Keys to unlock the South African economic shackles: The former head of Gencor is trying to bring Pretoria and the ANC together to repair the country's battered economy, John Carlin reports

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The Independent Online
DEREK KEYS, South Africa's Minister of Finance, Trade and Industry, has a stack of filthy pictures. Nothing that would be sold next to a certain book by Madonna, you understand, just a stark representation of how bad the state of his country's economy is.

The pictures - graphs of dire economic trends actually - have proved formidable shock tactics, helping Mr Keys to earn a good deal of respect and trust from Nelson Mandela.

Last month, the president of the African National Congress told the Johannesburg Star of a briefing he had received from the head of the ANC's economics department after a meeting with Mr Keys. 'He brought a statement from Keys which is well- considered and spells out in detail the actual state of our economy. And I got frightened,' Mr Mandela said. This from the man who precipitated a stock- market crash two days after his release from prison in early 1990 when he reaffirmed the commitment of his movement to nationalisation. Today, Mr Mandela has dropped the dreaded 'N-word' from his lexicon altogether.

Mr Keys, in an interview with the Independent, indicated that he too believes the economy is one area where, contrary to initial fears, the government and the ANC might increasingly see eye-to-eye.

'When Mr Mandela made his first speech after coming out, everybody immediately had to reassess their positions. Since then there's been a great improvement in the ANC focus in terms of economic systems. And that has come about because they have got acquainted with what the problem is, what means are likely to be at their disposal for addressing it.'

Mr Keys came to the job - and politics - in May, responding to a request from President F W de Klerk to give up his post as executive chairman of Gencor, South Africa's second-largest mining finance house, and take over the management of the national economy.

His pictures tell the story he was faced with. Employment soaring in the public sector, but tailing off in private enterprise; rising personal and corporate taxes and collapsing savings; and a steady fall in gross domestic product.

What the pictures also did, Mr Keys said, was explain why, despite annual public spending of 100bn rand ( pounds 22bn) 'we have a feeling of strain, a feeling at every level of government that we have no money'.

He points to the huge growth of state employment as the root cause of the economic problem. 'It indicates that employment is driven by need, not by resources available and explains why, despite increased tax rates, you cannot keep your budget in balance any longer.'

Almost as important is flagging investment. In 1983 gross domestic investment stood at 26 per cent. Today it stands at 16 per cent, a level at which growth is impossible. 'South Africa needs 14 per cent simply to replace capital equipment that's wearing out. So the figure for new capacity investment is down from 12 per cent to 2 per cent,' he said.

Economic factors beyond Mr Keys' control have compounded the problem. He listed the main ones: 'The drought which has affected southern Africa this year; very poor precious metal prices; the fall in the dollar, in which most of our exports are denominated; long-term deterioration in our terms of trade; plus worldwide recessionary tendencies. Generally, all the woes that affect primary product exporters afflict us.'

The upshot is that, despite encouraging developments in wine, fruit and manufactured exports, the official GDP projection for this year is a 1 per cent fall. Growth of 3.5 per cent is needed simply to keep the economy on an even keel, and 5 per cent to keep up with population growth and new entries into the labour market.

New investment is the answer. In a recent speech, Mr Keys defined the promotion of investor confidence as his 'central preoccupation'. In order to succeed, he has told the cabinet, he requires two basic political pre-conditions: an end to the violence, and the establishment of a representative government. The sooner they both arrive the better for, as he knows only too painfully well, while political uncertainty lingers the chances of increased investment are nil.

These were not issues into which he was eager to be drawn in his interview, reflecting the degree to which he operates as an independent entity within a cabinet whose members belong almost to a different species.

Mr Keys' predecessor in the finance portfolio, Barend du Plessis, rose to his position through the National Party ranks and was always more comfortable talking on politics than economics. His own unusual appointment represented a humble acknowledgement on the part of President De Klerk of the limitations of the people at his disposal within the ruling party machine.

There is a strong sense that, while Mr Keys is not privy to all the secrets of state concerning the National Party's central obsession with retaining a strong grip on power in 'the new South Africa', he is left very much to his own devices in the economic terrain.

One task he has set himself - and he defined its resolution as critical to the pursuit of economic growth - involves active political engagement 'to stop the economic civil war'.

He defines this 'war' in the starkest terms. 'It is the fact that South Africans appeal for sanctions to continue; the fact that South Africans cast doubt on whether loans negotiated by the present government will be repaid overseas; that South Africans call for work stoppages for political reasons; that South Africans boycott certain parts of the economic system.'

He singled out the 'mass action' campaign of the ANC alliance this year as particularly damaging to business confidence. So much so that in August, when the work stoppages and demonstrations were at their peak, even the consumer index dropped. 'We had an absolute decline in beer and cigarette sales that month.'

The way to stop the war, Mr Keys believes, is through consultation. 'In my maiden speech I mentioned 'the golden triangle' which is a hallmark of all societies that have managed to turn in above-average economic performances - by which I mean the establishment of a consensus between business, labour and the state.'

Substantial difficulties exist in realising this concept at this time, Mr Keys said - specifically, political difficulties. But progress is being made. He recently met leading representatives of business and the ANC-allied Congress of South Africa Trade Unions, with the objective of establishing a national economic forum, a notion rejected by the government before Mr Keys assumed his position.

In the interview, Mr Keys made it clear that he was going to recommend to the cabinet that it adopt the proposal. 'I am hopeful it will happen. It won't be a big thing. It will be simple, straightforward, consisting of working groups addressing specific issues.'

On a similar track, Mr Keys' relationship with the ANC economic team is developing more successfully than might have been expected. A senior ANC figure who has held discussions with Mr Keys noted that he found him an easier individual to deal with than 'the average Nat (Nationalist)' for the simple reason that he was a straight talker, that one was not forever second-guessing his intentions.

The success of this relationship will become increasingly crucial as the day approaches - perhaps a year from now - when an interim government of national unity will be in place.

Mr Keys said he was particularly encouraged on this score last month when he and Tito Mboweni, a leading ANC economist, shared a platform at a conference in London. 'When it came to the aspect of looking towards the future, his and my speech could have been exchanged without anyone in the audience noticing.'

The likes of Mr Mboweni do not, however, feel entirely comfortable being identified too closely with Mr Keys' thinking. Different emphases remain on the critical question of reconciling the need to generate growth and meeting the popular demand for wealth redistribution. And the ANC still has a habit, Mr Keys said, of issuing statements hardly encouraging to potential investors.

But he remains optimistic. Once the the economic civil war has been stopped, once a representative government is in place, once government consumption is down and resources for investment freed, once an unambiguous commitment is made to the market system, the scenario, he said, will be an exciting one.

'There's a certain amount of rhetorical froth about, you see, that one simply has to get out of one's mind. I'd say to business people: 'Don't worry too much. We're working on the problem. The rhetorical froth is going to become better tasting, less bubbly'.'

(Photographs and graphs omitted)