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More than ‘just’ economic reform: The tough tasks on the president’s to-do list

Apr 05 2018 13:17
Marcia Klein

Somewhere between the euphoric prospect of a “new dawn” without Jacob Zuma and the polarising debates about issues like land expropriation without compensation lies the path South Africa is going to take this year.   

Since Zuma’s resignation, the momentum has been undeniably positive.  

Ratings agency Moody’s affirmed SA’s investment-grade credit rating and revised its outlook to stable from negative, while Standard & Poor’s, which retained SA’s junk status rating, revised the country’s growth forecast for 2018 from 1% to 2%.  

Growth forecasts have increased across the board to 2% or more, the rand has strengthened, interest rates are coming down, and investor confidence is rebounding.  

President Cyril Ramaphosa has encouraged engagement and reaching consensus on major issues, a move welcomed by business, which has been largely ignored when it came to having a say in decisions and policymaking over the past few years. 

This all points to the start of a collective and consensual effort to make SA work.   

Somewhere between the euphoric prospect of a “new dawn” without Jacob Zuma and the polarising debates about issues like land expropriation without compensation lies the path South Africa is going to take this year.   

Since Zuma’s resignation, the momentum has been undeniably positive.  

Ratings agency Moody’s affirmed SA’s investment-grade credit rating and revised its outlook to stable from negative, while Standard & Poor’s, which retained SA’s junk status rating, revised the country’s growth forecast for 2018 from 1% to 2%.  

Growth forecasts have increased across the board to 2% or more, the rand has strengthened, interest rates are coming down, and investor confidence is rebounding.  

President Cyril Ramaphosa has encouraged engagement and reaching consensus on major issues, a move welcomed by business, which has been largely ignored when it came to having a say in decisions and policymaking over the past few years. 

This all points to the start of a collective and consensual effort to make SA work.   

Burning issues
 
But Ramaphosa might have stumbled at the first hurdle: he appeared to be unprepared for the immediate consequences of his promise to expropriate land without compensation.
   
The land issue has become “a real fly in the ointment” early on for the Ramaphosa administration, says Daniel Silke, director of Political Futures Consultancy.
  
“The land issue is very far from being resolved. It has to go through a parliamentary review process, and there are conflicting bodies of research on land ownership,” he says, adding that even within the ANC, there is no agreement on the issue.  

At the moment, it looks as if the EFF controls the debate relating to the ownership and effective use of land, Silke says.

“He [Ramaphosa] let the EFF run away with this issue – they are being the arbiters, at least in the short term, and he hasn’t regained control of the debate, not to mention that the ANC itself doesn’t speak with one voice and the fact that his position as leader of the ANC is fragile.”   

The land issue is being raised so vehemently because it is an emotive one for the majority of South Africans who don’t have access to other opportunities, says Lumkile Mondi, senior lecturer at the School of Economic and Business Sciences at Wits University.   

But land reform is not simple and requires significant state assistance. 

Successful programmes have included state provision of cheap supplies and access to assistance. If not handled correctly,  “anyone who has a cheque” can eventually purchase the land.    

On another burning issue, that of a mining charter, the government has been a little more successful, with new mineral resources minister Gwede Mantashe opening consultation on a charter that initially did not consider industry views. 

However, the outcome remains unclear.  

The industry has been asking for clarity and policy stability for years. 

Even if the mining companies have to make some uncomfortable compromises, a renegotiated charter will be easier to manage than constant uncertainty and change.   

Fixing the mess 

There are a myriad of other hurdles to overcome.   

Speaking at the Bloomberg Future of South Africa conference last month, Investec CEO Stephen Koseff said SA has “to eliminate some of the barriers causing the country to limp along”.  

These are considerable, with responsibility falling on the shoulders of the government, the private sector and ordinary citizens.  

But the government has the biggest task. The only reasonable chance the country has is to fix state-owned entities (SOEs) and stop corruption and bloated government and wasteful expenditure that collectively became the vortex into which taxpayers’ money has disappeared. 

It also needs to bring policies in line with the country’s growth priorities.  

The apartheid government used SOEs as engines for employment and infrastructure development and this was continued post-1994, Mondi says.   

Although the role of SOEs has changed completely in today’s economy, we have not responded and adapted to dealing with old infrastructure companies, specifically by opening up sectors such as rail or energy to other players.  

Management of SOEs and government expenditure are the two areas of government performance that specifically need to change, Silke says. 

Equally important is “fleshing out a mutually agreeable economic framework, for which various advisory committees and panels need to be constituted and enabled to do their work”.  

Ramaphosa’s approach – to work things out through consultation and consensus via committees and panels, reminiscent of his role at the Codesa negotiations to end apartheid – may not sit well with fed-up South Africans who are desperate to see change and action after years of destruction under the Zuma administration.  

But Silke says he believes society would generally be happy that Ramaphosa has taken a consultative approach once again. 

“The breakdown in the relationship between business and government may well be reversed. It is in the interest of SA that there is this extension of the social compact,” he added.   

“It may take time to flesh out, but it is in the broader interest of SA that that takes place and that the consensus approach can take SA beyond the narrow and myopic views of successive ANC conferences.  

“This changes the dynamic and broadens input into government thinking.”   

Policy reforms 

Without exception, commentators talk about the need for structural policy reform.    

Old Mutual Investment Group’s head of economic research, Johann Els, told a recent investment briefing that 2018 may see GDP growth reaching 2.3%, the strongest since 2013, but that “it remains part of a cyclical upswing that needs to be converted to strong structural growth through policy reforms to remove bottlenecks to growth”.  

He says there is a “hugely improved economic policy balance [a tighter fiscal policy that should allow for looser monetary policy], better growth data and forecast upgrades, the likely avoidance of further ratings downgrades, strong global economic support for the South African economy and likely rate cuts”. 

Expectations around interest rates were reinforced last month by a 0.25 percentage point reduction.

While these are elements of a cyclical upswing, sustained growth requires “clear structural policy to support and further improve the current confidence boost”, and Els suggested implementing the National Development Plan.  

Mondi says the focus of the ANC since 1994 has been more on politics than on the economy, but it needs to shift its focus to facilitate an economy that will redress the past at the same time as it allows for the development of a vibrant private sector. 

“In the past [the ANC] did not deal adequately with the core issues of the SA economy in order to grow and absorb millions who don’t have work,” he says, adding there has never been any acknowledgement of the influence of business to create jobs. 

How to boost SA’s economy 

Ramaphosa may reignite investor confidence, which is critical to economic growth, but SA’s big challenge is that there is no magic bullet to take the economy to the next level.  

Minister of public enterprises Pravin Gordhan told the Bloomberg conference that SA needs to deal with, among other things, job creation and growth, but his ideas for a growth plan includes agriculture, a renewed mining sector, the potential in the ocean economy and re-industrialisation. 

It is true that if these were reinvigorated, the economy would grow and create jobs. 

But these are not innovative ideas, nor are they areas where SA has any real competitive advantage.   

In mining, it will take monumental effort, and billions in investment, to get the industry back on its feet, and even then, resources are fewer and more difficult and expensive to extract.   

However, there is room for growth. 

Mark Cutifani, Anglo American’s CEO, told the Bloomberg conference that the industry should be twice the size it is today, and it is possible to turn that around with policy certainty and collaboration.   

He said the country’s platinum group metals are “wonderful resources that are quite unique”. 

SA could be a world leader in those resources and associated technologies, but opportunities are being missed.   

According to Silke, under the circumstances the government is right to target mining, manufacturing, agribusiness and tourism, which offer the best prospect of job creation. 

“The big problem is what to do about job creation – how to start to make a dent, and there are not that many options for an economy like SA,” Silke says. 

The country simply doesn’t have significant innovative or technological capacity.  

“What else do you fall back on? You can create jobs by hiring physical labour, so re-industrialising does absorb some of these jobseekers into the economy.”  

However, says Mondi, it is an issue of capacity and capability.  

What is encouraging, he says, is that we do have companies that are world class and play a role in creating infrastructure and services for the Fourth Industrial Revolution. 

But they have a limited impact, given our high levels of unemployment.  

South Africans are also reluctant to accept low paid jobs in sectors like hospitality and security, which are then taken by people from other countries.  

There is a limit to how much we can do in industries such as agriculture and mining, Mondi says. 

“In fact, SA has very few massive opportunities. The world is shifting to using technology – there is a different economy that is coming. I don’t think SA will rise from its unemployment problem. What we need is a plan to ensure there is a safety net for those that will never see an employment opportunity rather than create expectation.”   

Pick n Pay CEO Richard Brasher told the Bloomberg conference that the retail sector requires few skills for entry-level jobs. 

“We are looking for basic literacy and numeracy, and we give them the skill. There are opportunities to take large numbers of people off the state structure and to work.”  

In the medium term, SA could attract investment by using special economic zones and incentives for job-creating businesses to expand their operations in the country.   

The private sector 

The private sector, which has arguably been on an investment strike (and possibly even a tax strike) and has been scrambling offshore, has shown the first signs of willingness to work more closely with government and renew interest in local investment.   

Silke says investors “will come to the party” if incentives are meaningful enough. Among local businesses, there is a willingness to work with Ramaphosa – he has the ability to reel in captains of industry. 

“But ultimately, business is going to have to see a greater flexibility from government in policy.”  

But as much as there is positivity, Ramaphosa’s hold on the future of SA is tenuous. The land issue makes this clear.   

Silke says there have been “increases in the use of racial invective in the broader political and economic debate over recent months that threatens to undermine the goodwill of the Ramaphosa social compact philosophy.   

“This is a test for Ramaphosa to take a lead and shut it down – which he seems either unable or unwilling to do at present.”  

The ANC’s policies of inclusion have been supported across race lines, but lately, says Mondi, the ANC itself has been unable to articulate itself to create a promise for all South Africans, with the Zuma regime worsening relations with its views on white monopoly capital.    

A huge challenge facing Ramaphosa is to reverse the slide into unconstitutional populist feeling; he needs to emerge as that leader who embraces a new SA without racism. “That project will carry so much clout and support,” Mondi says.

This article originally appeared in the 12 April edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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