Can the MEC Be Transformed?

South Africa marks 30 years of democracy this year and has a critical election due to take place on 29 May. The election is important because it has been widely predicted that the ruling African National Congress will receive less than 50 percent of the vote for the first time since the anti-apartheid movement defeated white minority rule. Declining support for the ANC is due to anger at high levels of corruption, lack of employment and basic service delivery, and extensive load shedding (scheduled power outages) amid a stagnant and highly unequal economy.

A variety of opposition parties are hoping to capitalize on this disaffection, including a rag tag of mainstream “white” parties advocating continued austerity as well as ANC breakaways such as Julius Malema’s Economic Freedom Fighters and the newly formed uMkhonto weSizwe (MK), led by former president Jacob Zuma and named after the ANC’s armed wing during the liberation struggle. Zuma, the man who headed the “state capture” corruption project while president of the country, is set to stand in defiance of the corruption allegations against him, and MK is looking particularly strong in Zuma’s home province of KwaZulu-Natal.

Opinion polls have suggested that a coalition government — and huge squabbling — are likely, thus taking the instability that has marked many cities (run by chaotic pacts) to the national level. Worryingly, politicians are increasingly resorting to populist, anti-immigrant, racist rhetoric, calling for the expulsion of migrants and the death penalty for crime. Zuma released a TikTok video in March of this year stating that there was no crime in South Africa “before foreign nationals came”. He promised to separate teenage mothers from their children and to send them to Robben Island. The Patriotic Alliance frequently talks of how “they must go” and its leader Gayton McKenzie has said, “I will halve youth unemployment by mass deporting all these illegal foreigners so that ... our youth should get a job”. He calls for the children of migrants to be denied access to schools. The Inkatha Freedom Party speaks of “illegal foreigners” and promises to build walls to keep them out.

Instead of diversifying out of this core, the ANC’s acceptance of a trajectory dominated by neoliberal globalization and financialization has compounded many apartheid-era problems.

Key to understanding the anger, bitterness, and disaffection is the failure to shift the underlying structure of the economy in the post-apartheid years. Unemployment stands at 41 percent, and is much higher for young people, for African women, and in rural areas. At the same time, South Africa is known for being the most unequal country in the world (along with neighbouring Namibia, which apartheid South Africa occupied for many years). Poverty endures for the Black majority while the elite lives like elites the world over, extolling the “lifestyle” advantages of living in South Africa: luxury houses by the sea in Cape Town and elsewhere, fine wines, and a booming stock market. Large, profitable companies dominate the economy still, with a strong mining and finance core to the economy.

Instead of diversifying out of this core, the ANC’s acceptance of a trajectory dominated by neoliberal globalization and financialization has compounded many apartheid-era problems, resulting in rising inequality, de-industrialization, periods of jobless growth, low wages and precarity for those in work, debt-driven consumption for many, and extreme reliance on fossil fuel accumulation. A crisis of public provision has been made worse by endemic corruption between the state and non-state agencies. While there have been important changes in the last 30 years, many of the most successful sectors of the economy still come under the aegis of the conglomerates that constructed and benefited so much from the racial domination and cheap labour system of apartheid and colonialism before it.

The Minerals-Energy Complex

The idea of an economy dominated by the minerals-energy complex, or MEC, was put forward by Ben Fine and Zavareh Rustomjee some 25 years ago. It was not only an important sectoral analysis pointing to the importance of minerals, mineral processing, metallic products, and energy, but also to the strong linkages between them, their weak linkages with the rest of the economy, and the need to diversify out of these sectors. It was also an analysis aimed at understanding a historically specific mode of capital accumulation and its internal tensions.

This pattern of development produced two powerful forms of concentration: concentration of specific sectors, and concentration of ownership in these sectors. Finance capital was always central, given the scale of funding required for the mines. Afrikaner finance capital would later join English-speaking finance as Sanlam in particular channelled Afrikaner savings into investments. Over time, the project produced an economy that is both sectorally skewed and dominated by big conglomerate grouping with mining, finance, and other manufacturing interests under their wings. All these groupings relied upon cheap, Black labour, a highly repressive labour system, and the denial of democratic rights for the majority.

Fine and Rustomjee identified the MEC as South Africa’s specific system of accumulation, a theory aimed at understanding the concrete pattern of emergence and development of class relations in time and space. Any system of accumulation is necessarily embedded in the world system. As class relations develop, an economic structure emerges from production, linkages, institutions (including the state), strategies (including the state), and fissures within classes, which change over time. Countries have different experiences of industrialization according to the pattern of linkages that emerge, and industrialization can be viewed as a “changing structure of linkages”.

While the MEC core developed under apartheid, cementing itself by the 1980s, it rested on socio-economic foundations laid earlier.

Development economist Albert Hirschman emphasized the importance of linkage development, but his conceptualization was limited by its lack of emphasis on class relations, strategies, and dynamics in industrialization processes. A system of accumulation (not necessarily a national entity) can be seen in broad or narrow terms. Narrowly, it can be specified as a core set of sectors, as demonstrated through input-output tables. This is empirically important. More broadly, these core sectors emerge from class relations and value creation and need to be located in relation to the state and finance.

Fine and Rustomjee identified the following core MEC sectors based on the input-output linkages between them (and relatively weaker input-output linkages with non-MEC sectors): coal, gold, diamond and other mining activities; electricity; non-metallic mineral products; iron and steel basic industries; non-ferrous metals basic industries; and fertilizers, pesticides, synthetic resins, plastics, other chemicals, basic chemicals and petroleum. But in accounting for development in South Africa, emphasis was placed upon linking class and economic structure together with a key role played by the state and industrial policy. The MEC analysis therefore empirically identified input-output linkages between economic sub-sectors, which were understood in relation to fractions of capital, industrial sectors, and the state, and how class relations and conflicts emerge, develop, and are reflected in patterns of accumulation and economic and social reproduction over time.

While the MEC core developed under apartheid, cementing itself by the 1980s, it rested on socio-economic foundations laid earlier. Colonial conquest globally and across Africa turned great swathes of land over to private control and monocropping. Land alienation and enclosure, with the violent expansion of the frontier, and the destruction of commons under the Dutch, British, and Afrikaner settlers, had massive consequences for land use and ecology.

Following the discovery of minerals, capital and the state established — over time and through trial, error, and war — a migrant labour system whereby Africans migrated from “reserves” for periods of work on the mines, while African labour was also “allocated” to farming capital and, later, to the new urban centres. Land dispossession underpinned this, as embodied in the 1913 Land Act, and the entrenchment and expansion of the reserves/Bantustan system during apartheid meant the systematic development of underdevelopment, deepened further by apartheid spatial planning. The legacy of this forced labour system remains evident throughout the economy and society, as South Africa was transformed in pursuit of gold to support the global monetary system.

From 1948 onwards, the state actively promoted and developed key sectors — particularly electricity and steel — complementing the needs of the mining houses, which needed a stable supply of (preferably cheap) electricity. Eskom ensured the electricity supply to the mines, agriculture, and industry. The (now privatized) parastatals Iscor (steel) and Sasol (liquid fuel from coal, chemicals) further aided the development of infrastructure, energy, and chemicals. Sasol remains a major producer and consumer of coal. Mining, petrochemicals, metals, and related activities typically consumed 40 percent of electricity, leaving South African industry heavily dependent on coal for primary energy, highly energy-intensive, and reliant on the low-price electricity that was provided to large corporate users.

The financialization of the MEC has had significant and disastrous consequences for investment, as the financial system has channelled money towards short-term speculation and lending to households and away from long term productive investment.

The MEC was built around coal and cheap energy for mining, while higher quality coal was exported. Eskom (as it has been known since the 1980s), Iscor, and later Sasol benefited from preferential procurement and thereby secured protected employment for white labour and tenders for white businesses. The aim was never inclusive development, and when apartheid collapsed in 1994, approximately two-thirds of households were not even connected to the grid. Social, racial, and ecological injustices have long been deeply intertwined in South Africa.

Gradually, the disjuncture between English and Afrikaner capital was eroded, particularly in the late 1950s and 1960s. Conglomerate groups emerged in the 1970s and 1980s, which combined mining, manufacturing, and financial interests. Expansion of financial asset acquisitions occurred throughout the 1980s and 1990s, but at that stage it was driven less by the pursuit of shareholder value, as today, than by capital being “trapped” in South Africa by sanctions amid continued reluctance to invest in fixed capital because of political turmoil and uncertainty. This increased the size and depth of capital markets so that stock market capitalization as a ratio of GDP was high — greater even than in the US in the 1980s.

At this stage, the growth of finance was driven more by political uncertainty, but this changed in the 1990s, with the deregulation recommended by the De Kock commission helping to facilitate this change. Indeed, across the late apartheid period, state and capital moved both to liberalize and deregulate and to incorporate some of the leadership of the liberation movement into this project.

Post-Apartheid and the Financialized MEC

Global neoliberalism and the financialization of accumulation are the most significant shifts in the global economy since the world crisis of the 1970s. Driven by the economic slowdown in North America and Western Europe after the post-war boom, the collapse of the Bretton Woods system and the liberalization of international capital flows, the internationalization of productive capital, and the “hollowing out” of the state, financialization, while global in nature, has specificities in different national contexts. Conglomerate groupings have undergone extensive restructuring in this global context. Famously, a mere six conglomerates — Anglo American Corporation, Sanlam, SA Mutual, Rembrandt, Anglovaal and Liberty Life — controlled 84 percent of the Johannesburg Stock Exchange (JSE) in the mid-1980s. That picture has changed considerably, but the economy remains highly concentrated, and “old order” capital rooted in the classic MEC remains central. Simultaneously, this unbundling has led to the emergence of distinctly financial corporate groupings with an increasing amount of domestic power, both economic and political, as the financialization of the economy has intensified, and as conglomerates have restructured under global ownership and control into global production networks (with varied outcomes).

Moreover, this restructuring of the South African economy has been an important element (and consequence) of macroeconomic policy since 1994. Macroeconomic policy has facilitated high levels of capital flight and corporate restructuring, particularly through the decision to allow major conglomerates to relist overseas. High exchange rates have facilitated high levels of capital export. Short-term inflows, attracted by historically high interest rates, while generating instability, have been necessary to cover the ensuing balance of payments deficit.

Further, wages have fallen as a share of national income along with a steep rise in wage inequality, which has helped fuel rising levels of consumer debt as the financial system has been liberalized. The financialization of the MEC has had significant and disastrous consequences for investment, as the financial system has channelled money towards short-term speculation and lending to households and away from long term productive investment. This has been accompanied by attacks on labour, deemed to be responsible for low levels of investment, and policies designed to lower the cost of labour.

The growth of the financial sector and the shrinking of manufacturing have been accompanied by a growth in services and a rise in debt. Lending to the poor by both formal banks and less formal lenders has increased substantially. There has been a rise in services both in terms of investment and employment, but this has been due in part to debt-driven consumption and the outsourcing of cleaning and other services. Unequal access to mortgage credit as well as its spatial distribution mean those with higher incomes have seen greater wealth increases though house price inflation and those with higher incomes have been able to derive greater levels of income through acquisition of financial assets (unit trusts, ordinary shares, pension and insurance products).

Labour migration continues, increasingly associated with informal and casualized work, and with residency in informal settlements while in urban areas.

While the JSE has changed, oligopolies prevail, with significant market power in major sectors. Lack of basic infrastructure and social provision continues. Stand-alone finance (now separated off from the conglomerates) acts to reinforce investment patterns of the past, but also increases debt through the growth of predatory finance and lending. Financialization increasingly drives the strategies of big companies while a large proportion of the population remains essentially excluded and indebted. As capital has shifted away from productive activities, the outcome has been declining levels of fixed capital investment, particularly in sectors outside the core of the MEC and increased capital intensity in manufacturing. Some 50 percent of GDP comes from minerals-energy finance, although only 25 percent of employment is in that sector. Consequently, the South African economy has been unable to absorb the growing working-age population and, combined with the pandemic, has experienced a contraction in absolute employment numbers.

The crises of poverty, unemployment, and inequality are a consequence of this pattern of development. The richest 10 percent of South Africans now “earn” 66.5 percent of total income and own 85.7 percent of total wealth. This is critically driven by the high levels of unemployment (and reliance on social grants for survival) along with poverty level pay for many of those who are in work. Poverty pay since 1994 has been driven by the fall of unionized employment, outsourcing, and disregard for legislation protecting labour. Covid-19, of course, only exacerbated the unemployment crisis, with widespread job shedding a direct result of the lockdowns (which were not accompanied by sufficient social support). Only the informal sector has seen a slight increase in its employment share.

New technologies, including platform work, threaten to cut jobs further while creating new forms of employment, including in platform work. Importantly, de-industrialization has combined with de-agrarianization. Large scale commercial agriculture has made small-scale farming uncompetitive. Many rural areas undertake little farming. Instead, government social grants are the primary means of support, in the form of either pensions or child support grants.

Labour migration continues, increasingly associated with informal and casualized work, and with residency in informal settlements while in urban areas. This circular migration pivots on a rural home, including for the many young women who leave their children with their mothers in rural areas. De-agrarianization of rural areas and dependence on social grants have been accompanied by the spread and increasing importance of supermarkets. Supermarkets and social grants are now major features of rural areas.

Where Is the MEC Going?

This widespread crisis is a consequence of the changing nature of South African capital’s integration into the global economy and the strategies it has pursued within this global economy. The MEC has fragmented. The state is no longer driving an industrialization strategy, but the dominant sectors of the economy remain mining and finance. New sectors see continued patterns of ownership and, in many areas, are dominated by the same corporate groupings that grew up under and benefited from the systems and structures erected by colonialism and apartheid. The growth of finance and services, media and telecoms, and e-commerce has combined with de-industrialization, de-agrarianization, and rising household debt levels. Black capital has made only limited inroads. Meanwhile, social services have been commodified, producing a crisis of basic needs, labour is in a deep crisis, and the crisis of reproduction is borne by African women.

Both the economy and society more broadly are in deep crisis, and the political fragmentation of the ANC reflects this. So too does the crisis of Eskom, the state power company that was at the core of the apartheid project. In the democratic era, it has been threatened with privatisation and underinvested, and it has become debt-laden and riddled with corruption. Repeated power cuts have hit consumers, municipalities, and businesses alike. Many larger companies (and better-off households) have begun installing their own power generating capacity (be it diesel or solar) to escape the crisis of the national grid. This trend looks like it will only increase.

The budget in 2023 introduced a 125-percent subsidy for businesses that introduce solar panels in the next year, thus reducing demand on the national grid and signalling a transition to greener electricity production and consumption. Subsidies for households that introduce solar panels were also announced, though not very generous ones, and they excluded the majority working poor and unemployed by only applying to income taxpayers.

South Africa is rushing headlong toward a two-tiered system where the majority will remain dependent upon an inadequate and failing grid infrastructure.

The orientation of the policy furthers the erosion of the state’s capacity to provide universal access to high quality public goods and services. It promotes the idea of a private transition to cleaner energy. What this will mean in practice is a further deepening of inequalities, albeit painted green. Businesses and employed, tax-compliant consumers are to become “pro-sumers” insofar as they will be both consuming grid electricity and selling the surplus that they generate back to the grid. There is no funding for more generation. The implicit assumption is that Eskom’s generating capacity will be wound down.

South Africa is rushing headlong toward a two-tiered system where the majority will remain dependent upon an inadequate and failing grid infrastructure with its loadshedding. Businesses have already begun generating their own electricity. This is not only being driven by the Eskom crisis, but also by the changes demanded as the world attempts — slowly and feebly — to deal with climate change. South Africa is one of Africa’s worst polluters — thirteenth globally in emissions — although Africa as a whole has contributed less than 4 percent of total greenhouse gas emissions, and is also warming at twice the global mean. The government is trying to meet its commitment to net zero by 2050. Africa’s exports are soon going to be hit by the EU’s carbon border adjustment mechanism because of their carbon intensity.

Just Energy Transition Partnerships with funding of around 8.5 billion US dollars have been agreed from COP26 onwards, purportedly to aid the transition away from coal-based electricity generation in South Africa and other developing countries. But these funds are inadequate in their total amount, mainly take the form of loans, which further increases debt, and are underpinned by the questionable idea that these funds will successfully “crowd in” private sector investment.

The running down of the state in the democratic era has also undermined the capacity to bring about localization in solar panel production. Inability to develop local capacity means that the attempt is now likely to be abandoned altogether. Instead, there will be a headlong rush to import solar panels and other green technologies. And it’s not just about solar — the race is on to develop green hydrogen as demand from Europe is increasing since the Ukraine war exposed Europe’s dependence on Russian gas pipelines. Private enclaves producing green hydrogen are likely to develop in southern Africa with an emphasis on production for export over meeting local communities’ energy needs. Mining companies are also positioning themselves as providers of the critical minerals necessary to make the transition.

Thus, the core of the MEC is attempting to reinvent itself and “go green” — to decarbonize and put itself at the centre of the drive to supply the minerals necessary for a green transition. These developments not only amount to a new step in the fragmentation of the MEC, they also point to the severe limitations of “green capitalism” and its failure to address structures of race, power, and inequality.