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Johannesburg – A change in political leadership is needed to save the South African economy, according to former deputy finance minister Mcebisi Jonas.
Jonas was delivering the keynote address at The Director’s Event in Sandton on Friday, where he unpacked the challenges stifling growth in the economy.
Among the biggest weaknesses in the economy is a lack of policy certainty, and Jonas suggested that a change in political leadership could help create more stability. “A significant possibility we must put our eyes on … is what happens in December, leadership change in the ruling party.
"Hopefully, if it does happen it will bring necessary political and economic governance stability and policy certainty that we require. I say, if it will happen.”
Jonas pointed out that evidence of state capture highlighted in reports by the Public Protector and the South African Council of Churches and the recent Gupta email leaks show there are “high levels and deep levels” of corruption.
The capture within the system is what is constraining government’s ability to effect transformation and drive growth, he said.
Instead of being primarily focused on driving the economy, state-owned enterprises (SOEs) are driving costs of utilities which are impacting business, he explained. “There is a link of the costs of utilities and the depth and extent of corruption happening in SOEs.”
Jonas explained that SOEs have effective roles to play in the economy, but there should be zero tolerance for corruption.
“Money spent to sustain inefficient SOEs is money that could be used in education and health and endeavours that could drive development,” said Jonas. “A professional and corrupt-free state should be a priority in the short term.”
Jonas added that the existing low growth model is not sustainable in the long term. “Part of the success in some countries is how the fiscus is managed… Stories of nuclear and other things normally don’t make sense if I am to be polite,” said Jonas.
Part of the concern is that there is less focus on growing the economy and more on increasing public spend, which is not sustainable.
Concerns over nuclear should not be taken lightly
He said concerns over the affordability of the nuclear programme should not be taken lightly. “South Africans do not realise how serious it is and how damaging it will be,” he said. The nuclear programme does not address the immediate need for electricity in the country, and could take ten years to implement.
“We do not realise it is not driven by genuine focus on addressing the complex issue of energy availability and security of the country; perhaps other interests (are) driving this.”
Jonas highlighted six threats that need to be managed. The first is to acknowledge the “major challenge” the credit downgrade presents to the economy. “We must do everything we can to reverse the trend.”
He pointed out the need for economic literacy among leadership. “People talking of the rand falling and picking it up again reflects challenges in understanding.”
Jonas said the mixed signals in policy such as radical economic transformation, inclusive growth, nationalisation of mines and banks are all problematic. Leadership in business should engage with government about policy.
There is also a lack of will to implement economic reforms. “Politicians comfortably talk about redistribution as it increases their popularity. The genetics of the liberation movement is to talk about what they do for (the) poor and less about the conditions needed for investment.”
Jonas said there are also doubts on whether the path of fiscal consolidation can be maintained. He added that growing social pressure is driving populist spending decisions. He explained that growing populism works best in a “low trust” society, which is currently the case in South Africa.
Populism defines friends and enemies and leads the state to behave in a partisan manner, bypassing rules and institutions of law, said Jonas. Populism generates slogans such as “white monopoly capital”, which has gained credence among politicians, said Jonas. “This is a product of Bell Pottinger, it’s not original.”
'Courage needed to resistbullshit'
Jonas added that populism detracts from the real issues which need to be addressed. “As a country we need wisdom and courage to resist bullshit, especially bullshit that divides us as South Africans and bullshit that threatens to destroy the economy.”
The rhetoric of radical economic transformation and the dismantling of white monopoly capital in an economy which is two-thirds owned by foreign capital and the other third by pension funds, is akin to the 19th-century Xhosa cattle killing, he said. This will take the country on a path of economic destruction and hyperinflation, seen in Venezuela and Zimbabwe.
“This creates further distrust and policy confusion, leading to disinvestment and lack of investment in long-term fixed capital.”
But Jonas said there are strengths, such as institutions like the media, judiciary, civil society, academia, the Reserve Bank as well as a strong tradition of democratic accountability and mobilisation.
“This differentiated South Africa from Venezuela and Zimbabwe and safeguards us against absolute capture and collapse.” Jonas added that these institutions should be protected.
