BUBBLING UNDER: The SACP’s Blade Nzimande warns of a growing credit bubble that may burst. Picture: GALLO IMAGES
Most of our cadres in the alliance and government have been justifiably irritated by the reckless comments made by the chairperson of Nedbank, Reuel Khoza, recently.
Khoza’s comments have built on the media-backed liberal offensive to discredit the present leadership of the ANC and government, with a particular target being President Jacob Zuma.
Indeed the irritation within our ranks is further justified by the similarity of this offensive to the pre-Polokwane offensive that aimed to discredit Zuma ahead of the ANC’s 52nd national conference in 2007.
Much as the reasons for this irritation on the part of our alliance cadres are perfectly understandable, there are deeper reasons for Khoza’s recent outbursts. Perhaps the observation by the ANC secretary-general and national chairperson of the South African Communist Party, Gwede Mantashe, cuts closer to the bone of Khoza’s outbursts.
Mantashe said that perhaps Khoza was frustrated by his (and Nedbank’s) failure to find a (foreign) buyer for the bank.
The South African banking industry, despite slick public relations stunts indicating otherwise, is facing the eye of a storm – perhaps the underlying reason Nedbank is not a saleable proposition today. There is a huge crisis developing in the South African banking industry. It is likely to lead to a serious bubble, not dissimilar to that of the rest of the global banking and financial sector, unless drastic action is taken to prevent this.
Since the onset of the present global capitalist crisis, of which finance was at the centre, the South African banking industry has been sinking deeper into its own financial problems.
Despite claims by Stephen Koseff, chairperson of the Board of the Banking Association of South Africa in 2010, that “South Africa was largely insulated against the effects of the global financial crisis due in part to the introduction of the National Credit Act (2007) and Basel II (2008), a conservative regulatory framework, as well as conservative lending practices,” a closer examination of debt exposure of South African banks tells a very different story.
South African employers have intensified the casualisation of the working class, through the dramatic increase in labour brokerage to circumvent our progressive labour dispensation. Similarly, South African banks have sought to circumvent the credit act by expanding reckless spending.
There was a significant increase in lending by South African banks in 2003 to 2006, largely in anticipation and ahead of the passage of the stringent regulations of the credit act, coupled with the increased pressure by the SACP-led financial sector campaign for developmental, but responsible, lending.
Part of the methods for expansion of lending by the banks was the consolidation of an alliance between banks and the retail sector, also marking an increased entry of the major banks into micro-credit. While the passage of the NCA in 2007, including the establishment of the National Credit Regulator (NCR), temporarily stabilised the extension of credit by the banks, the percentage of household debt to disposable income grew from about 50% in 2001 to a whopping 80% in about 2007. This meant that 80% of disposable income went to servicing debt.
Perhaps the situation is more serious than this, as our own financial sector campaign showed us that the indebtedness to formal financial institutions by the working class is also accompanied by further indebtedness to “omashonisa”, whose debt statistics are unknown.
However, with the onset of the global capitalist crisis and the crisis of the global finance capital about 2008, the pattern of lending by South African banks has since changed radically.
During this period, there has been a huge increase in the number of unsecured credit transactions, a phenomenon similar to that which led to the housing bubble bursting in the US, triggering the current global capitalist crisis. Unsecured credit transactions, according to the NCR, “include all transactions for which the lender does not have any security” to recover debt in case of a change for the worse in the financial circumstances of the debtor.
For example, according to the NCR, between September 2010 and September 2011, unsecured credit transactions in South Africa, the bulk of which are carried by banks, rose by a whopping 58.49%. In monetary terms unsecured credit transactions grew during the same period from R920m to just more than R1.3bn. Unsecured credit granted and payable within a period of six months or less grew by 171%.
These shorter paying periods are normally for the poor and the working class. This means that the very same class whose job security is at stake, is the most exposed to debt, thus potentially placing South Africa’s banking industry under enormous pressure unless drastic action is taken.
For instance, every South African who owns a cell phone knows the extent to which he or she daily receives SMS offers of unsolicited credit. The depth of the problem of the “financialisation” of South African capitalism is further illustrated by the fact that even insurance products, like hospital and funeral cover, are becoming more about how much cash you can get back if you are hospitalised, or how much your family will get in case of death, than about social security.
The statistics by the NCR on the credit bureaus underlines the above story. For example between December 2008 and September 2011, debtors in good standing declined from 58.4% to 53.8%, while that of bad debtors with impaired records grew from 41.6% to 46.2%.
The story told by the above figures explains why Khoza is so angry. No foreign bank is likely to venture into buying into instances of such huge debt exposure. Banks globally have been the biggest beneficiaries of neo-liberal policies that fostered a casino economy, where money profits are generated from money through financial speculation and an aversion to investment in the productive sectors of the economy.
Therefore the crisis of neo-liberalism means a crisis for the financial sector, being simultaneously the generator and victim of the global capitalist crisis. It is for this reason for instance that countries like Greece and Portugal are now literally owned by the German and French banks, which in themselves are further exposed by this vicious cycle of trying to save neo-liberalism through further financialisation. No wonder Khoza is so angry!
There is perhaps another reason why Khoza is so angry. Since the advent of the 2009 administration led by President Jacob Zuma, there has been a deliberate policy shift away from neo-liberal policies towards an active industrial policy, premised on intended increased investment in boosting manufacturing and investment in infrastructure.
This is not good news for a financial sector that has accumulated massive profits through the financing of debt for consumption and financial speculation rather than investing in the productive economy. It is therefore not surprising that significant sections of the manufacturing sector have welcomed many of the policy shifts by government.
So is Khoza’s anger directed at Zuma and the government for daring to strive to pursue policies that prioritise a new growth path premised on investment in the productive economy and infrastructure?
Perhaps the answer to Khoza’s outburst is not so much to be irritated by him, but for the workers and the poor of our country to intensify the struggle for the transformation of th