Ramaphosa's economic dilemma - The Star

27 August 2019 - The tragedy is that despite the still considerable attraction that South Africa might hold to investors, its economy is trapped behind barriers that are in many respects self-constructed.

Terence Corrigan

Even by the standards of political idiosyncrasy that South Africa can exhibit, president Ramaphosa’s remarks to an assembly of the African National Congress Women’s League (ANCWL) demonstrated a tilt to the bizarre. ‘We will,’ he declared, ‘turn our economy around, we will turn it around whether people like it or not.’

One can’t help but think it’s one of those comments that encapsulates – betrays? – rather more than the speaker intended it to.

It’s a tacit admission that the country is in deep and serious trouble. That at least is clear. As President Ramaphosa was pledging an economic turnaround, foreign bondholders were disposing of South African bonds to the tune of some R2bn a day. The rand languished below 15 to the dollar. And the downgrading of South Africa’s credit rating to junk by Moody’s seemed pretty much to have become a certainty.

Well, we could do with a turnaround. And just why the president would imagine that the public might not like it, might approach it in the manner of a petulant child being forced to take a cold bath, is hard to fathom. But there it is. Whether people like it or not!

Ah, if only! Something that most of us get to learn as we grow up, even those with the advantages of status and material prosperity is that we don’t always get what we want. Whether it’s a new Playstation, a Maserati, or – tragically, in the case of millions of South Africans – a modestly paying job.   

And maybe therein lies the problem with the President’s sentiments. Stern injunctions to get the economy turned around notwithstanding, he and his administration have shown little inclination to do what it would take to achieve it.

Nothing will turn this around but large doses of investment. Local investment, foreign investment. Yet we’re seeing just the opposite. Fixed capital formation in June was down 3.2% year on year. Manufacturing – supposedly our future – is being hit particularly hard.

The tragedy is that despite the still considerable attraction that South Africa might hold to investors, its economy is trapped behind barriers that are in many respects self-constructed.

Some perspective: in June, shortly after the election, Moody’s released a report in which it pointed to the hope (widely expressed at the time) that with a victory at the polls under his belt, the president might finally push reform into gear.

It read: ‘Immediate policy priorities outlined by President Ramaphosa include restructuring the highly indebted state-owned monopoly electricity utility operator Eskom and shrinking the size of the bureaucracy. The president has also discussed longer-term plans to diversify the economy away from mining.’

President Ramaphosa himself has on occasion chimed in. Last month he said that, to get the economy moving, ‘we will need to make tough choices on everything from labour legislation and SOEs to policies on the NHI, the national minimum wage and the Reserve Bank.’

Well, a tough choice does not imply a wise decision, and those in the offing generally yaw towards immediate political expediency. Tough only in the sense of deferring what might be unpopular within his party. SOEs? Perish the very thought of privatisation. Eskom may be the largest threat to South Africa as a going concern, but there is scant sense of how to deal with it. Except another bailout and the whirligig of executives. The Reserve Bank? Nationalise it. Labour legislation? A sacred cow. Empowerment? Well, maybe it isn’t doing much for growth, investment and employment, but it’s part of the furniture. No change there.

The NHI? We don’t know how much it will cost – it’ll be a whopper! – but that’s the wrong question after all. Indeed, before the ANCWL audience he said that ‘the NHI is here to stay, whether people like it or not.’ (A certain familiarity in the turn of phrase…)

Meanwhile, the country’s fetid policy uncertainty (something we’ve been ‘working towards’ resolving, more or less in perpetuity) swallows up the confidence of investors. This is especially so when the declared intention of the government is to resolve it through bad policy. So investors worry about the security of their assets as the country careens towards a policy of expropriation without compensation. Uncertainty tending towards catastrophe.

Last week, the president went on to say that one of the big things was to stop bickering. We need – apparently – to pull in the same direction. Investors would simply love that. ‘Where there’s unity, there’s growth’ – a rhetorical interjection worthy of Hallmark maybe, but completely at odds with the idea of tough choices. After all, if we can all just get along, the choices are probably uncontentious anyway.

And maybe therein lies the problem. Former finance minister Mcebisi Jonas also mounted the stage last week to launch his book, After Dawn: Hope after state capture. He argued that the president had to choose between ‘striving for the unity of the ANC’ and saving South Africa. ‘That’s the choice he has to make.’

That is a tough one. And the direction of policy so far suggests that the choices tend towards retaining some semblance of control over his fractious party and not towards the painful decisions that the country’s future requires. This makes that turnaround a distant prospect. Whether people – and not least the president himself – like it or not.

Terence Corrigan is a project manager at the Institute of Race Relations. Readers are invited to take a stand with the IRR by sending an SMS to 32823 (SMSes cost R1, Ts and Cs apply).