President Cyril Ramaphosa’s pledge to revitalise the economy reminds one almost of president Zuma’s commitment to combat corruption: spraying air freshener to divert attention from a really, really bad smell.
The person who, in his New Dawn manifesto, promised a growth rate of 3% in 2018 through “an unrelenting focus on economic growth” has, after 18 months, delivered a growth rate of 1.3% in 2018 and negative growth to date for 2019. Some people would say “low growth is still growth”, however economic growth below the population growth rate is negative.
Ramaphosa presides over an economy in worse shape than when he assumed power, one characterised by:
- A growing mass of unemployed
- An Eskom-saving strategy akin to rearranging the deck chairs on the Titanic
- State-owned enterprises that can hardly meet salary commitments
- A widening budget deficit due to increasing company losses and liquidations, and
- An acceleration of the exodus of productive knowledge.
Sipho Pityana, chair of AngloGold Ashanti and convenor of the Save South Africa campaign, who congratulated Ramaphosa on his election as ANC president in December 2017 by open letter, recently criticised the president for his reluctance to take “the hard decisions required to stabilise public finances and create conditions that are more conducive to economic growth”.
Several incidences in the last 18 months point to this reluctance. Rather than using the time to tackle the hard decisions required to stave off a Moody’s downgrade that hangs over us like the Sword of Damocles, government persisted with an approach and activities that effectively boil down to taunting Moody’s.
Some examples suffice:
- Above-inflation salary increases were introduced for the civil service (shortly after Moody’s had warned that state expenditure spiralling out of control posed a high risk).
- Pravin Gordhan overriding Eskom’s management decision not to offer an increase to the already overpaid and underperforming employees at the bankrupt state-owned enterprise (SOE), resulting in an on average 9% salary adjustment. Apart from a poor intervention, it underlines the fact that the state as shareholder is interfering in internal operational matters of SOEs.
- Despite no indication where the funding would be sourced, government persists in pursuing a National Health Insurance scheme that would increase the budget deficit.
- Rather than the incoming ANC president rejecting Zuma’s announcement in December 2017 of free tertiary education as contrary to the commission’s recommendations, and without a proper assessment of the funding implications thereof, Ramaphosa embraced it knowing the state would have to increase its borrowing.
- Persistence with SOE bailouts, believing the next set of directors and CEOs would improve matters. (There has been no hesitation or even an indication that the model of government-led economic development may, if not wrong, be at least ineffective and inappropriate).
- A bankrupt SAA and SA Express are allowed to continue operating at losses while private airlines are bleeding due to this unfair competition.
Rather than an “unrelenting focus on economic growth” these examples indicate a more-of-the-same-approach that underpins the anti-business sentiment of the ANC.
Nedbank CEO Mike Brown in a recent Sunday Times article refers to “hostility towards business in government circles”. Brown had expected fast action after the May elections, especially since government has run out of taxpayers’ money. However, the rhetoric of those purporting to support growth “remains anti-business”. Brown is not the only business leader disappointed by the lack of urgency to introduce reforms.
Pityana says that unless government itself acts to cut spending, it will be forced into an austerity programme by the International Monetary Fund (IMF) when private lenders turn their backs on the country. Taking a different approach are Ramaphosa apologists like Tiso Blackstar editor at large Peter Bruce, who argues that Ramaphosa is playing a long strategic game and will over time introduce his business-friendly policies by outfoxing the anti-business grouping.
Bruce’s line of argument, even if correct, is not one of comfort: it rather emphasises the fact that the anti-business sentiment in the ANC as governing party is so entrenched that its “business-friendly leader” is ensnared by it.
Even less comfortable? The assumption that a business-friendly Ramaphosa is in fact rooted in reality.
How business-friendly is Ramaphosa, really?
Employee rather than employer rights. He is on record with his preference for protecting labour interests, rather than balancing these with business interests.
Workers rights are paramount. Ramaphosa, with his roots in the organised labour movement through his union days, has repeatedly pandered to the worker side. At the 2019 Workers’ Day rally, he said the government would “never betray the workers and sell them to private interests”. He pledged that his government would “ensure that workers’ interests come first at all times.
We’ll keep you employed, even if we can’t afford to. On Eskom, which government wants to divide into three entities, Ramaphosa promised there would be no job losses. This promise is indicative of his default position of regarding employee rights as more important than the wellbeing of the enterprise employing them. Making matters worse is that rating agencies Fitch and Moody’s have warned that government’s Eskom debt exposure aggravates the investment-grading concerns. And Ramaphosa cannot be shocked about the fact that Eskom is overstaffed and that this overstaffing is contributing enormously to its desperate financial position. In 2016 the World Bank found that Eskom, compared to other energy utilities in sub-Saharan Africa, was 66% overstaffed and that a benchmark employee total of 14 244 employees would suffice, rather than the 41 787 on the Eskom payroll.
Anti-business approaches. The anti-business and anti-growth policies and strategies with budgets aimed at increasing state control since the dumping of the Growth, Employment and Redistribution (Gear) macroeconomic strategy are at the root of low economic growth and high unemployment.
The enterprise world of South Africa is in a critical condition.
Were the company tax returns of the 768 000 companies combined and submitted as that of a single entity – say, SA Amalgamated (Pty) Ltd – there would not have been any company income tax payable to Sars for three consecutive tax years due to assessed losses exceeding assessed taxable income.
Despite increasing the value-added tax rate to 15%, the budget deficit is increasing. It is an inevitable outcome when government expenditure and population growth both exceed the rate of economic growth.
Picture a soccer field; here’s where we are …
The Enterprise Observatory of SA (Eosa) plotted the budget balance as well as the current account balance on a soccer field for the years 2002 to 2018. Since the dumping of Gear in 2008/9, SA has been stuck not only in its own half, but mostly right in front of its own goal posts.
Every SOE bailout, every unfunded initiative like the NHI and the free tertiary education promise, every scarecrow policy like land expropriation without compensation, and every instance of productive skills flight due to anti-growth policies is effectively an own goal.
The budget deficit for 2020/21 may break through the 6% level. Considering GDP growth of 1.5%, playing right in front of the own goal posts is therefore likely to continue.
The Ramaphorian anti-corruption air freshener can no longer disguise the stench of a decaying economy.
It is time to discard the ideal of a developmental state given the low quality and productivity levels in the public sector.
Former president FW de Klerk realised that one could not dismantle apartheid without dumping the Population Registration Act and the Group Areas Act.
Similarly, it is time for Ramaphosa to dump the anti-growth policies and practices and to unleash the (remaining) potential of the private sector.
Just three concrete steps would go much further than yet another investment conference or job summit:
- Downsize Eskom’s employees to 50% of the 2019 level within 30 months.
- Pull the plug on SAA and SA Express so that private airlines can fill the space.
- Place a moratorium on BEE.
Johannes Wessels is director of the Enterprise Observatory of SA (Eosa).
This article was originally published on the Eosa blog here.