Things need to change – but will they? - Newsi

Terence Corrigan

The role of the minister of finance has been a pivotal one in post-apartheid South Africa, on both symbolic and substantive grounds. The minister is the keeper of the keys to the country’s money, and in a sense the grand custodian of economic policy. The perceptions around his (or, in principle, her) stewardship of the economy matters greatly. We saw this when Trevor Manuel resigned in 2008 – removing for a moment a respected and trusted incumbent from the role – and even more starkly in 2015 when Des Van Rooyen (who?) replaced Nhlanhla Nene for a weekend.

Enoch Godongwana’s appointment to the office in August received a moderately positive reaction. Perhaps because of the indifferent quality of so much of the executive that has presided over the country, a familiar face, not overtly hostile to business and with a background in economics was itself reassuring.

Less reassuring is the state of the country, and Minister Godongwana has a tough task before him to provide the leadership for the recovery that South Africa desperately needs – and to bring South Africa onto a high-growth trajectory.

Last week, addressing the National Investment Dialogue, the minister touched on the imperative of creating an attractive and hospitable environment for investment. This is to be welcomed. While a great deal of attention has been focused on the country’s fiscal circumstances – and whether spending can be brought into something approximating sustainability – there is ultimately no substitute for investment with wealth-creation as an objective, and employment as a necessary collateral benefit.

Consider this: the 2012 National Development Plan aimed to raise investment to 30% of GDP by 2030. Halfway to that point, the best we’ve managed has been a shade over 20% between 2013 and 2015 – and even that was above average for the period. GDP growth, meanwhile, has come nowhere near to the 5.4% that the NDP envisaged. The latest unemployment figures indicate 7.8 million officially unemployed, or 11.9 million if those not actively seeking work are included: a scandalous official rate of 34.4% and an ‘expanded’ rate of 44.4%. This is against a labour force of 22.8 million, and an employed cohort of 14.9 million.

Among the minister’s comments was that the climate must make investment an attractive option for domestic businesses. This is an underappreciated issue – too often the appeal to ‘invest’ is understood as being directed at foreign firms, and that South African firms will put their money into the country by default. When the latter is discussed, it is often to damn the alleged ‘investment strike’.

A decade ago, Dr Mark Mobius, then of Franklin Templeton Investments, put it this way: ‘They’ve got to make South Africa a much more attractive place for investment … I’m not only talking about foreign investment. I’m talking about local investment.’ It is encouraging to hear these sentiments echoed by the minister. 

What, then, is to be done? All credit to Minister Godongwana for his recognition that dealing with South Africa’s energy crisis means addressing the energy supply and not doggedly focusing on Eskom; that dealing with the allocation of spectrum is a ‘matter of urgency’; and that environmental considerations must factor in development decisions. So too was his recognition – echoing one of President Ramaphosa’s commitments – that doing business must be made easier.

‘People in South Africa want to go on and about their business and invest and you must allow them to invest,’ Minister Godongwana said, ‘Then we can tell others they must come and invest in South Africa.’

Unfortunately, this is a call that has been made in various contexts for decades, and rhetoric has invariably outpaced results.

For as much as the need to ease the conduct of business is acknowledged, successive South African governments have undone whatever good they may have intended by the additional burdens they have imposed on the business communities, local and foreign – and a dogged refusal to reconsider.

Racial empowerment policy is a prime example. That it imposes burdens with few rewards has been demonstrated by research conducted among small businesses (nominally a part of the economy that South Africa has nominally prioritised since the 1980s) by research group SBP; the dissuasive impact on foreign investment has emerged in work among European companies operating in South Africa. Even figures within the government and the ANC have voiced criticisms of the policy.

Yet this remains firmly in place, apparently impervious to reconsideration. Minister Godongwana has himself said – evidence to the contrary notwithstanding – that empowerment policy presents no barrier to investment.

Threats to property rights are another. The ongoing push for expropriation without compensation has put a question mark over the very security of investments. At a bare minimum, this is the archetypal driver of ‘uncertainty’, one of the few disincentives to investment that the government will admit to fostering. More substantively, it points to a very bad policy in future. This is a choice that the current government is making. Non-binding assurances are an inadequate substitute for clear and investment-friendly policies.

This is, incidentally, not necessarily or even predominantly about land. Perhaps more significant is the prospect of prescribed assets, the mandatory investment of private funds to state-approved projects. The concern exists here that it would be a means by which the state could buoy its mismanaged enterprises, fund such currently unaffordable initiatives as the National Health Insurance scheme or simply tap into private wealth to maintain its patronage networks.

Minister Godongwana has denied that prescribed assets are an official intention, but rather that the state merely seeks to attract private capital to infrastructure projects. Yet he also said in an interview last year that ‘prescription will only apply where there’s attractive investment and people do not want to invest for whatever reason.’ If indeed this is an accurate representation of the position that the ANC is taking, it’s difficult to see how this differs materially from prescription.

Possibly more damaging even than these policies has been the general dysfunction in the state. No one tries to deny this anymore. It is to the Minister’s credit that he admitted the failure of South Africa’s bureaucracies effectively to service business – even in the implementation of the state’s own demands. He specifically mentioned insane delays in environmental approvals here.

The failure to build a professional, meritocratic and efficient civil service has been one of the greatest failings of post-apartheid South Africa. It’s true that the incoming government in 1994 inherited massive problems, but proceeded to compound them, above all through a deliberate strategy of politicisation and abuse of the state for patronage ends. Neither general incompetence nor the debilitating corruption that South Africa is facing now arose inexplicably; they were encouraged by political choices.

There is currently an initiative underway to ‘professionalise’ the public service. If this is to go anywhere, there is a need to move decisively against the politicisation of the country’s institutions, and to instil an ethos of service to an impartial state and the citizens of the country. That may not deal with all the administrative failings, but it will be an essential starting point to get the process on track. Whether South Africa’s political leadership will countenance this is an open question.

At the Zondo Commission, President Ramaphosa was animated in his defence of the ANC’s cadre deployment strategy, which is arguably the centrepiece of state failure – and South Africa’s original state capture. It was even found to be illegal in a court judgment. It speaks volumes that the head of state has been willing to defend it, and a civil service operating as a developmental asset is a long way off.

The pattern here – the imperatives of pragmatism running up against an inflexible ideological and political repertoire – bodes poorly for the reform outlook in general, and so for the country’s economic future.

This is deeply unfortunate. Minister Godongwana clearly understands that something has to change if South Africa to start the arduous process of building a prosperous future. What he and his colleagues don’t seem to understand is that these changes rest on the foundation of a change of their own mindset.

Minister Godongwana would do the country a great service if, as finance minister, he would ponder this, and provide the necessary leadership.

Terence Corrigan is a project manager at the Institute of Race Relations 

https://www.newsi.co.za/humour/things-need-to-change-but-will-they