to foreign investors. The South African economy, he predicted, 'will offer very good prospects for the investors present in this room, both South African and international' (Mandela 1992a). Considering the fact that the ANC still supported economic sanctions against South Africa, and would continue to do so until there was a constitutional settlement, this was as far as Mandela could go.

The people's charter

But where did the economic policy of the ANC come from, and was it true, as some analysts have suggested, that the ANC changed its tune some time in the early 1990s in order to placate foreign investors and the multilateral banks in Washington?

It might be more accurate to say that ANC policy had come full circle. In 1955 the ANC and its Congress Alliance partners met in a huge popular gathering, a 'Congress of the People', at Kliptown near Johannesburg. Three thousand people gathered for two days in wintry late June to endorse the first policy document designed to enlist a broad alliance in a struggle for a non-racial, democratic South Africa.

The Freedom Charter remained the ANC's only broad statement of social and economic policy until May 1992 when a huge, representative ANC conference in Johannesburg endorsed the 'Ready to Govern' policy. In the life of the Freedom Charter it came to have many guises and interpretations. The first declaration in the Charter is perhaps the definitive one. It reads:

We, the people of South Africa, declare for all our country and the world to know that South Africa belongs to all who live in it, black and white, and that no government can claim authority unless it is based on the will of the people (ANC 1955: 81).

These sentiments, redolent of the phraseology of late 18th century anti-aristocratic and anti-colonial revolution, perfectly capture the spirit of non-racial, national, democratic revolution. This 'nonracial' dimension of the struggle against apartheid was essentially new; previously the ANC, though steeped in democratic liberalism, understood that it represented the majority of South Africans of indigenous African origin. As the ANC's programme of action had stated only seven years previously, in 1949: 'Like all other people, the African people claim the right to self-determination' (ANC 1949: 80).

In the vicious face of apartheid, the struggle intensified, and democrats of different hues and social classes were pushed together. Some 'Africanist' black South Africans left the Congress Alliance a few years later to form the Pan-Africanist Congress (PAC), but the ANC with its Congress Alliance, which included organisations for non-Africans (until they were accepted directly into the ANC in 1969) and the trade-union federation SACTU (South African Congress of Trade Unions), remained the central opposition.

The chief economic clause of the Freedom Charter went a bit further than Tom Paine, the printer and pamphleteer of the American and French revolutions, would have. But things looked a lot bleaker for the black South African middle classes than they had for the tradesmen in America or the sans-culottes in Paris. The declaration 'The People shall share in the Country's Wealth' was elaborated as:

The national wealth of our country, the heritage of all South Africans, shall be restored to the people;

The mineral wealth beneath the soil, the banks, and monopoly industry shall be transferred to the ownership of the people as a whole;

All other industries and trade shall be controlled to assist the well-being of the people;

All people shall have equal rights to trade where they choose, to manufacture, and to enter all crafts and professions (ANC 1955: 82).

Other than the second sub-clause, on nationalisation, the economic clause would have it appear as if the Congress Alliance represented a bourgeois struggle against feudalism. Even the second clause, on public ownership of banking and mining monopolies, fitted into the social democratic mainstream in the 1940s and 1950s when United Kingdom and West European labour and socialist parties sought to expand the economic role of government. For example, between 1945 and 1951, the Labour government in the United Kingdom nationalised the Bank of England, civil aviation, telecommunications, coal, the railways, long-distance road haulage, electricity, gas, iron and steel. They also built a welfare state that offered social insurance and a national health system. In doing this they followed the Labour Party's social democratic manifesto, Let Us Face the Future. With regards to the welfare state, they were also following proposals developed by the Liberal Party supporters, William Beveridge and John Maynard Keynes (Sassoon 1996: chapter 6).

Mandela felt, at the time, that the nationalisation clause could be explained in context. It was true that the demand for nationalisation would strike a fatal blow against the 'financial and gold-mining and farming interests that have for centuries plundered the country and condemned its people to servitude'. However, Mandela continued, 'the breaking up and democratisation of these monopolies would open up fresh fields for the development of a prosperous, non-European bourgeois class. For the first time in the history of this country, the non-European bourgeoisie will have the opportunity to own in their own name and right mills and factories, and trade and private enterprise will boom as never before' (Mandela 1956: 49).1

Thirty-six years later – in 1992 – Mandela referred to this passage in his 1956 article and acknowledged: 'Immediately after the adoption of the Freedom Charter, and even up to the present, there has been extensive debate about the intention of the clause which reads: "The people shall share in the country's wealth"' (Mandela 1992b).

There can be no doubt that the ambiguities of this part of the Freedom Charter were intentional. The Congress Alliance was a broad church, stretching from rural traditional leaders through peasants and workers to professionals, intellectuals and business people. The ANC itself was almost as broad. The Freedom Charter was intended to be inclusive; attempting to represent so many diffuse, though related, interests with a crystal clear document would have been futile.

The radical 1960s and 1970s

During the 1960s and 1970s, ANC economic policy leaned towards the left. One reason was the radicalising influence of anti-colonial African socialist movements. First Abdel Gamal Nasser in Egypt, then Kwame Nkrumah in Ghana, then Julius Nyerere in Tanzania and Kenneth Kaunda in Zambia, frustrated by the lack of economic progress of their popular constituencies, moved decisively towards state interventionist policies. These policies were, rightly or wrongly, collectively known as 'African Socialism', and spread to other African states. The main characteristics of African Socialism were nationalisation of large companies, usually with compensation, a variety of land reform strategies, the expansion of the state, and an increasing reliance on the use of state-owned companies and the state apparatus itself for the economic advancement of individuals. The weakness of the African middle class in the post-colonial era, due largely to the destructive effects of colonialism and the lack of preparation for decolonisation, was the main driving force behind African Socialism. By the mid-1970s, left-wing critics had begun to describe African Socialism as 'state capitalism', or, in relation to its most degenerate forms, 'kleptocracy'.

A second influence on the economic thinking of the ANC in the 1960s–80s period was the fact that the organisation had been driven underground. After being banned in 1960, massively harassed with arrests, detention, torture and long-term imprisonment, the ANC made the decision to resort to armed opposition to the South African government. The ANC went underground without the support of most liberals, the business community, or the international community other than independent African countries, Scandinavia, and the socialist countries of Eastern Europe and Asia. This had the effect of 'pigeon-holing' the ANC in a 'socialist box' to an even greater extent than it was before.

And, in the early days of exile at least, beyond Sweden, the socialist states were the only non-African countries prepared to offer moral and material support to the armed struggle. Combined with the apparent fact that Soviet socialism seemed more successful than the west allowed, the South African Communist Party (SACP) element in the Alliance was able to gain greater credibility and influence than before the armed struggle.

Not long after the ANC went underground, the intellectual tide in those parts of the western world affected by the student and worker revolts of 1968 was shifting towards the left – the new left. The economic crises of the 1970s characterised by the new phenomenon of rising unemployment and inflation suggested to some that the failure of Keynesian capitalism meant that capitalism was unsustainable. Undoubtedly these currents influenced the thinking of the younger ANC intellectuals in exile, as well as young opposition intellectuals who were not forced to or had not chosen to leave South Africa.

The shift to the left is reflected, however superficially, in the ANC's first important policy document of the 'exile era'. This was a document called 'Strategy and Tactics', adopted at an ANC conference in Morogoro in Tanzania in 1969. The description of economic oppression linked to national (racial) oppression is familiar. What is less so is the statement:

But one thing is certain – in our land this problem [poverty and inequality] cannot be effectively tackled unless the basic wealth and the basic resources are at the disposal of the people as a whole and are not manipulated by sections or individuals, whether they be White or Black (ANC 1969: 392).

In the next paragraph there is a specific reference to a capitalised Socialism, and the role the revolutionary working class would play in the construction of 'a real people's South Africa'. There is also a reference to the military struggle for political and economic emancipation as a 'first phase', though the subsequent phase(s) are not described (ANC 1969: 392). While the terms are still vague and general, the language is less 18th-century petit bourgeois liberalism and far more Cold War-era anti-imperialism.

By the end of the 1970s, ANC leaders were asking themselves whether they should make explicit the organisation's commitment to the ideology of Marxism-Leninism. The 1979 drafters of the strategic 'Green Book' argued that while 'no members of the commission had any doubts about the ultimate need to continue our revolution towards a socialist order', it was not thought appropriate for the ANC to say quite as much 'in the light of the need to attract the broadest range of social forces among the oppressed'. Instead, the report referred to 'phases of the struggle' without actually using the term socialism. The most explicit statement was the following:

The aims of our national democratic revolution will only be fully realised with the construction of a social order in which all the consequences of national oppression and its foundation, economic exploitation, will be liquidated, ensuring the achievement of real national liberation and real social emancipation. An uninterrupted advance towards this ultimate goal will only be achieved if... the dominant role is played by the oppressed working people (ANC 1979: 724–726).

This view was consistent with the position adopted by the black and white organisers of many of the new black trade unions, which during the 1970s and early 1980s became a dominant internal force struggling for freedom. Three years before the Green Book, the leader of SASO (South African Students' Organisation), Diliza Mji, had made an analysis of the pro- and anti-revolutionary forces and concluded: 'It is against this background in a capitalistic set-up like it is in South Africa, we have to align ourselves with the majority of working people and be with them.' Mji pointed to yet another factor pushing the anti-apartheid struggle in this direction: the fact that the United States had chosen to support the apartheid regime, quite explicitly under Kissinger and Nixon, showed that South Africa was being defended as the last bastion of capitalism in Africa. It was evident that if apartheid was being defended in order to defend capitalism, the two were indivisible and had to be attacked together (Mji 1976: 740). Several of Mji's contemporaries in the black student movement ended up as prominent union leaders in the late 1970s and early 1980s. Some of them, such as Jay Naidoo, Sydney Mufamadi and Cyril Ramaphosa, are now cabinet ministers or top business leaders.

Exploiting apartheid's fissures

By the late 1980s, as politics shifted towards the possibility of a negotiated resolution to the South African conflict, the shape of the ANC's economic policy returned to a more conventional form – gradually diluting the revolutionary socialist spice with which the policy was flavoured between the late 1960s and the mid-1980s. There were several contributing factors.

One was the emergence of an economically vital East and South-East Asia following economic paths that were market-oriented, but with high degrees of government intervention. The conventional view for the success of Japan, South Korea, Taiwan and countries in South-East Asia was that they had followed orthodox laissez faire free-market policies. By the end of the 1980s, work by prominent western economists such as Alice Amsden and Robert Wade had shown that, although the macroeconomic policies, other than the exchange rate and exchange control, were orthodox and conservative, the governments of the newly industrialised countries in Asia played a huge role in supporting human resource and technology development, and in directing public and private investment flows (Amsden 1989; Wade 1990). This challenge of non-western/non-white nations to the economic hegemony of the west within the capitalist system began to impact on the thinking of some ANC leaders and intellectuals (for example, see Erwin 1989: 93).

Another factor influencing economic thinking of the ANC was the failure of Soviet socialism and its rejection by the ordinary people of Eastern Europe. For some, the experience of Poland in the early 1980s was enough evidence; for others Gorbachev and the fall of the Berlin wall eventually influenced their thinking. Some of those who spent part of their lives in Eastern Europe or in African socialist countries made the most radical shifts.

The ANC and the SACP always remained separate organisations. In a sense, the SACP was a political club within the ANC. Its analysis had become very influential in the 1950s, as we saw in Chapter One in Mandela's economic analysis of apartheid. In the conditions of underground struggle, where the support of the Soviet Union and the German Democratic Republic, and later, Cuba, were absolutely crucial, the influence of the SACP in the Alliance had grown. Some have argued, overenthusiastically, that the SACP de facto 'took over' the ANC between the late 1960s and 1990, when it was legalised (Ellis and Sechaba 1992).

The line adopted by the SACP up to and including the report 'The Path to Power' in 1989 remained orthodox Soviet socialism, in spite of Gorbachev. Early in 1990 Joe Slovo, the Secretary-General of the party, published the paradigm-shifting 'Has Socialism Failed?'. Nobody had more authority in the traditional South African left than Joe Slovo. He was a pillar of the armed struggle as one-time Chief-of-Staff of the ANC's military wing Umkhonto we Sizwe, he was Secretary-General of the SACP, and later was elected its chair. Slovo had joined the Young Communist League in the early 1940s in Yeoville, a lower middle class and mainly Jewish suburb of Johannesburg. He remained an energetic and influential leader of the anti-apartheid struggle, and was a senior member of President Mandela's first Cabinet until his death from cancer in 1995.

Slovo's analysis was simple: socialism had failed not because the underlying economic philosophy was wrong, but because it was undemocratic in implementation in the USSR and elsewhere, allowing the formation of a parasitic and repressive state. Said Slovo: 'In short, the way forward [for the SACP] is through thorough-going democratic socialism...' (Slovo 1990: 25).2 While the article supported multi-party, pluralistic democracy, it had no clear economic prescriptions. By 1990 this hardly mattered – all the key players in the ANC and the internal opposition in South Africa were converging around the idea of a modernised form of social democracy. For social policies the intellectual leaders now looked to Scandinavia and northern Europe, even Canada, rather than the USSR. For economic policies they were studying East Asia.

Indeed, ANC leaders were careful to avoid revolutionary socialist terminology in the Constitutional Guidelines published by the ANC in 1988 as a public gesture towards a negotiated settlement. The guidelines refer to a mixed economy, 'with a public sector, a private sector, a cooperative sector, and a small-scale family sector'. There would be corrective action to address past inequalities, and the 'private sector shall be obliged to co-operate with the state in realising the objectives of the Freedom Charter in promoting social well-being' (ANC 1988: 12). Not the 'liquidation of economic exploitation' terminology of the Green Book.

The language of the Harare Declaration of 1989 was similarly moderate. The Harare Declaration was a statement of the Organisation of African Unity (OAU) setting out terms for a negotiated settlement for South Africa, and setting out some key parameters for negotiations. Included amongst the parameters was a statement of principles that was, in a sense, a prototype bill of rights for the new South Africa. The ANC played the principal role in drafting this document, including the statement of principles. In general, the principles establish a liberal, pluralistic democratic order with an implicit separation of powers. In particular they refer to an entrenched bill of rights that would protect civil liberties, and 'an economic order that shall promote and advance the well-being of all South Africans' (ANC 1989: 15). It would be hard not to interpret these aspects of the Harare Declaration as a self-conscious projection of the ANC into the political mainstream, far from the currents of radical revolution.

But, for the broader layers of ANC and SACP leadership, Slovo's paper was like the intellectual equivalent of a sudden supply of pure oxygen to a person who had been slowly asphyxiating. It took a little while to adjust to the sudden change in the atmosphere. Released, as it was, in the same month as the unbanning of the ANC and the SACP, the paper had a powerful impact on the next round of policy debates; the first debates conducted with the prospect of imminent state power.

Between the mid-1980s and the early 1990s, the ANC returned to the philosophical world of the Freedom Charter, a world combining middle-class nationalism and working-class egalitarianism. It took a little while, though, to work out what this meant in practical economic terms.

Preparing for power

When the ANC and the SACP were unbanned, and Nelson Mandela was released, Mandela's early statements on economic policy were confrontational and opaque. In his initial speeches he referred to nationalisation as an option, explaining this in terms of the desire to redress deep historical economic inequalities. It was also a reaction, and a counter-measure to the NP government's attempt to hastily privatise existing publicly owned companies to prevent them from falling into the hands of a future ANC government. Mandela was not concerned about creating economic uncertainty at that time; seizing a power advantage for the ANC was more urgent. Some commentators also claim that more radical internal leaders of the liberation movement heavily influenced the initial speeches – had exiled ANC policy leaders written the speeches they might have been more moderate (for example, see Waldmeir 1997: chapter 8).

The use of nationalisation as a bargaining tool, and as a means of inhibiting decisive action by the NP government (which remained in power, at least de jure, for more than four years after Mandela's release), was evident in Mandela's speech to an assembly of 300 white business executives in May 1990. He opposed the process of privatisation outright. 'It would only seem reasonable', he argued, 'that so important a question as the disposal of public property be held over until a truly representative government is in place.' And he was, for the business community, infuriatingly vague on the question of nationalisation. As he put it:

We believe that there must be further discussion on the issue of nationalisation of assets that might not at the moment be publicly owned. The ANC has no blueprint that these or other assets will be nationalised, or that nationalisation will take this or the other form. But we do say that this option should also be part of the ongoing debate, subject to critical analysis as any other, and viewed in the context of the realities of South African society. It should not be ruled out of the court of discussion simply because of previously bad experience or because of a theological commitment to the principle of private property (Mandela 1990).

This seemingly rather ominous vagueness represented a tactic by the ANC to undermine the power of the existing government, and to begin to assert the ANC's power in relation to the established, essentially white, South African business community. It is true that the ANC's position was not entirely clear on all aspects of economic policy – its powerful ally, the SACP, was still committed to Soviet-style socialism as late as 1989.

Tito Mboweni wrote about the complexities of the ANC engaging with business in an internal memo. 'The private sector is', he explained, 'very sceptical about the policies of the liberation movement and would like to change them in its favour. The ANC, on the other hand, wants to engage the private sector mainly for political reasons... to win the support of the broadest section of South Africa's civil society.' He noted, 'the interest for this dialogue is mutual, albeit for different reasons, sometimes diametrically opposed to each other' (ANC c. 1991c).

Another reason for the complexities of the ANC's economic Gordian knot was the role that increasingly powerful trade unions played in the internal liberation struggle. The internal struggle against apartheid depended on the organisational weight of the trade unions as a major source of its strength. The unions had no doubt that workers should have a great deal more power in the South African economy, though they did not necessarily agree on how this should be achieved. Some preferred traditional socialist strategies, others looked to a unique new hybrid of worker power and economic planning.3

However, the apparent uncertainty of ANC policy shortly after its unbanning should not hide the fact that its economic thinkers had already given a good deal of thought to the desired nature of the post-apartheid economy. During the second half of the 1980s, before the unbanning of the ANC, there were at least seven international conferences on the 'post-apartheid economy' in venues as far apart as Boston and Beijing. These conferences provided the opportunity for sympathetic social scientists from within and outside of South Africa to get together with ANC intellectuals and leaders to begin to address post-apartheid economic challenges (Padayachee 1998: 434).

Beyond the professional policy conferences, there was a series of meetings between ANC-in-exile leaders, and mainly white business and non-governmental leaders from within South Africa (to the anger and condemnation of the NP government). As early as 1986, these discussions began to address economic questions. Gavin Relly, then chief executive of the Anglo American Corporation, told the ANC in 1986 that 'we accept the likelihood of some form of mixed economy with a measure of state planning and intervention', because 'there is a quite justifiable emphasis on the part of Black South Africans on a more equitable distribution of wealth to compensate for the errors of omission and commission of the apartheid era' (Sunday Times 1 June 1986). This statement was made after one of a series of meetings between white non-government leaders and the ANC that began in 1985 in Lusaka, and continued, in different forms and places, until the ANC was unbanned.

One very large version of such a meeting was organised in Lusaka, Zambia, in the middle of 1989. The South African delegation of 115 included 23 academics, 20 business people, and 6 newspaper editors. The 123 ANC representatives included 20 members of its National Executive Committee, and were led by the ANC President, Oliver Tambo. In the economic commission, the ANC repeated the formulation as enunciated in the Constitutional Guidelines, anticipating the Harare Declaration. While the ANC statement referred to direct control over the mines, banks and monopoly industries (echoing the Freedom Charter), it noted:

The exact forms and mechanisms of state control are left open in our programmatic perspectives. The element of private participation in state enterprises is occurring more and more in socialist countries... and has not been addressed.

Nationalisation, which involves a mere change in legal ownership, does not advance social control... In some conditions of premature nationalisation it can actually result in impeding social control by the destruction or downgrading of industry. This occurred in Mozambique [after 1974] (Louw 1989: 81).4

Meanwhile, behind the policy conferences and political seminars, groups of researchers were beginning to develop a broad body of work to inform post-apartheid policy leaders. The ANC set up a Department of Economics and Planning in the mid-1980s (later the Department of Economic Policy), but its initial function revolved around project management and fund-raising. It did, however, participate in the establishment of a research group based in the United Kingdom, called EROSA, or Economic Research on Southern Africa. Leading researchers were drawn from universities and the private sector in London. EROSA prepared a series of sectoral reports for the ANC, and some broader analyses of policy options. While EROSA was linked to the ANC through some highly placed intellectual leaders, the influence of the group on the ANC's thinking was patchy. However, when the ANC was asked early in 1990 to contribute to a newspaper supplement on proposed economic policy for the next government, the author was Vella Pillay, a banker and ANC member, who was close to EROSA (Padayachee 1998).5

At about the same time, in 1986, a South African research group was constituted to serve the policy needs of the recently formed Congress of South African Trade Unions. COSATU was then officially politically independent, though it was not a great surprise when, after the unbanning of the ANC, the ANC and COSATU constituted a formal alliance, along with the SACP. The new research group, called the Economic Trends group (ET), was a loose collective of university-based, oppositional economic researchers from around South Africa, most of whom were white.6 The coordinator until the end of the decade was Stephen Gelb, a Canadian-trained South African economist who had co-authored a very influential analysis of the South African economic crisis (Saul and Gelb 1981).

The key point of contact for researchers in COSATU was Alec Erwin, then Education Secretary of the National Union of Metalworkers of South Africa (NUMSA), but an influential thinker in COSATU beyond his formal status. Erwin had lectured in economics at the University of Natal in Durban until he resigned in the late 1970s to become a full-time trade union organiser. He was later to become Deputy Minister of Finance in Mandela's first Cabinet, and early in 1996 joined the Cabinet as Minister of Trade and Industry.

Initially, the Economic Trends group was required to conduct research to advise COSATU on policy in relation to economic sanctions, but as the end of apartheid began to appear on the horizon, ET shifted to an analysis of the causes of the South African economic crisis (the focus of the last section of Chapter One of this book). It was important to understand the economic crisis in order to develop suitable policies for a post-apartheid government, or so that COSATU could influence such a government. The analytical findings of the ET group were contained in a series of working papers and in a book edited by Gelb (1991b).

The ANC starts writing

We have identified a series of parallel, sometimes conflicting, and sometimes interlinked processes contributing to the formulation of an economic policy by the ANC in the early 1990s: formal pre-1990 documents stemming from the ANC's headquarters in Lusaka, Zambia; meetings of academics and political and business leaders; and at least two significant policy groups. During the course of 1990, the formal position of the unbanned ANC began to take shape in a series of key documents that would lead to the ANC's national policy conference in 1992.

The first significant formal ANC-linked document drawn up after the legalisation of the ANC arose out of a conference in Harare, which concluded on 2 May 1990. Harare, Zimbabwe, was an appropriate setting for the meeting, which was the first time that economic researchers from inside South Africa, mostly associated with COSATU, and ANC-linked economists from outside South Africa met with the purpose of hammering out a common policy framework. Harare is located between Lusaka, the ANC's headquarters in exile, and Johannesburg, South Africa's major city. In addition to ANC officials and South Africa-based researchers, mainly linked to ET, some EROSA researchers attended too. At the end of the conference, a paper was issued entitled 'ANC and COSATU Recommendations on Post-Apartheid Economic Policy' (ANC and COSATU 1990).

Though the paper had no formal status, it was considered to be a relevant policy statement by ANC officials, to the extent that Tito Mboweni presented the paper at a conference in Lesotho a month later. In any case, the paper was publicly released and reported widely in South Africa's financial press.

Several significant formulations were contained in this document. There was recognition of the importance of international competition in products, and the need to make South African production more competitive. While the responsibilities of the state were defined broadly, its economic role was defined more narrowly, in terms of 'some form of macro-economic planning and coordination'. There was a very strong statement of the importance of fiscal conservatism, concluding: 'A future non-racial democratic government would not replicate the recent practice of using borrowings to finance current state expenditure' (ANC and COSATU 1990). Balance of payments problems and inflation were also to be avoided. All these formulations picked up on themes that were being debated in South Africa in ET forums and beyond. Some of the strongest language refers to the importance of re-regulating capital markets to encourage appropriate investments. This represented, in part, the stamp of the EROSA delegates' more interventionist approach to investment and planning.

While the problem of monopolistic conglomerates was highlighted, dismemberment of these clumsy business giants was the main proposed remedy. Nationalisation was noted as a possible strategy, though the document emphasised the need for a 'viable' state sector. One of the objectives of the document, like Mandela's speech to white business in the same month mentioned earlier, was to prevent privatisation by the then current government. The document explicitly threatened the possibility of re-nationalising companies that were privatised by the current government. The threats worked, and privatisation ceased between 1990–94. In the late 1980s, the state-owned steel company, Iscor, and the state's oil company, Sasol, had been sold, except for a small share of each retained by the state-owned Industrial Development Corporation (IDC).

The rest of the document referred to sector specific issues regarding manufacturing, mining and agriculture; labour rights; human resource and gender equality issues; and aspects of redistribution through welfare and housing programmes. In all, with the exception of threats designed to hamstring the strategies of the then current government, and some comments on the capital market, it was a conventional, modern social democratic economic policy document. The growth model relied on macroeconomic stability, competitiveness and exports, while the state was responsible for equity and the redistribution of wealth and income in order to right past wrongs.

The other notable economic policy document of 1990 was that put together by ANC economists in their own right and on their own, again in Harare, and again including exiles as well as some who had remained in South Africa. This time there was no official COSATU presence, and no non-South African advisers. The meeting ran over four days and produced a document published by the ANC's Department of Economic Policy (DEP), under the title 'Forward to a Democratic Economy'.

By and large, the ANC document echoed the ANC/COSATU recommendations prepared five months earlier. There were similar references to the redistribution of wealth and income and the restructuring of manufacturing, agriculture and mining. One additional element was the explicit statement that '[p]rivate business has a major role to play in the economy of a democratic, non-racial South Africa' and 'a future democratic government should strive to build confidence with the private sector and encourage maximum cooperation in pursuit of democratically defined development objectives'. The failings of the private sector in regard to the woeful under-representation of black managers and businesses, and its extreme concentration of ownership were noted, now increasingly in the language of reform. However, if co-operation was not forth-coming from the private sector, 'a future democratic government could not shirk its clear duty in this regard' (ANC [DEP] 1990).

'Ready to Govern'

It was decided to relocate the offices of the DEP to the new ANC headquarters in Johannesburg. The ANC had bought a 26-storey building from Shell, which did not like its location in downtown Johannesburg near the commuter train station and informal taxi ranks. It did not take the ANC long to begin wondering whether the R25 million it paid for the building showed the ANC's capacity to exploit Shell's opportunistic generosity, or Shell's business acumen relative to the ANC. Even during the 1994 election campaign, the ANC did not need the whole building for officials, but it was never able to rent out much of the rest of the building. Since then the ANC has moved its headquarters to the more modest Luthuli House in a quieter part of downtown Johannesburg.

From 1990, Shell House bustled with enthusiastic, young and old activists and intellectuals. The 19th floor, where the DEP was located, was well blessed. The DEP manager was Max Sisulu, until he left for a course at Harvard University. Max was the second oldest son of Walter Sisulu who had been Secretary-General of the ANC for many years until he was locked up on Robben Island with Nelson Mandela. Max Sisulu is an intelligent, quietly confident man, who managed to win the confidence of the range of mostly younger economists who looked to him for leadership and direction. He later left his post as Chief Whip in Parliament for senior positions in the defence parastatal Denel, and later in the privatised oil company Sasol.

One of Sisulu's two lieutenants in the DEP was Trevor Manuel, a highly regarded leader in the Western Cape of the United Democratic Front (UDF), an ANC-oriented internal movement. Manuel, born in 1956, had no background in economics; he had trained in civil engineering at a technikon in Cape Town. Since then his career had largely been professional activist in community, then regional, and then national politics. By 1990 he was a manager of the Mobil Foundation – Mobil overlooked the fact that most of his time was spent on ANC politics. Manuel is highly focused and a quick study, with strong political skills. He made macroeconomics his area of focus, and learned fast, without making serious mistakes. When Sisulu left for Harvard in 1992, Manuel took his place, and kept it, even after Sisulu's return a year later. Trevor Manuel was appointed Minister of Trade and Industry in Mandela's first Cabinet, and proved such a success that he was appointed the first 'black' a