After the Bell: Joburg’s dodgy loan shows the wheels are coming off the ANC-EFF alliance road test

So, on the topic of looking for trouble, we got a fabulous insight into government finances this long weekend, and we know it was genuine because it was completely inadvertent. What happened was that the new mayor of Johannesburg, soon (apparently) to become one of SA’s “smart cities” within the next decade or so, went on television for the first time.

In case you haven’t been following it, the new mayor is Thapelo Amad, who is one of three councillors from the Islamic Al Jama-ah party, which got less than 1% of the vote in the 2021 local government elections. The reason Amad got in is that, as we have seen across a whole range of very important municipalities, the ANC and EFF have a new plan.

The new plan is to ally with each other and other smaller parties to oust DA mayors. But rather than fight about whether the ANC or the EFF will get the right to vote one of its members in as mayor, the parties have agreed to instead nominate one of the representatives from one of the small parties. The smaller the better.

So, the DA’s estimable Mpho Phalatse was relieved of the position of Johannesburg mayor, and Amad was elected to the seat in January. Amad appeared on SABC2 at the weekend to answer questions about the parlous state of Johannesburg, which is pretty obvious to everyone. He was clearly on the defensive from the start, and in an effort to demonstrate that the council was actually doing something, he said he had “secured” a R9.5-billion loan for the city on very favourable terms.

Very little information was provided about the loan, least of all the funder, but Amad said it was a “financing package” and the interest rate would be 2% for the first five years, and then the remainder of the loan would be paid over the next 15 years.

I asked my podcast colleague Mark Barnes who, as a merchant banker, deals with money all the time and has some experience with government finances, what he would do if he was offered a loan on these terms. He said (listen here) he would pick up the phone and call the police.

Anyone offering a loan at a 2% interest rate when the benchmark interest rate is 7.75% is obviously working a con. Amad was completely, obviously, embarrassingly out of his depth. But it gets worse. Over the weekend, reporters phoned the ANC to ask whether they had heard anything about this loan, and the party said, no but just because its chosen leader in the city had apparently agreed to a dodgy loan was not sufficient to make the party withdraw its support for Amad. 

EFF leader Julius Malema used the incident as the basis for a lecture on “seeking validation from those who wish us failure”, saying one or two mistakes don’t indicate “personal instability”. There are systems involved here for raising money, so, he implied, rogue loans are unlikely. 

Well, he is right about that. Loan proposals emanate from the city’s treasury department, and there are a host of checks even before the loan gets voted on by the council. So, there was never any real danger Amad’s dodgy loan would ever get approved, although we have seen some shockers at the local government level.

Two things really get me about this loan. First, it’s just amazing to me how fast dicey financiers can get into the mayor’s office. And they are obviously sufficiently convincing to transform the city’s most important official into an enthusiastic proponent. It’s incredible.

The second thing is the cynicism of the loan proposal. We don’t know much about the terms, but we do know — because Amad is such a babe in the woods that he openly revealed it — that those first five years would be at the very low interest rate of 2%. So presumably, the remaining 15 years of the loan would be at a very high interest rate, but he didn’t mention how much. 

The point is that the initial low interest rate is obviously designed to match the typical period of political office of the city officials concerned. Essentially, future administrations would have to bear the brunt of the loan terms, but in the interim, the existing politicians would have lots of lolly to play with for “service delivery”.

And there is another problem. The ANC-EFF alliance has now sprung a leak an entire three months into its existence, because one of the other members of the coalition, Gayton McKenzie’s Patriotic Alliance, tweeted that Amad’s presentation was “embarrassing. We cannot continue defending such stupidity,” he said, adding the party “must fix our mistake soonest”.

Well, now this is a problem because the maths of the council is really tight. There are 270 members of the council, so the magic number — the votes required to run things — is 135. Amad was voted in with 138 votes. The ANC and the EFF together only have 120 votes, so they need McKenzie’s eight votes, and also the three votes from Al Jama-ah. And even then they are a bit short, so they still need the votes of a couple of seven one-vote parties.

So without McKenzie, Amad’s prospects start looking a bit doubtful. Looking at it from the other side, the slate is equally tight, with the DA and all the parties in what ActionSA’s Herman Mashaba calls the “rainbow coalition” only having a total of 129 votes. So, neither grouping is going to have it easy.

But what the incident demonstrates is the risks involved in the ANC and the EFF’s grand new plan to control councils from behind the curtain. It turns out, mayors do have responsibilities and influence, and their own agendas. 

Leadership does carry weight. It means something. Which is why leaders are so often the focus of the media. The ANC-EFF plan essentially bypasses this crucial responsibility and scorns accountability and functionality. DM/BM