RONAK GOPALDAS: How poster children became sick men

As someone who spends the majority of his time between the UK and SA, it has been remarkable to witness the declines in governance, service delivery and standards across the two nations. Though the degrees of decay obviously vary in intensity and scale, it is telling that countries that were previously held up as the ‘poster children’ of their respective continents, have now become the proverbial sick men.

The malaise in both countries can be traced back to deep-rooted structural factors and a glaring lack of leadership. Indeed, these similarities paint a grim picture and point to the declining trajectories in both countries. More concerningly, the lack of long-term vision in either country does little to suggest that turnarounds are imminent.

There are three key parallels — political own goals, rising economic pressures and a lack of long-term vision.

Own goals

First, the colossal own goals. It is no secret that Brexit has been a spectacular failure for the UK, culminating in trade disruptions, labour and food shortages, as well as the decline of key public services. Though the government blames Covid-19 and the Ukraine war for these failures, there is no doubt these have been compounded by the unnecessary and ill-conceived idea in 2016 to leave the EU. In SA, haphazard and interventionist policy, especially during the Zuma era, compromised growth, while corruption and state capture on an industrial scale has spooked investors. Though the reasons behind these own goals may differ — nationalism and corruption — both have political drivers.

Both countries have also had their own versions of finance minister fiascos, which ramped up risk premiums. The UK summer of 2022 was dubbed ‘Four chancellors and a funeral’ due to the chaos that ensured in the period during which Rishi Sunak, Nadim Zehawi, Kwasi Kwarteng and Jeremy Hunt each assumed the role of Chancellor of the Exchequer. In SA, December 2015’s ‘Nenegate’ scandal, which saw three finance ministers over a weekend, rattled investor confidence as the Treasury, previously seen as immune to political interference, was compromised. Indeed, these changes were not well received by markets, who savaged bond and currencies in both countries and forced drastic central bank interventions. The UK lost an estimated £74bn as a result of the Truss — Kwarteng budget blunder, while SA’s stock market losses over that period totalled about R500bn. Tellingly, these saw reversals in personnel and orthodoxy restored due to the crippling effects of these poor decisions. Despite this, investors remain sceptical about the competence and quality of personnel in both cabinets.

Both countries have in recent times had populist leaders. The similarities between Boris Johnson and Jacob Zuma, along with the damage they have done to the political fabric, are uncanny. As charismatic, populist, scandal- plagued leaders with colourful personal lives, these leaders had their respective parties in a chokehold. Both men displayed very little appreciation or appetite for the rule of law. Johnson was blighted by numerous scandals including Partygate, while Zuma was compromised by the Nkandla scandal and has dodged courts repeatedly for the better part of two decades. Both enjoyed the protection of their parties for long periods of time, surviving multiple votes of no confidence in parliament, until such time that internal momentum had shifted sufficiently to make their positions unpalatable. Blatant lies, a jobs-for-pals mindset, and the impunity with which they governed all led to a systemic erosion in competence in state capacity. Public trust in both long-serving governing parties sits at multiyear lows, with both set to lose their majorities in elections in 2024.

Economic stagnation

In both countries, political and policy risk has risen. Both the UK and SA are laggard economies, falling well behind their continental peers on key metrics. Indeed, recent IMF growth forecasts suggest the UK will be the only big economy to shrink in 2023 (performing worse than Russia), and SA will grow at a sclerotic 0.1%.

Then there is the growing inequality between rich and poor. SA, with the highest Gini coefficient in the world and youth unemployment levels sitting at uncomfortably high levels, is no stranger to protest action. However, the UK has also battled with the cost of living crisis, including soaring food and energy prices as well as the exorbitant cost of childcare and housing. Public discontent in both countries has risen significantly. Strike action, which has long been a feature of SA political life, has also returned in the UK with a frequency not seen in decades. The number of strike days from June to December 2022 rose to 2,471,000, the highest since 1989. Taken together, such trends suggest fraying social contracts and an urgent need for remedial action.

As a result of their fiscal mishaps and the compounded effects of poor governance, the welfare state demands in both countries have increasingly come under pressure. In the UK, the National Health Service is creaking after years underfunding, while fiscal pressures will further constrain the state’s ability to provide unemployment and housing benefits which have been hallmarks of the UK’s liberal welfare state. The same is true in SA, where extensive social grants programmes comprise a sizeable portion of the fiscal purse. In a context where growth is low and financing pressures are high, politically sensitive and unpopular choices may need to be made to balance the books.

Lack of vision

But perhaps the most insidious similarity is also the hardest to measure. In both countries, there is longing to return to bygone eras — in the UK, the nostalgia extends to the age of the Empire — and in SA, the postapartheid glow of the Mandela era. Critics argue that both countries are stuck in the past and have failed to adapt with the times.

In both countries, the political elites have displayed a staggering level of complacency both domestically and in terms of their place in the world, and these consequences are now being felt economically. Both countries will head into elections in 2024 without leadership options who are able to present compelling long terms visions that both citizens as well as investors can buy into. Coupled with the inertia in the respective political systems, there is precious little to enthuse investors.

The trifecta of political dysfunction, institutional corrosion and a lack of accountability is a dangerous combination that encourages divestment and brain drain. Without self-correction, both SA and the UK are at risk of being past their peak.

The migration of investment and jobs has already begun.

• Gopaldas is a director at Signal Risk and faculty member at GIBS Business School.