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Ramaphosa’s ‘oh hell’ moment

Hopefully the dreadful GDP number will change the ANC’s thinking.

In my first week as a journalist, many moons ago, I learned that the best stories are those that elicit an “oh hell” response from the reader.

These are the stories that catch the reader off guard, compelling them to share instantly with friends and connections via social media.

I bet President Cyril Ramaphosa said “oh hell” when he saw the Stats SA GDP memo last week. (He may even have agitatedly phoned statistician-general Risenga Maluleke to check whether there was a typo or not.)

The restated -2.6% GDP growth rate in the first quarter and 0.7% retreat in the second should have come as a shock. This follows some pretty rosy predictions of accelerated growth following Ramaphosa’s election as president.

The president knows that the real impact of the GDP number will be exposed next month when finance minister Nhlanhla Nene announces the medium-term budget policy statement or mini-budget.

He will reveal that South Africa’s fiscal position has deteriorated sharply since February this year due to the weaker GDP and the resultant decline in tax revenue – something he alluded to on Monday at the Tax Indaba.

Nene will most likely reveal that government debt now exceeds 55% of GDP and that the budget deficit will spike to about 5%, a lot more than the 3.5% his predecessor Malusi Gigaba announced during the budget in February. And this significant weakening of the fiscal position and depressed economic growth during the first half of the year may leave the very patient Moody’s with little option but to follow in the footsteps of S&P and Fitch and cut South Africa’s credit rating to sub-investment grade.

I am also sure Ramaphosa will appreciate that the current precarious economic reality is irrefutably self-inflicted. South Africa’s historic economic performance was always closely correlated with global economic growth, but in recent years this correlation has regressed.

This divergence in economic performance is also set to increase. The World Bank expects emerging markets to grow by 4.9% this year, while the world economy is set to expand by 3.1%, led by the US and China. South Africa will be lucky if it shows any growth at all.

What now?

Ramaphosa will also appreciate that the status quo cannot continue and that the fall into recession needs to trigger some response. This will require some unpopular decisions very few politicians would be prepared to take a few months before an election – including a significant cut to the public wage bill and the removal of policy uncertainty, especially around the controversial proposal to change Section 25 of the Constitution to allow for expropriation without compensation (EWC).

I appreciate that Ramaphosa is in a precarious position and that any unpopular decision to stimulate the economy could lead to the ANC losing next year’s election.

I am therefore not holding my breath for any announcement related to cutting the public wage bill, the privatising at least parts of Eskom and the SAA, or the relaxation of labour legislation.

A good start would be to rebuild trust between government and the private sector, and more importantly, to acknowledge that the latter, a critical stakeholder in our economy, is committed to a prosperous South Africa. There needs to be an appreciation that the current lack of investment by local and foreign investors is due not to anti-patriotism, but the predictable outcome of a weak economic environment created by the state.

There needs to be an appreciation that not all politicians are Jacob Zumas and not all private sector corporations are Steinhoffs. There is a middle way, and Ramaphosa needs to steer the country down it.

His first agenda item should be to remove uncertainty flowing from the aggressive land reform proposals. He needs to appreciate that the problem can be solved much more quickly by improving administrative efficiencies in the land reform process and that South Africa cannot afford the massive economic opportunity cost of this policy.

The goal must be swift and efficient land reform. The journey cannot be more important than the destination.

History speaks for itself. The transfer of land fell from a high of 500 000 hectares in 2007/08 under Thabo Mbeki to only 150 000 hectares in 2015/16 and virtually nothing in 2016/17. In 2008/09 the land reform budget was 0.45% of the national budget, which also dwindled to only 0.2% in 2015/16.

This clearly suggests that EWC is nothing more than a populist policy battle between the ANC and the EFF.

In fact, government regards the personal safety of its leaders as more important than land reform.

Yes, read that statement again.

The table below shows the budgeted amounts for land reform and VIP protection. South Africa is destined to pay R2.9 billion to protect VIPs – R218 million more than the government will spend on land reform.

Land reform budget versus VIP protection budget

National Budget

2018/19

2019/20

2020/21

Land reform

R2 724m

R2 908m

R3 076m

Protection and Security Services (VIP protection)

R2 942m

R3 151m

R3 381m

Source: National Budget 2018

 

 

 

This is a bizarre revelation. But there are many other examples that prove the ANC is willing to throw a lot of money at problems.

Last week government ‘found’ R500 million to cap a fuel price hike in September. This R500 million is 18% of the 2018 land reform budget. Another is Eskom’s 7%+ wage settlement with trade unions after the utility started negotiations with a 0% offer. National Treasury intervened and settled the negotiation even though it would add R1 billion to a virtually bankrupt Eskom’s expense line – nearly 40% of the land reform budget.

Add to this the seemingly bottomless pit of bailout funds available to SAA, SABC, Eskom, Denel … I think you get the picture.

To follow the same approach with land reform would be much more effective than changing the Constitution. Follow the Namibian model, and give government a pre-emptive right to buy any property at the same price at which a commercial property transaction would be concluded. Or just budget more money to buy property on the open market after valuations by independent valuers. Use existing expropriation policies if some property owners try to exploit the system. Such an approach will be more effective.

These solutions may not be politically attractive in the current ANC/EFF tango, but the economic fallout will be much less severe. This may be a pipe dream, but hopefully, last week’s “oh hell” GDP number will alert Ramaphosa and his cabinet to the fact that their current thinking needs some adjustment.

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This is what should be in the mainstream media, just the facts, but unfortunately “none so uninformed as the one who can read, but do not”, and “none so blind as the one who do not want to see”. “oh hell” we’re in a sh!th0le of a situation, but I do not think even this will get CR from his coma, maybe blame the “late rains” again.

Indeed. The original version of the article had a stronger four-letter word to describe the readers’ reaction. Feel welcome to substitute ‘oh hell’ with a term of your own…

Excellent article , but the Sunday Times prefers Zuma antics as a headline , rather than these hardline economic facts . The Anc conducts themselves in the same manner , endlessly busy with ideology and personality clashes , never with glaring factual indicators of government failure . They can talk , sing and dance , but not do .

Sunday Times…..decades since I wasted money and precious time reading that paper

Meanwhile the poor souls in Durban still buying the ANC sponsored Sunday Tribune thinking they getting breaking news but only reading CR@P!

Descending order of precedence of an anc government official:
1. Me
2. Family
3. Friends
4. Fellow comrades
5. Any non-white organism, dead or alive
6. anc
7. South Africa

Do you, dear reader, think for one moment they worry about the GDP? Most of them don’t even understand what it means.

Accurate list, but one too many, leave off 7.

I think the -2.6 & -0.7 numbers are flatteringly…..the situation is much much more worse than we contemplate.

Its never been about the land…

Its about retribution and electioneering.

Just listen to how much racism has brewed and stewed in the last decade, and this is the price to be paid, for allowing racists through the doors. They will be racists and cut off their own noses to spite their faces… Pure utter hatred is the only thing that can cause such madness…

this is the crux of the problem…..the hard truth…..UTTER HATRED.

Just watch the IRR’s presentation to parliament to get a taste of the hatred. Roll on my emigration plans, next year I’m outta here.

When it comes to finances and economics there are many similarities between businesses and countries. Management is appointed by the board, and board members are appointed by shareholders. The shareholders are ultimately responsible for the performance of their company. The performance of the company is a reflection of the competence and experience of the shareholders and their representatives. When the owners of the business are incompetent, they will appoint managers who are incompetent. In a competitive environment the business will fail, it is only a matter of time.

When the majority of voters are incompetent, illiterate, unemployed and without any assets or property, it is impossible for them to appoint competent people to manage their country. They will appoint people who are a reflection of themselves. The bankruptcy of the state, and the implosion of infrastructure and service delivery are the unavoidable consequences in such a democracy. The state of the economy and the efficiency of service delivery are mirror images of the average voter.

It is time for us to face the real issue. When this trend plays out. When the actions of the ANC delivers us to the set destination. When all the consequences have materialized, how many people will be able to make a living in South Africa? This place the ANC is taking us to won’t be able to sustain more than 5 million people. What will happen to the rest? This is my “oh hell moment”.

That graph showing the correlation between SA and global economic growth is highly revealing. If global growth comes under pressure where will SA be?

Ramaphose is acting like he in on permanent pause – he suffers Ramapausia.

The cynic in me says that the unbelievable disparity in the budget for land reform and vip security is not an error or misstatement, but rather the group at the top getting ready to safeguard themselves from the possible storm coming. I’v recently heard from 2 completely unrelated sources that a significant number of farmers are either cutting back severely or not planting for next years harvest completely and this is being borne out by a big drop in sales of pesticides, fertilizer and seed. If there is any substance to these reports, just wait till next year for the associated social problems, when basic food prices start climbing due to short supply and the resultant importation of alternative supplies being paid for by the already weakened rand. Add in a massive dose of unemployment and we have what could be the creation of a perfect storm. Does the name Venezuela ring any bells ?? Major difference being that our neighbours are not likely to accept 100’s of thousands of starving refugees.

Beside what politicians did and stole and the damage they did to confidence and for example tax compliance; there is also a problem with access to capital.

The banks seem constrained in their business lending to the extent that unless the borrower does not actually need the money (ie no brain credit risk), there is no appetite. The mega deals still sound fine, but in the sub R20m classes the doors are shut.

Small business is critical for job creation and GDP

Excellent work Ryk. Also when I digest all that is being punted in his article and the subsequent comments thereafter it would appear that we are now ascending the staircase on the gallows. “Step this way sir if you please. Yes, correct, now please position your feet over that well sized trapdoor while I fit this new necktie for you. Ready? Whoooooooosh…We are truly doomed. Too little and too late I am afraid.

Good factual article and not the first time I have heard the underlying message this month but it remains as valid.

If Cyril wants to govern a country worth anything then growth and jobs needs to be his number 1 priority with anything else taking second place. Unfortunately, that does not tie in well with EWC, BEE, AA and feeding the corruption beast that is government.

If he really wanted to change the countries fortunes in a short space of time then he would scrap BEE/AA, mining charter, release additional spectrum to the telecoms companies, stimulate the energy/construction industries by splitting up Eskom and cleaning up Sanral and lastly scrap EWN.

Sadly, I am not convinced he has the power or conviction to do these things.

Excellent article! If only the majority of voters had access to this kind of thinking instead of being force fed the garbage spewed by the ANC,EFF and even the DA these days.

Cyril like us has sat and watched the Zupta years, the last 4 right there at the trough. As a result he knows absolutely nothing about running a country. He is a BEE hand out billionaire so does not even grasp the basic principles.
Very few lawyers can run a business…………..

I wonder if he has made enquiries about property prices in Dubai?

But according to Ramaphosa there is no recession!

The reason why SA’s GDP is on a terminal trend has got VERY LITTLE to do with the facts described by the author.

Those “facts” are just the symptoms of the real cause – which is an out-of-control population explosion amongst the poor.

This growth is an EXISTENTIAL threat to SA’s future.

And not only SA, also the rest of Africa. The president of Tanzania is now urging his population to have more babies!

One of the the poorest nations in the world, and this is the leadership response? Go figure!

NOTHING ELSE matters until this issue is forcefully addressed. Yet not a single “economist” or journalist wants to touch on this subject.

Ryk, please explain what your excuse is in this regard.

That of course is the big big big elephant in the room. All over the world as you point out. Yet the SJWs go on and on about inequality and the gini coefficient etc etc etc. Anyone who has responsibly gone to the trouble of improving themselves and taken care of their loved ones and succeed by working hard are now burdened with guilt for those who have fallen by the way side. Charity should be personal & not imposed by government and the various types of media. Frederic Bastiat’s quote about the the “state,” which he characterized as that “great fictitious entity by which everyone seeks to live at the expense of everyone else” is quite appropriate in today’s world.

Sadly CR has fallen into the same trap as Donal Trump. He’s taking the heat for the tail end of the Zuma mismanagement like Donald Trump is getting the credit for the Obama administrations sucesses! Sometimes you just can’t win!

Very well written. If only Moody’s adhered to proper economic imperatives, South Africa’s sovereign debt (of all kinds) would have been downgraded deep into ‘sub-investment grade’ long ago. This is all about politics, not economics. But, for how long can the charade continue before it becomes ridiculous?

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