This resource is hosted by the Nelson Mandela Centre of Memory, but was compiled and authored by Padraig O’Malley. It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.
19 Oct 1994: Keys, Derek
POM To go back, you joined the government, Mr de Klerk's government, about three years ago? You stayed through the transitional government and you were offered the post of Minister of Finance in the government of national unity. You stuck it for about three or four months and then you quit. Why?
DK I was quitting a long time before. I went in with a very limited objective and that was in fact to see the old order transit into the new order. I thought President de Klerk was the only leader of the white minority that was capable of carrying enough people with him for that to happen effectively. When you ask me for facts I went in to help him on the basis that I would see him through that process. I also, as a subsidiary objective, took the objective of trying to get the economic policy of the incoming people aligned with today's world. Not to change their objectives of what they want to get but to try and show them how one could achieve those objectives in the world of today instead of the world of 1955 when the Freedom Charter was issued. Then as we drew to the end of the period before the election, I had already signified the fact that I would not be a long term participant. That was known before the new government was put together. My initial budget and the basis on which I was able to bring the parties together in support of the Reconstruction and Development Programme, which was a basis which allowed for no increase in the level of real government consumption spending and a progressively greater allocation over five years to the Reconstruction and Development Programme. When I put those two building blocks in the process my job really was finished. There is no good time, and I must say this, there is no good time for a Finance Minister to leave.
POM It's an impossible choice.
DK Then they don't leave.
POM During your tenure as Finance Minister, what was the biggest problem you had to face?
DK The biggest problem I had to face was that the structure which had been set in place in adherence to the apartheid doctrine had been set in place with a total disregard for good administration. The theory was that you are put on your own and given a sum of money, those communities would find out how to administer it and would do the best job that could be done, etc. This wasn't the case and it became, as one moved towards the election and its entirely predictable outcome in terms of who was going to come out on top, those elements of moral ... which had been there in the old system crumbled and you had a situation which in certain respects came close to being anarchic as that period entered its final phases.
POM We were here for the last few months. It looked as though it was going to go like South America in the end.
DK Yes, of course. But I'm talking really of a much more militant reference, just the way in which funds were applied.
POM Someone said to me the other day that the former homelands Chiefs or the Presidents of the independent homelands were still on a salary.
DK Sure. I don't know quite about the political figures, I don't think the political figures are still on salary but the entire civil service of each of those bodies has, as part of the overall guarantees in the interim constitution, has its posts guaranteed, it's employment guaranteed and its pensions guaranteed.
POM Given that and the fact that the ANC must bring its own people into government at senior level and at management level and junior levels, if you are at the same time rationalising the civil service where is the lever?
DK The lever is in the rate of attrition as far as the white superstructure is concerned, the attrition rate has been 8% a year. Now you can do a lot when you have an attrition rate that high and I think that as the process gathers momentum the attrition rate will actually increase assuming that you have a reasonable economy. In other words if people can leave government service and find jobs in the private sector and so on I think that rate might even increase. So I'm not too concerned about that and, of course, it's a mistake to think that the civil service as a whole is predominantly white. The composition of the civil service as a whole is 60% black.
POM It's just the distribution of the jobs.
DK So at the lower levels you don't have the affirmative action problems to the same degree.
POM Just given what you know of the civil service, do you think that incoming civil servants, black civil servants, need a fair amount of training before they get up to scratch on the job?
DK Of course they do. That reminds me, when I was in the private sector before I went into government, I had this large mining house to worry about and I said to them, "How can you get a mine to accept a black mine manager?" And one of the fellows there, he had a rather slightly off beat kind of mind, he said, "I'll try and answer that question but will you first answer a question for us? How can you get the mines to accept a white mine manager?" Any organisation with a strong sub-culture of its own, it's very difficult to gain effective entry at anything other than the bottom and the usual colour and the usual kind of background and so on. So there are tremendous emotional problems and as far as the people needing training and so on is concerned it varies of course. Some of the people are much better qualified than have ever been employed in the civil service and I don't mean in funny universities, there are impressive people.
POM If you look at the economy today and compare it with when you first took over, would you say it's in a better shape or a worse shape or just about the same?
DK It's in a much better shape because the economy is growing and when I came in it was shrinking. The rate of domestic investment is increasing and when I came in it was dropping. The effective tax rates for entrepreneurs are now much lower than they were, which is good. The country has in the meantime made what almost it might be described as an ambitious offer as far as GATT is concerned and the country has ended the standstill agreement with the banks which came in in 1985, inflation has been halved, more than halved if you go back a year or so. In fact there isn't an aspect in the economy which isn't better with one single exception which is my area of failure, and that's the level of international, foreign exchange reserves. They were quite healthy when I came in and when I left they were rather poor. They are improving but as the election came nearer and so on, confidence or lack of confidence ...
POM Is the economy expanding in a way that is creating jobs?
DK In due course, as you know once you start rolling in due course you create jobs. It doesn't happen at once because a lot of people don't fire all the people they ought to fire as you're going on the way down because they expect things to turn up, so you don't get an immediate employment boost when it comes up. You get that the moment that you come up to the capacity, to the level of ...
POM Assuming that the rate of growth, that the economy exceeds the rate of growth of the population?
DK Which it is doing at the moment.
POM Last year when I recall you telling me that you thought that unemployment at best would only decrease by 1% per annum between now and 2000. Would you still stick to that figure?
DK More or less. We will have chronic unemployment problems for three decades even if we do everything right. You can't start from the point where there are only 53% employed in the formal sector and transform that situation in five years. If we do everything right the 52% rises to 58% in five years and you still have a big balance to worry about. This country needs mechanisms for equity as well as the effective market forces. There are sociological aspects of the unemployment problem.
POM Is there still a quest for stability in the country? What reasons would you give to a foreigner to invest in South Africa rather in another country?
DK I don't play that game actually. As far as I am concerned it's up to them to make up their mind about whether they think they would like to invest or not. If you go into the question of competing then you have to have wage rates as low as China's, which is 44 cents an hour, and you have to have a tax regime which is as good as Singapore's and you have to have this and that and you can't do it. So you cannot construct a profile for this country which looks better than every other possible opening for investment. It can't be done. People have to have an interest in servicing this market, which is going to grow at a certain rate, partly because of population and partly because of economic growth and they have to figure out whether they can make money here and if they figure out that they can't make money, if they tell me what they think the problem is I'll have a jolly good look at it. But a superior list of investment attractiveness can't be done.
POM The inflow of capital has been rather slow.
DK Just what I anticipated. People will be in a wait and see mode for South Africa for ages still. The only exception is the companies that feel that they have to be global and they haven't been here before and they've established outposts of one kind or another. But even those, the tendency is to do it under a licensing or a franchising basis, in other words limiting the capital tie up to the greatest possible return. Let me tell you that that's nothing new. When I started business it was the case that the government had to introduce some regulation about how a foreign owned corporation ought to be capitalised because General Motors operated in this country with a share capital of $100.00 and bank finance. And that was in 1938. It's nothing new.
POM I want to go back to this question of stability.
DK Political stability I think has exceeded our wildest expectations and I think there is every prospect that that will continue.
POM If you look at the random strikes, the huge pay demands, the MK rebellion.
DK The only thing you can say about the strikes is the fact that there is no longer a political motive hasn't changed the frequency or intensity of strikes, it's more or less the same as it was.
POM Is there a culture here that is so used to being anti-authority ...?
DK Yes, that's true.
POM - that it can make it more difficult for the government to do anything?
DK They have this feeling of having been excluded and the best way that they are going to get their demands met is to interfere with the processes of the government in one way or another, whether it's parking their trucks at the toll gates or a strike, the same phenomenon. If you are responsible for that area you have to know how to manage it and there are some South African company managers and so on who learn and there are plenty who won't learn.
POM This talk about a gravy train, does it exist? According to the Sowetan the salaries the ministries are paying themselves are obscenely high as seen against the ordinary people's earnings and one of the reasons for the industrial action?
DK I wouldn't argue with Aggrey Klaaste who knows his oats. But the gravy train situation is basically that the old level has been continued with a larger number of people. There isn't a significant difference between the old level and the new level. I don't have to quote to you that maxim of South American revolutionary law that the oppressed take as their role model the oppressor.
POM Very quickly too.
DK So the experience has become quite common in the Cabinet, to find ministers complaining about how poorly their secretaries are paid. Their idea of how to close this inequity is just to raise the salaries which costs billions of course. As you see the belt tightening programme of every Minister of Finance is to bring down the top. Have you see those proposals? They want to cut the ministers' and President's salaries by 30% and members of parliament by 10%. I think they will have to do something along those lines because I think without that I don't think the Cabinet has the moral authority to call for a freeze. They will have to call for a freeze because it has guaranteed all these people employment and the fiscus can't stand the rise.
POM When you look at the economy in its present state and bear in mind promises made by politicians before the election, Tokyo Sexwale saying that they will build 150,000 houses.
DK He made that promise after the election.
POM But people don't see it happening.
DK They certainly don't.
POM The impression, we've been travelling around the country for the past two weeks, is the impression of a growing level of impatience and anger that very little changes, that the new South Africa looks suspiciously like the old South Africa?
DK That's right. It's bound to happen.
POM What can the government do to deal with this question of perception?
DK Well they can't do anything about the perception because the perception is there. So what they have to do is they have to come forward with a credible plan to attack the various areas whether it's housing or health or whatever, a plan that can be afforded and which can be communicated effectively to people and be monitored by the communities to say this hasn't or has happened. We went to Marrakech for the signing of the GATT agreement and we drove round one corner there and there is a big board up there which said. "A polo ground will be constructed here in 1997." A polo ground, what's it? Level the grass. But there it is, in the plan somewhere it's going to be done in 1997. So I think we have to have a lot of signs. 200 houses will go up on this piece of ground here in the second half of 1996 or something like that.
POM Looking at the RDP, again, outside of very senior government echelons, we've been met with a blank gaze when we've mentioned it. Even within government departments there seem to be very different interpretations of what it is all about. The government appears to have been slow to move to getting its message out, educating people about the RDP in the same way as it educated people through the Electoral Commission through the use of the media. Why is there this delay?
DK Well they have been trying to come to terms with the fundamental problem of limited resources. It's perfectly clear to my colleagues in the Cabinet, it's perfectly clear to all of them what could be afforded and what couldn't. And then you took what could be afforded and applied it against the realistic costing of some of the RDP programmes, you will find that there isn't enough to go around. So you have Minister Bengu coming with his white paper on education and saying the education policy of the government is this, except for the fact that we can't afford it. Now that's a very healthy stage to have got to, but obviously when you are still thinking on two levels like that, this is what I'd love to do and this is what I can afford, you're not in the best position to communicate a striking message to the populace.
POM How would you rate the RDP as a plan?
DK I think a German visitor gave me the best description for it, he said as far as he could see it was indistinguishable from the election manifesto of the Socialist Party in Germany. Very good election material. Something for everybody, nothing that isn't going to be addressed.
POM But can it work?
DK It can work if it's motivated, if a system is found for motivating its achievement through community action and not privately. In other words you can take the objectives of the RDP and you can say to communities, now these are the things we would like to achieve, this is what we have to assist you and you have to work out a way to do this. The Mexican example on education, I mean this is all hearsay for me, but I believe that when they found they just couldn't handle the education needs with the education budget they changed their approach and actually went round giving communities an amount of money and saying you must organise the education of your children yourselves. And when they tested it four or five years later they found children from those communities had just as high a level of literacy and so on as the ones who had been in the formal system.
DK The RDP holds out to the blacks the idea that when the RDP is complete they will all be living like the whites in South Africa. That is not achievable.
POM On any significant level?
DK Well it's just not achievable. You can re-direct the government's spending. As you know I believe it ought to be lower than the percentage of GDP if you want to get decent economic growth but at whatever level you have you can alter the skewness of the distribution but that doesn't give you a figure per capita which allows you to maintain white standards or to meet white standards for the whole population.
POM Thabo Mbeki has come out to say that there will be no tax relief in the 1995 budget, that the economy isn't strong enough to sustain it, the widening of the tax base ...
DK The idea is to take the current real level of consumption spending and to redirect it. In other words to test every rand spent by the government in the consumption area now to test it against the RDP objectives and to cut out the spending that doesn't fit in with those objectives and to redirect the funds so that the whole government budget, if you like, becomes entirely RDP oriented. That's source number one if you like. The progressively greater allocations which my financing programme for the RDP fund envisaged, that's supposed to be sort of seed money which helps that process to happen. The nirvana is if you get to the end of the five years and you haven't increased your real level of government consumption spending but the level that you've got is 100% applied to RDP objectives in an equitable and a fair way which fundamentally means spending a lot less on rights and spending a little more per capita on each black person.
POM Again, one gains the impression from talking to people in the provinces, even in the governments of the provinces, that there's this tussle going on between them and central government for resources and powers, that very few powers have been devolved to the provinces even after six months.
DK Many of the provinces of course have been brought into being. Take the Northern Transvaal Province or something like that and you really start with virtually nothing. Some of the provinces are quite well equipped. It's turned out, I think, to be politically difficult to give powers to better equipped provinces while leaving less well equipped provinces waiting. That was part of the original plan but I don't think that's going to be too easy. So in a sense I think the government is proceeding at the pace of as slow as possible.
POM This will, again, mean you impede the implementation of the RDP.
DK The local authorities are going to do the work.
POM Do you find, or did you ministers find among your colleagues a great deal of optimism about the future or a feeling that for a while this will be rather dicey?
DK I think there is an increasing consciousness of the approach of 1999 and of course dissatisfaction with the slowness with which spending has been redirected. It's easy in theory to say you are no longer going to spend on white teachers, you're going to spend on black teachers. In practice it has to be handled. All the white teachers have had their salaries and pensions guaranteed. What do you do with them? What do you do with them especially when they aren't welcome in black schools? So as one goes through the process you begin to pick up what the real problems are and of course the people are dissatisfied with the slow rate of progress.
POM Which is continuing to be a slow rate.
POM What's the business community's feeling on the RDP?
DK There are undoubtedly businessmen who think it's great and they must play their part and so on. But if one talks specifically about the RDP, the business community in this country, and I may be a bit cynical in the range of answers, but the business community in this country throughout my entire business life has concerned itself with finding out what the government's magic buzz word is. At some earlier time the buzz word was 'strategic value', and in earlier times it was 'import replacement' and so on. But you always as a businessman in this country are looking for the word that makes ministers listen to you and take you seriously and so you shape whatever you need from government, you create an envelope which has this lovely attractive colour of the fashionable buzz word of the moment, and the fashionable buzz word of the moment is 'RDP'. You can say I'm working on something to make a contribution to the RDP, and you have to have a convincing face of course to say I need this and this and this, then you're likely to get a hearing. That I think is business's basic attitude to the RDP, it's the new buzz word.
POM Your replacement, Chris Liebenberg, recently said that South African business must start scoring tries. "I feel like a scrum half who cannot get the ball out of the scrum because my loose forwards are not there to support me."
DK I don't know, there's more of a context to that. It's quite a nice story, metaphor, whatever.
POM The business community is fairly behind the government?
DK Business has always been behind whatever government there is. They stroke them, they go there and they stroke them and they tell them yes we are supporting you and what can we do for you and this, that and the other. But I told Jay Naidoo that as far as the business contribution to the RDP is concerned he should forget about the donations projects of companies because that's very small money and it's unreliable and so on. The only way to get the private sector really involved behind the RDP is you have to sit down again and go through a problem definition session and then go through the alternative solutions and see in the case of each of them what contributions they think they could make that would result in a better bottom line for them, perhaps not next year but in five years time, or something like that. You would have to go through that whole exercise to lead them along to it. Business as such is the same in any country, they are not going to come up with fantastic ideas and commit shareholders funds.
POM That process doesn't seem to be going on?
DK No, everybody is too busy. Jay is too busy organising the projects and getting the RDP fund established and negotiating with the provincial Premiers and reviewing projects and talking to overseas banks, that sort of thing.
POM It sounds a little bit like the nitty gritty is being left undone but the glamorous part of the work is proceeding.
DK And yet, you've taken people who have never been in government and you've given them this task, you've got to allow them a certain amount of time to come to grips with it.
POM On a scale of one to ten how would you rate the economy from when the government of national unity took over and the state of the economy today?
DK It has certainly improved. People are investing and the level has gone up, the foreign reserves have improved and so on. It's definitely gone up. Whether you say it was five and it's now six or seven and it's now eight, it's improved.
POM And how about the performance of the government?
DK I think, taking into account the size of the mess that they inherited, I would give them a good mark, certainly over a pass mark.
POM And Mr Mandela himself?
DK Can I comment? Is ten all you have?
POM Looking at the future, what do you think over the next four or five years, you've mentioned some of them, the crucial steps that must be taken by the government for the ANC to go back to its people and say we have done a good job in five years even though we haven't had kept all our promises, or any other promises?
DK Well they will have to have a much more representative civil service, especially in the management part. That's one of the things. You have to have the constituent programmes of the RDP housebroken and you have to have gone through this communication exercise so that you've got the community allied with those programmes. You've got to have a confrontation with organised labour.
POM That's coming one way or another.
DK So you've got to go through that successfully. On that basis I'd vote for them.
POM Would you see or foresee a break up of the ANC, the SACP doing its own thing and COSATU will become more like the ...?
DK Well the COSATU thing will be affected by the labour confrontations. I don't know how that will work out. But the SACP, I don't know if it has much more than sentimental value for the members who were avowed communists 25 years ago. From my discussions with them and so on and the way in which they are working out their policies, the way Joe Slovo is working out the housing policy and so on, I just don't see the relevance of the label any more.
POM You spoke about a culture of opposing authority. Do you see a situation where the people are going to pay their rent backlogs, electricity backlogs, even whites? That's the first tangible evidence of the new government to these people, that they have to start paying for things.
DK Well when I talk about the communities being aligned behind the programmes, the idea is to use the RDP programmes to facilitate the resumption of payment. In other words there won't be housing programmes where there isn't a commitment to pay, there won't be educational programmes where there isn't a commitment to pay. It's hard to adopt but it seems to be the only way we can go about it. People will realise that if they are not going to pay they will continue to live in squalor.
POM If you were to look at what you thought were the prospects of South Africa when you first became Minister of Finance and look at the reality today, do you feel a lot more optimistic, somewhat more optimistic?
DK I feel optimistic about different things. When I went into government I was optimistic that we would be able to get through to an election and have some kind of coalition government thereafter with a reasonable economic policy. That represented in those days a high degree of optimism. So I was optimistic about it and I was part of that process and it happened. Today I am optimistic that the ANC will retain sufficient popular support to lose some, that it will retain sufficient popular support for it to be able to implement that policy which will involve a lot of disappointed hopes and this, that and the other and in four or five years from now have a substantially healthier economic structure than they inherited. That represents a high degree of optimism but I have that optimism.