In this article, Nomura analyst Peter Attard Montalto, explains the relevance of the student protests for investors.
After a week of student protests over fees, exposing deep and changing societal expectations among the “born-free” generation, a slow government response, and a digging in of demands by protestors, the mood has morphed from being against universities to being against the government, Minister Nzimande, and also the ANC. However, it has not grown in size of support (outside of students) nor mutated into a wider protest movement against the government or ANC.
As such it remains within a pretty confined socio-demographic space. The government’s response will be crucial to which direction this takes from here, but also if the space this is happening in broadens. That will be the real time for investors to sit up and watch. Widespread student protests have broken out across all South Africa’s universities and spilled into local areas, particularly in Johannesburg and Cape Town, and on Wednesday into parliament. They are protesting against large 8-10.5% fee hikes for the coming university year from January.
Protests started last week, focused on UCT (the site of the successful Rhodes statue removal campaign) and Wits (in Johannesburg), but quickly spread across the country. Protestors are highlighting the issue of affordability of higher education given limited bursary support and limited availability of student loans (basicallyonly for the most well-off). High up-front enrolment charges are also a key issue for affordability.
Generally, investors care little about domestic idiosyncratic issues until media headlines start crossing.
This happened yesterday with the disruption in parliament of the MTBPS by EFF taking up the student’s cause and then the storming of the parliamentary precinct by student protestors at the same time. It is now firmly on investors’ radar, though we are consciously avoiding both hyperbole (‘is this their Arab Spring?’ type questions) and complacency (‘this is just a bit like a mining strike’ type reaction).
Within the South African investment narrative (for both locals and foreigners) a key issue is the inability to properly map out the shock or bite points that will cause change, and shift us out of this “bumbling-along” status quo. This is something we have grappled with in our frequent ‘ZAR risk outlook’ reports, but also something we’ve highlighted in our trip notes. We therefore think it justifiable to ask “is this one of those key inflection points?”
The dynamic of this protest
Several key issues need to be made clear, however:
- This is a protest movement (so called #feesmustfall) by current students about current student issues. It has not been joined by the unions, prospective students and younger school pupils or the wider public. It can be said to be contained as long as this remains the case. It is about fees and the issues of racial transformation and empowerment within South African universities. It is not about wider issues like corruption, growth, jobs etc.
- These issues have been brewing for quite some time (coming to a head in the Rhodes statue removal at UCT), but speak to much deeper issues bubbling up in the “born-free” generation (those born after 1994 or the looser definition of below school age in 1994) of particularly black youth about rejecting multi-racialism and rainbow society visions of the Mandela presidency in favour of a firmer agenda of racial transformation, black consciousness and (black) Africanism.
- These kinds of issues, however, and this protest in particular, have remained pretty much contained within the middle class. We need to be clear though that there is still a serious affordability issue for the new and rising middle-class population in South Africa (and avoid lazy comparisons with, say, developed market middle-class incomes). Demographically we are therefore talking about a very particular, relatively narrow, set of the population. Richer students appear not to be taking part; poorer youths who cannot afford to go to university are not taking part either. We think it is important to watch if the protests start to include lower socioeconomic groups. Equally, this remains an urban not a rural issue.
As we can see while there are deep issues here and long-term potential for future generations of middle-class youth to have similar views, for now the socio-demographic ‘space’ this is happening in is limited. For investors we advise watching to see whether this becomes something bigger.
The government response and what comes next
The government has been exceptionally slow in dealing with the grievances of students. In part it got away with this for the first week. Protests at that time were directed more against universities themselves (which decide their own fees within the context of funding from government and other income streams), and only since around Tuesday of this week shifted to focus to Minister Nzimande, the ANC and government. [Indeed, we think yesterday was the first time ever that the #ancmustfall has trended on twitter – though that is hardly representative of wider feeling.]
Negotiations between universities and protestors were bilateral until this Tuesday when the minister said after meetings with universities and ‘student leaders’ (it is unclear this was representative of the protestors) that fee increases would be capped at 6% for next year and he would set up a ‘task team’ to look at the protestors’ grievances. This was rejected by protest leaders who want no fee increases and wider access to financial support.
Protestors have been particularly riled about the lack of engagement from the minister and President Zuma. The President has now promised to meet protestors tomorrow to discuss access and funding for university. Protests have intensified overnight, however, in response to the heavy handedness of police (and their use of stun grenades and arrests of protestors on ‘treason’ charges’) in clearing the parliamentary precinct yesterday.
Investors should not underestimate the ability of the ANC to ride out a supposed national crisis without addressing the fundamental issues. We have seen this today. ANC criticism of Minister Nzimande has increased, and while coded, a press statement yesterday made clear the organisation now thinks the situation could have been “handled differently”.
Also ANC Secretary General Gwede Mantashe has said the ANC fully supports the frozen fees for next year. This is a classic ANC political tactic of attempting to hijack a popular movement not started by the ANC, even though its own policies have led to a given outcome. The position of Minister Nzimande is interesting, however. He is Secretary General of the communist party (SACP) and is seen as its most senior deployee in government. Yet he is also seen as somewhat isolated within the cabinet, but at the same time we often talk of a reverse takeover of ANC HQ by the SACP (including Mantashe). His attention has clearly been elsewhere, with a lot of focus on vocational training and postgraduate study rather than undergraduates, fees and university infrastructure spending, in our view. That said, his position is arguably senior enough that he is not easily expendable.
However the nature of these protests has been very much non-political:
- ANC, DA and EFF youth groups have been identified as cooperating and sharing platforms within the protest movement, but the ‘grown up’ ANC, DA and EFF have largely been kept at arm’s length, with protestors rejecting their involvement.
- The leadership of the protests has been from outside the parties’ youth movements and indeed from outside student unions. This is in part because ANC student union leadership is viewed as too sympathetic to the government, not wanting to upset the party.
- The ANC struggles to come to terms with such non-political movements of populism that are beyond its control. The DA is too sober and not a protest movement party EFF has, unlike mining strikes and other issues, seemingly failed to make a meaningful mark on this issue on the ground despite its very public intervention in parliament yesterday.
- The non-party-political nature of the protest makes it less predictable, likely more entrenched, and long running. It does not necessarily increase the chances of it morphing into something bigger, however.
We think the government will ultimately have to accede to either no fee hikes for next year, or allow fee hikes but insist on greater levels of income differentiation so richer students pay a lot more and poorer students pay unchanged or lower fees. The government can push this issue down onto the universities. Indeed, Mr Mantashe has stated this is a good opportunity for the government to take more responsibility for higher education oversight and regulation away from universities. The universities will then be left to balance their books through cuts to capital and infrastructure projects. But as these are already budgets that are run to the bone, cuts to support staff and research, reduced teaching time would likely also have to be on the table.
Such a response, however, would provide no money for transformation, student support, improving quality, expanding the number of black academics and researchers or taking greater numbers of students. The deeper underlying issues brewing within the student body would therefore not be addressed. As such, the long-run risks to watch in this area remain.
Our very rough baseline then is that this will go on for a few more weeks before the ANC fully hijacks the protests, shifts blame back onto the universities, accepts the protestors’ demands and things start to quieten down as exam season starts and then the universities break for the Christmas summer holidays. The trigger points for downside risks from the above should be clear, however – including a more forceful rejection by the student body of the ANC’s hijack attempts.
