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It’s the economy, Cyril

Feb 09 2018 06:00
Daniel Silke

THE leadership limbo South Africa continues to endure might unnerve some but for those in business, the leadership baton has passed. It is no longer Jacob Zuma’s to manipulate and control. We have, already, largely moved into a post-Zuma era.

While the minutiae of the Zexit settlement is still to be finalised, South Africa’s economic plight - linked so closely to its governance and political performance - now takes centre stage.

And the looming budget, set to be presented in an unprecedented atmosphere of transition, will initially set the scene for the unfolding battles to uplift sentiment and restore confidence.

Assuming a Zuma departure within the next number of days, sentiment will shift. A more stable currency, partially reflective of the ascent to power by Cyril Ramaphosa as well as on the back of a weaker US dollar, provides some bulwark against rising inflation.

Most economists point to a ‘fair value’ of the currency in the ball park of where it is currently, and stability therefore is likely to return once the political crisis settles.

Some fairly rapid policy shifts can also occur as confidence-building exercises. Certainly, a review of the Mining Charter will be the first and most important signal that a more market-friendly (and less populist) agenda could be forthcoming.

Mosebenzi must go

Ramaphosa will be under huge pressure, once installed as head of state, to move politically against current Mineral Resources Minister Mosebenzi Zwane. Any reshuffle that removes him from this portfolio will, in itself, be regarded as a more welcoming approach to investors.

With a commodity outlook somewhat better than in previous years, South Africa stands to benefit - but only if its enabling environment is welcoming. Ramaphosa will be all too aware of this and it’s an area that can shift attitude quickly, assuming the charter and political leadership is reviewed.

Already, we have seen swift action on the vexed issue of the state-owned enterprises (SOEs). While the rot here is deep and may take months if not years to turn around, Ramaphosa’s watch has already yielded results.

Clearly, this is critical for two reasons. Firstly, better management (and proper sanction against those responsible for the meltdown) can eventually stem the downgrading of an entity like Eskom from ratings agencies like Fitch.

One of the biggest challenges to the new Ramaphosa administration will be the cost of borrowing and servicing our rising national debt. Stabilising Eskom will play an important role in this, although an initial period of some risk will be hard to avoid.

Secondly, the challenge will be to avoid - for political purposes - calls to privatise or part-privatise ailing SOEs. Ramaphosa will need to pace himself on economic policy reform.

He may indeed politically be able to renegotiate the Mining Charter away from its more onerous clauses, but he needs to shore up SOE control before considering some private sector shareholdings or partnerships.

And politically, he will need to bring his skittish alliance partners - and populist elements - along for the ride.

These issues have wider ramifications. With a mushrooming budget shortfall, South Africans will be looking for answers. Last year, when policy paralysis gripped the nation, Pravin Gordhan could do little other than increase the middle classes’ already high tax burden. This year, it could well fall on the poor to cough up increased indirect taxes like VAT, for example.

The position of increasing taxes in the wake of non-existent growth policies is simply untenable. With the delay in the State of the Nation Address causing utter confusion in the message being sent to both ordinary South Africans and the investor community, the short-term answers to a rising debt-to-GDP ratio may well be tax increases.

But this could also be accomplished with some relief in corporate taxes which are already under pressure following Donald Trump’s trend-setting tax-reduction agenda.

Ramaphosa on an economic tightrope

But South Africans are now looking for more. The expectation around Ramaphosa must not turn into a crisis of expectation. Ramaphosa will therefore have to walk an economic tightrope.

He will have to show that he is mindful of the directives from the ANC conference on economic policy direction - but at the same time tweak these into market-friendly messages. It is, perhaps, a supreme test but one which no one else in the governing party might even contemplate attempting.

At the very least, the next few weeks from the eventual SONA to the budget are all going to be about crisis management and attempts to build sentiment. The policy framework remains highly problematic for Ramaphosa.

He does not yet have a real grip on a disparate and disruptive party. He will need to show, incrementally, that investor-friendly change can deliver results. And he will need measures to begin the process of reducing the stubbornly high rates of unemployment.

Sentiment shifts are highly achievable - as we saw virtually overnight at Davos. Rooting out the rot is tougher. Taking your party with you also problematic.

Despite our self-induced economic crisis after years of governance failure, global goodwill remains. And our investors, contrary to the assertions of the EFF, are ready to make a historic contribution to the upliftment of our citizens.

Ramaphosa needs to harness the goodwill; it may be essential for him in the coming battles with the ghosts still lurking in his own party’s machinery. He needs an alliance of the willing. It’s not just the ANC that needs new leadership, but the country as well.

Given our perilous financial position, economic policy-making and implementation will make or break this presidency. Notwithstanding the toxic combination of graft, corruption and cronyism characteristic of the Zuma era, it has been economic failure that has brought the country to its knees.

Now the pressure is on.

Daniel Silke is director of the Political Futures Consultancy and is a noted keynote speaker and commentator. Views expressed are his own. Follow him on Twitter at @DanielSilke or visit his website.

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