MICHAEL MORRIS: Maybe government, not capital, is the problem - Business Day
Michael Morris
After ANC political education head David Makhura implored “capital” to “come to the party” last week (in order, he seemed to suggest, to ensure that the government of national unity, or GNU, didn’t fail), I couldn’t help wondering if he’d ever concede that rather than chummy approval, vigorous opposition to government policy would more plausibly qualify as an aid to national rescue.
After all, he did seem to suggest serious-mindedness was the quality now most in need when he said: “If it [the GNU] fails, we are all finished. Capital must come to the party. Noise-makers, populists and ethno-nationalists are waiting for us to fail.”
With an appealing grasp of what makes SA the indivisible commonwealth it is, he added: “People are worried about their lives and the lives of their children. We all want to live a better life. You and I are worried about the same thing. The transformation of the economy is central to creating a more inclusive society.”
Nobody doubts any of this. Or that for good things to happen capital must indeed come to the party. But Makhura’s implication of reproof suggests that capital is stimulated by a patriotic sensation, laudable when present but otherwise worthy of suspicion. In fact, capital’s primary virtue is probably that by and large it has a cold heart. It would not be “capital”, or be worth much, if it were not inured to sentiment and anchored instead in the surer bedrock of risk analysis and rationality.
Which is why the behaviour of capital is an indicator that warrants close attention. As fellow Daily Friend writer Jonathan Katzenellenbogen wrote last week, “business cannot just ‘come to the party’ when the SA economic landscape is fraught with policies that actively discourage investment. Get rid of these, and investment will come on its own”.
Ask any hard-working business owner or potential investor what these are and all or most of the following will be mentioned: onerous labour relations; costly “transformation” preferments; poor or non-existent infrastructure; energy uncertainty; and legislation that undermines property rights or access to healthcare.
As Katzenellenbogen writes: “The ‘must come to the party’ injunction puts the cart before the horse. Making policies more investor-friendly would be the best way to encourage investment. If that is done we would have a fresh investment story to tell the world, and there would be no reason for us not to become an emerging market star.”
The point was reinforced last week by my senior colleague, Institute of Race Relations CEO John Endres.
While welcoming improving investor confidence, Endres, also writing in the Daily Friend, noted: “A more meaningful number is the rate of gross fixed capital formation, which measures how much money gets spent on things like factories, bridges, heavy machinery, power plants, roads and rail — all the things that make the physical economy tick.”
At just 15% of GDP, SA’s gross fixed capital formation was “dismal” in 2023, well below the world average of 26.1%, according to the World Bank, and the 2012 National Development Plan target of 30%. The reason, Endres pointed out, was that neither the government nor the private sector was investing enough.
“In the case of the private sector, which accounts for about two thirds of gross fixed capital formation, it is because investors distrust the SA investment environment too much to place their money in assets which cannot easily be moved.”
Perhaps, it is actually the GNU that needs to come to the party.
Morris is head of media at the SA Institute of Race Relations.