Euphoria and challenges: GNU sets ambitious reform agenda – Katzenellenbogen - Biznews

If there is one big hope that has emerged from the Government of National Unity (GNU) formed last week, it is that the country will now undertake the big reforms required for economic growth.

The Government of National Unity (GNU) aims for rapid, comprehensive reforms to spur economic growth. Euphoria similar to 1994 prevails, though challenges persist. Reforms include boosting the economy, cutting government spending, and reducing red tape. Success hinges on swift implementation and overcoming opposition, particularly from within the ANC.

Jonathan Katzenellenbogen

If there is one big hope that has emerged from the Government of National Unity (GNU) formed last week, it is that the country will now undertake the big reforms required for economic growth.

We have not experienced this sort of euphoria since 1994.

The ruling coalition has a mandate, and the politics of the moment are in its favour to embark on a package of rapid comprehensive reforms. A shock-and-awe big bang reform programme is the only way that these can be pushed through, and not lost in the static inertia of multiple reports, endless discussions, opposition, and trading by the politicians.

Gradualism in the name of consensus building would be fatal for reform.

Big bang reform would mean bundling all the required reforms together and implementing them with speed.

The list of reforms required to boost growth and confidence is well known, although not yet fully agreed upon by the coalition.

Much of our euphoria is justified, as two questions about the future have been answered for the time being. We now know that the ANC is prepared to face loss and that, for the time being at least, it will not be replaced by a radical populist government. But we still do not really know whether the ANC has the heart to take the risk of a political pushback from much of its patronage and support network.

Any serious reform package would include measures to boost the economy, cut government spending and red tape, end black economic empowerment, and scrap the National Health Insurance project and Expropriation Without Compensation. Also on the list are the granting of concessions to private contractors to run Eskom’s coal power station fleet, allowing the private sector a greater role in the management of ports and railways, privatisation, streamlining government with a smaller cabinet and making the state fit for purpose. Another measure would be the long-delayed easing of the visa regime, so that qualified foreigners can work in the country.

Fiscal deficit
There would also be cuts in state spending to reduce the size of our fiscal deficit and ever-growing public debt. The big bang reforms would also have to include an end to cadre deployment in the civil service, and labour policies that push the minimum wage across industries far too high to ensure rapid jobs growth.

It is unclear what sort of deal can be done between the ANC and the DA on the issue of Black Economic Empowerment. Would the ANC accept it being scrapped after a certain date, or wound down?

The Statement of Intent between the ruling parties says that civil service appointments will be merit-based. But how will this be effectively monitored, as this would lead to an end to cadre deployment?

The ANC and the Democratic Alliance (DA) have been actively talking up reform prospects, and this has boosted the markets. But the real test will not come with talk, but implementation.

The use by Fikile Mbalula, the Secretary General of the ANC, of a quote from Deng Xiaoping, the Chinese leader who engineered the country’s reform in the 1970s seemed to seal the hope of our great turning point. Deng spoke of the colour of cats (ideology)  being irrelevant, and what mattered was whether or not they caught mice.

“To us, it doesn’t matter whether the cat is black or white. Fundamentally, the question is how do we move the country forward,” Mbalula said last week.

Clear dividing line
There is a clear dividing line now between the parties in the coalition that say they are open to reform and the newly formed Progressive Caucus of the radical Comrade parties, including the Economic Freedom Fighters and uMkhonto we Sizwe.

By inviting all parties into a GNU, President Cyril Ramaphosa has made enemies of the factions in the ANC that did not want the DA in government and are against reform. The communists objected to a coalition with the DA on the basis that the party is supported by “capitalist forces.” And the other part of the ANC’s Tripartite Alliance, the unions, objected to a deal with the DA on the grounds that it is not in workers’ interests. The Black Business Council, which represents empowerment interests in government and the private sector, charged Ramaphosa with “splitting the revolution” by doing a deal with the DA.

Ramaphosa must have known full well that the opponents inside the ANC and part of the Progressive Caucus in Parliament did not have the power to stop him forming a GNU with more centrist parties. Now that the President has split the revolution, he has the political space to go for reform in a big and sudden way.

But the ANC might still want reform to be far more gradual and limited in order not to risk a political push-back.

The Statement of Intent signed by members of the GNU is about shared principles and goals, and far from a commitment to a package of big bang reforms. It talks of the need for “structural and transformational change,” which the ANC is likely to view very differently from the DA. The ANC thinks structural change is about a more limited reform agenda than the DA, and views transformation as all about empowerment measures.

The shape of the power-sharing arrangement between the coalition partners might not be agreed upon for weeks. It is not yet clear, but it is likely the GNU will wait for many of the senior appointments to be in place before it stages its lekgotla strategy session to decide on a programme of action. After that, the Statement of Intent says there will be a National Dialogue, involving a wide range of players.

The longer the process takes, the greater the risk that the reforms will be watered down or scrapped. What is the role of a National Dialogue when we have just had an election, have a Parliament in place, and many of the issues are technical in nature and not appropriate for a public consensus-seeking dialogue.

Implementing reforms after an election is among the best times to undertake what could otherwise be a politically difficult exercise. Easing the costs of reform among particular groups would be made easier if our economy was buoyant. But it is not buoyant, precisely due to the absence of reform, so the GNU does not even have the option of waiting for better times.

Partial turnaround
A study by the International Monetary Fund has found that positive results from reform can take around 18 months to feed through. That sort of time frame would allow at least a partial turnaround by the time of the local government elections in 2026. By changing the investment story, we can tell the world that there might be large and early positive results. Good election results for the reform coalition parties would show the rewards and allow more changes.

To show a fuller commitment to reform, the ANC Secretary General, Fikile Mbalula, might have added another quote from Deng Xiaoping about the measures that allowed billions to emerge from poverty.

“Reform is China’s second revolution,” Deng said.

Jonathan Katzenellenbogen is a Johannesburg-based freelance financial journalist

This article was first published on the Daily Friend.