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Ramaphosa’s game-changing moment?

South Africa’s own economic revolution may be in motion.
Ramaphosa's quest to revive the economy is being scrutinised. Picture: Moneyweb

To some observers, South Africa’s recent investment summit led by president Cyril Ramaphosa seemed like much ado about nothing. Several of the projects announced had been incorporated into companies’ plans for some time and with the summit having had a showbiz style about it, it’s tempting to see the event as little more than smoke and mirrors.

But the summit could be more than the sum of its parts. It could be an important step forward in reviving economic growth in South Africa.

One notable outcome is that Ramaphosa nailed his colours firmly to the mast in one crucial respect. After the confused and confusing sophistry of the era under Jacob Zuma’s presidency, Ramaphosa committed his government to a market economy, where obstacles to private investment would be removed where possible.

This moment is reminiscent of 1980 in India, when Indira Gandhi committed the Indian Congress Party to business-friendly policies. Reforms were slow, picking up a little under Rajiv Gandhi a few years later. And the major structural economic reforms only took place in 1991 under new prime minister PV Narasimha Rao and new finance minister Manmohan Singh.

Yet India’s growth spurt clearly began after Indira Gandhi’s signalling and Rajiv’s initial tinkering. It didn’t wait for Rao and Singh’s dramatic reforms a decade later.

This is consistent with contemporary analysis of economic growth. Recent thinking by renowned Harvard-based economist Ricardo Hausmann and colleagues suggests that what stimulates significant growth acceleration is often not major structural changes – it can be significant incremental shifts.

The economists found that major structural reforms seldom preceded significant growth accelerations. As Hausmann’s colleague Dani Rodrik put it recently:

“In economies that suffer from multiple distortions, small changes can make big differences.”

The small change made in India was a clear shift by the dominant political party towards business-friendly policies.

Could the same be true for South Africa? Has South Africa reached its own Indira Gandhi moment?

Signals at the summit 

Amid a great deal of fanfare, and to an audience of 1 300 business and government leaders – including one of the globe’s most successful entrepreneurs, Chinese internet commerce magnate Jack Ma – Ramaphosa announced R209 billion worth of investment at the summit.

It was important for the president to meet expectations by announcing concrete outcomes. But what was possibly more important was that he used the opportunity to send out a number of signals.

To please his own constituencies in the ANC and the unions, he referred to the end of the “investment strike” (some critics of business had said they were holding back their investments as a deliberate policy).

More significantly, most of his messaging was aimed at reassuring the business community. He talked about how their investments and property were safe and how their factories were protected from expropriation by an independent judiciary and the rule of law.

Land reform would continue, he said. But it would be “fair and equitable”. Transformation would continue:

while providing certainty to those who own land, those who need land, and to those who are considering investing in the economy.

Perhaps the most telling signal was the apparently off-the-cuff remark he made dismissing the concept of ‘white monopoly capital’. At the dinner that followed the conference he said:

‘We have become accustomed to … treating our entrepreneurs and business people (badly) and called them all sorts of names. We’ve treated them like enemies and … [called them] white monopoly capital – that must end today.’

The term ‘white monopoly capital’ is an accurate approximation of the distribution of economic power under apartheid, and much of the imbalance in economic power remains. In the Zuma era, the term was popularised by the now defunct public relations firm Bell Pottinger under contract to the Gupta family, and used by some as a cover for looting government and its agencies.

Ramaphosa, who became a successful capitalist after he left Parliament in the mid-1990s, has now signalled that he wants to build trust between government and white-owned businesses. This won’t be easy. There are still elements in the ANC that reject capitalism while others want to continue using the term ‘white monopoly capitalism’ as a battering ram.

Credibility gap 

South Africa’s disadvantage is that the country’s credibility has been damaged. After 15 years of transparent social democratic policies – from 1994 to 2009 – the country lurched into confusion under Zuma’s presidency. The ANC government became opaque, volatile and unpredictable.

The consequence was a loss of credibility in the Zuma era. Ramaphosa’s biggest challenge therefore is to recover credibility.

Ramaphosa and his advisors will be asking what can we do to rebuild credibility fast?

The answer seems simple: those involved in state capture must go, looters must be punished, and constructive policies must be carefully prepared and implemented with authority and urgency. These include fixing the state-owned enterprises as finance minister Tito Mboweni repeatedly pointed out in his recent budget speech, better regulation for the network industries (energy, telecommunications, water) and sorting out public transport systems. In addition, honest leaders need to be appointed to the criminal justice institutions.

These all have been promised since Ramaphosa’s first State of the Nation Address in February.

The trickier, and implicit, question that investment decision-makers will be asking is ‘Is Ramaphosa’s sway over government as strong as that of Indira Gandhi’s in India in 1980?’ Or is the president yet to demonstrate complete control over the ANC?

The answer, unfortunately, is probably that an election has to be reasonably convincingly won before he can win the credibility he so badly needs.

Alan Hirsch is a professor and director of The Nelson Mandela School of Public Governance at the University of Cape Town. 

This article was published with the permission of The Conversation. The original publication can be viewed here. 

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If these investments do eventuate, it will be a feather in Ramaphosa’s cap. The fundamental weaknesses in the ANC that allowed for state capture will remain.

President Ramaphosa will fix it, watch the economy for the next three years?

We will be great again! hope you have invested in good JSE shares.
Our Pensions will have value again.

The rest will all fade away … talk is cheap.

So…bottom line we have to 10 to 15 years for the turnaround? If things go well.

For things to ‘go well’ Ramaphosa will have to drop, not INCREASE the cost of electricity.
May I advise Cyril that Eskom’s/ANC’s proposed catastrophic tariff increases that’s plural, increases of 15% per year for the next 3 years will scupper any form of ‘go well’from day one.
This country, under the ANC’s insane regime of state pilfering has had over a 300% increase in the price of power in the last 5 years.If the Happy Harry’s down in Cape Town’s academia believe that lunatic electricity prices are not going to cripple this land’s future then they should be outed as serial optimists and seek further advice on REALITY.
Cheers.

Well said. The worst part of the water and electricity increases is that many of the mining companies have locked in low tariffs for years to come. But the smaller businesses and the man in the street have to cough up.

The Eskom increases should stop now, this only affects only the law abiding citizens who even in these financial challenges, they still pay for what they use.
Eskom and municipalities need to get those who are not paying and those who are bridging electricity to pay for services used. This culture of getting things free is sending us over the edge.

Unfortunately it’s too little too late. Our gdp per capita is falling in a global growth environment. What happens when the globe slows down? Government is too bloated and the anc too weak to move sufficiently. Eff also a huge threat. We are going broke. ..slowly. .and then quickly.

It’s never too little too late and, in my opinion, the first thing to be tackled is the racist and divisive BEE policies inhibiting new and continued investment here. It’s led to the corruption and state capture that we have witnessed since 2009.
Well done Namibia on scrapping BEE credentials for mining exploration – it’s a start for CR to follow!

I cannot agree with you more about scrapping the racist BBEEE policies.

BEE/AA focus has gone on for ages and enriched a few whilst tackling early racism after aparteid, it is time to put those policies out to pasture and focus on real upliftment for the poor, any colour poor I mean.

Focus on broad based share incentive schemes for the poor, invest in education, healthcare etc for the poor. Target unemployment and provide incentives for business to train & employ impoverished youth.

BEE/AA are political tools and do not help the poor or the economy, time to go and focus on real constructive policy that brings as many people into the economy as possible.

Ramaphosa offered no incentives to business at his summit. If he wants investment he needs to offer something: tax breaks, accelerated capital allowance, visa’s for skilled workers etc. But no it was a typical African conference with begging bowl in hand. And such almost no new investment was announced.

I am sickened when Ramaphosa says he is fighting corruption and then does nothing about Ace Magashula or Gigaba or Bathabile etc etc. What corruption has he fought?

The sum total of his new dawn is promoting EWC!

Hi Alan

Can you please substantiate this with research and findings:

“The term ‘white monopoly capital’ is an accurate approximation of the distribution of economic power under apartheid, and much of the imbalance in economic power remains.”

Also, please can you share the quote where Ramaphosa specifically referred to white business.

“Ramaphosa, who became a successful capitalist after he left Parliament in the mid-1990s, has now signalled that he wants to build trust between government and white-owned businesses.”

This is a finance website, let’s keep the race baiting to a minimum please. Ramaphosa signaled that he wants investment and to reform policies to make them business friendly, not white business friendly.

This is why, long-term, “publications” like Moneyweb are dead in the water. With journalism like this it’s a clear race to the bottom for clicks. Race-baiting is big business in South Africa. And…there goes your integrity. Never to return. Trust me, not too many EFF supporters read Moneyweb on a regular basis, and none of them would pay for it. They get their news from Fb and Twitter.

Cyril say what people want to hear, this meaning, today he talks to an interviewer at the G20, tomorrow he talk to his executive, the day after he talk to business men at a business breakfast. Everybody will hear what they want, and he know what they want to hear. Eventually he will have to live up to what he preach.It may be that Tito push him in the right direction and force him to make right decisions that lead to growth and trust. If this happen, history books will reflect on the duo that made the correct changes in this country. I hold thumbs for them, this is the last throw of the dice in this country.

Yes, professor, the key question is, “is the president yet to demonstrate complete control over the ANC?” Presiding over his conglomerate of fractious factions, he has but a tenuous grip on the rudder. His grip on reality seems equally tenuous. Vide his remark reported by Bloomberg. In the interview he said that there are “no killings of… white farmers in South Africa”.

I’d be very surprised if there was much new investment as part of CR’s drive (ie that wasnt already going to be invested).

I suspect that every big new investment will have been given some sort of uneconomic (for SA) sweetheart deal as CR’s and the ANC’s credibility is now on the line.

However the main problem with this drive as the “solution” is that the sort of mega-investment he is going for will not provide the employment opportunities we really need. Yes $b in new mines or fancy new factories will soak up a few tens of thousands of unemployed. But the real economy that grows and provides MILLIONS of jobs are the SMEs. But these will continue to suffer due to all the usual regulations, restrictions and problems the ANC has introduced and will not grow because nothing has changed.

Therefore CR is focusing on the wrong area and even if he gets his $100b, the impact on the country will be negligible. It’s just a distraction and what worries me most, is that he probably knows this and this is all a cynical play to distract until the next election.

What is required is bold leadership . CR should limit BEE rules to the business deals the public sector is involved in , and free the private sector from all race based quota system s . Similarly the private sector should be free from the most restrictive labour laws , and EWC should not apply to privately owned land .
These reforms will result in a booming private sector that will generate jobs and tax income for the state .
The public sector can then , as now , plow along to provide secure jobs for disadvantaged citizens .
In effect create a dual system each with its own rules .

Bet on the jockey or on the horse?

You can have the most inspiring jockey in the world but it doesn’t help jack if the horse is broken.

Cyril game changing moment will be what he has done to fix the horse. There remains a lot more to be done. Hope he can prioritize these first.

What a poor article and then from UCT nogal.

Ah now I see it. Published originally in the Conversation. QED

There are academics and economists and promoters paid to write the positive narrative – or else.

Game Changing:

Dear Mr Jack,

You is has won the wite munolopoly capital gazilliowns.

Pleez trunsfor R209billion into my account so I is can relees ur founds.

Ur frend,
Cyril Ramaphosa

End of comments.

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