Ferial Haffajee: Six reasons the economy is stuck at 0.6% growth | Fin24
 
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Ferial Haffajee: Six reasons the economy is stuck at 0.6% growth

Jul 26 2019 15:00
Ferial Haffajee

Lesetja Kganyago, the governor of the SA Reserve Bank, said on Friday at the bank's annual AGM the bank was projecting that SA's economy would grow by just 0.6% for 2019. 

But why is the economy stuck in neutral? Ferial Haffajee examines some of the reasons: 

1. The politics are too loud

Most economic commentators expected SA's economic growth to be rekindled in the aftermath of President Cyril Ramaphosa’s inauguration as president in early 2018, given the expectation that party politics would simmer down.


In fact, it has grown louder and schisms wider, as this week’s fight between ANC secretary-general Ace Magashule and ANC MP Derek Hanekom shows. Magashule has gainsaid several reform initiatives of Ramaphosa’s: he regularly takes pot-shots at the SA Reserve Bank despite what the head of state counsels; he pushed back against a steeper cut to the Cabinet and the executive, and he has engineered the appointment of politicians associated with the era of state capture into key positions at Parliament.  

2. Elections don’t end

The South African political set-up means that political parties are in permanent election mode, whether for external or internal party elections.  

Take the governing ANC. In 2017 it was consumed by the party’s electoral conference at Nasrec that December. In 2018 and 2019 it planned to fight this year’s national and provincial elections. 

It is already in the planning stage for its national general council in 2020, where Ramaphosa could face a motion of no-confidence. Then, in 2021, it will fight a tough local government election. When that is over, it starts planning for its next national conference. 

This politicking and in-fighting is destabilising and distracting from the business of state-craft and building an enabling environment for a growing economy. 

3. Eskom’s debt has become a black hole

Eskom’s debt and the utility’s inability to exit the era of state capture is now the nation's biggest liability. Two special appropriations – one to cover short-term running costs and the other as part of a debt servicing plan – reveal that Eskom has become a black hole. Yet, after six months, there is still no clarity on how and when Eskom will be restructured as Ramaphosa promised. Moody’s warned this week that raising further bailouts for Eskom will be hard. This brings us to the next phenomenon holding the economy back.

4. Special interests are king

Eskom’s restructuring cannot move ahead because trade unions aligned to both Solidarity and the SA Federation of Trade Unions have set their faces against any form of restructuring. It is stuck in a log-jam, unable to cut costs by reducing its headcount as the powerful unions will not allow it. In the meantime, it faces a skills exodus at the top. The company is in the process of recruiting for a CEO, a head of treasury and a chief restructuring officer. 

5. Green shoots get drowned out

Government’s communication institution is a shambles.

Really good initiatives are happening. Foreign investment is starting (note the recent investment by Ford in a new plant in Pretoria) the Growth Initiative run by Minister in the Presidency Nkosazana Dlamini-Zuma and Toyota Europe executive Johan van Zyl can be a proper growth-driver; and the National Prosecuting Authority is being rebuilt. 

But none of this good news is being aired in the public conversation, which is dominated by party political infighting.   

6. Catharsis is not justice

The four commissions of inquiry into various aspects of state capture drop truths every day that are gob-smacking. This week, the Mpati commission of inquiry into the Public Investment Corporation revealed how the asset manager's former CEO Dan Matjila made multi-billion rand investments into businessman’s Iqbal Survé’s ambitions without proper due diligence. 

Last week, Zuma revealed the paranoia of his presidency and his inability to account for the 10 years in which state capture was entrenched while he was head of state between 2009 and 2018. These public revelations are important as they enable reform and build unprecedented public consciousness about how corruption and state capture work. But they also have an unintended consequence.

They display that there is no justice because the National Prosecuting Authority is broken, and that South Africa is often a republic of impunity. This week’s tragic hearings into the Vrede farm project heard testimony from so-called beneficiaries who received nothing except abuse when they blew the whistle on how the project had been captured by the Gupta family and its lieutenants. They have reported this to various institutions without any charges being laid.

This perceived impunity is placing pressure on the head of the NPA Shamila Batohi to act. But she does not have the skills nor expertise in the NPA to build cases resulting in a circle of death. And if there are no consequences, this will embolden those engaged in a political fightback against Ramaphosa’s reform agenda.   

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