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Ramaphosa’s to do list

7 economic policy areas that will shift the dial.

South Africa’s new President, Cyril Ramaphosa, seems to have a lot going for him. His early new broom sweeps clean gestures have been incisive and the market indicators are responding well. A plethora of good news has come his way in the weeks since he was sworn in.

The rand has remained strong, and with it the steadying of the inflation rate – at 4% the lowest it’s been in three years. This in turn allowed the South African Reserve Bank to cut interest rates by 25 basis points. Few things benefit a feel good effect better than downward movement in interest rates.

And business confidence is looking up. This could mean that companies use their high cash balances to invest.

Most critically, global credit rating agency Moody’s maintained South Africa’s investment grade rating and upgraded the outlook of the country’s sovereign debt to stable. And while one of the other top three rating agencies, S&P, didn’t upgrade its sub-investment grading, it doubled its growth forecast for 2018 from 1% to 2%.

Also auspicious is the trajectory of the global economy, if Trump’s trade war can be contained. The prospect of continued economic growth across Africa and the huge improvement in the southern African environment with new leaders in Zimbabwe, Angola, Mozambique and South Africa, are also positive.

But Ramaphosa will have to do much more to rekindle growth, address deep inequalities and tackle corruption in the private and public sectors. Above all he must address policy uncertainty. This is affecting a range of key sectors from energy to telecoms, water mining and land.

The Ramaphosa government can’t do everything at once. There are seven key areas that South African’s new president should focus on to make some headway.

The to do list

Fiscal stability:

One critical challenge is maintaining macroeconomic stability – that means keeping the budget deficit within reasonable bounds and yet supporting economic expansion. So, he needs to be sure that any increases in government expenditure support growth and development.

But this won’t be easy given that the government has landed itself with a massive public sector wage bill. Costs have gone up dramatically as a result of higher wage settlements as well as employment going up from 2.5 million go 3.2 million under Jacob Zuma.

It will be hard for Ramaphosa to bring this back under control given that he also needs to win over the labour movement in his mission to build a new social contract between government, labour and business.

At the same time, government has to attract capable professionals to deliver on its promises to replace talent lost during the frustrating Zuma years. Ramaphosa and his team will need to work hard to make public service an admired career proposition.

Re-industrialisation:

Ramaphosa has promised to getting industry going in South Africa again. This requires three key conditions:

  • A relatively competitive currency (the rand should not get so strong that imports are favoured against domestic products).

  • interest rates must be low enough to encourage investment, especially by small firms.

  • Real wage rates must be linked to productivity increases – if wage increases run ahead of productivity growth, domestic producers will lose out to international competition.

Ramaphosa might run into some difficulty here too given that he’s promised to forge a “social pact” with labour and industry. Striking deals between competing interests might get in the way of delivering these three key drivers.

But if he does, South Africa would have taken a real step towards a democratic developmental state, as Mauritius did in the early 1970s and Ireland in the late 1980s. Both countries made social pacts in which government supported investment, business committed to investment, and labour agreed to limit wage demands to increases no greater than productivity increases. The result was sustained growth over several decades.

State-owned enterprises: Ramaphosa has already made some bold moves by firing executives from key entities such as the state power utility Eskom and South African Airways. But tougher decisions will have to be taken. Operations will have to be rationalised and policies overhauled in key sectors such as energy, information and communication technologies, water and transport.

Urban land: Reallocating land in urban areas could reduce inequality and erode the spatial legacy of apartheid. Poor workers and their families continue to live great distances from places of work. Better located, safe and secure homes for workers and their families, and better public transport will improve livelihoods and lower employment costs. Access to suitable and secure urban homes would be a massive step forward for many, and a huge contribution to the reduction of inequality.

Small business: Government needs to act in a far more consistent, committed and coordinated way to support the small business sector. Currently responsibilities are split over several ministries. It also needs to ensure that the dead hand of state monopolies and private oligopolies are lifted. Underpinning this should be a stronger commitment to supporting investment in new research and development.

Skills: Education – and skills – should be a central focus.

The greatest intervention to support skills development and reduce inequality in the longer term would be to take early childhood development funding seriously.

Secondly, the general quality of basic education is failing the country. This needs to be addressed. And the World Economic Forum has downgraded South Africa’s competitiveness ranking for the relatively low number of university graduates it produces. This needs to be reversed.

The commitment to free higher education for capable students from poor backgrounds is a bold step forward, but the universities need more and smarter investment in their capacity.

The skills training environment remains deficient, and needs a better relationship between the demand and supply (employers and training institutions) to get it to work efficiently. And a wiser policy on the skilled immigrants would help a great deal in the interim.

Policy certainty: More certainty is needed about policies on mining, land and black economic empowerment to encourage new investment.

Tough road

Ramaphosa has started brilliantly, in spite of the terrible state of the African National Congress (ANC) and the weakness of too many government institutions. Getting to serious, inclusive growth is going to demand a great deal of work by skilled policy makers working within effective social partnership agreements.

The ConversationIn view of the limited resources available to the government and considering the fragility of the ANC, he will need to prioritise and move systematically through the issues, all the while ensuring that his government maintains sufficient support.

Alan Hirsch is professor and director of the Graduate School of Development Policy, University of Cape Town.

This article was originally published on The Conversation. Read the original article.

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And what about the elephant in the room that strangely no one speak of?
Ask any foreign investor about his experience in trying to invest in SA and he will horrify you with tales of just how SARB and their agents the local banks actively work to permanently discourage all forex transactions.
As Mandela promised over 20 years ago, forex
Controls bust be scrapped in their entirety, and scrapped now. Our country can no longer afford this Apartheid anachronism.

It is not rocket science to figure out what our sparkling new president needs to do to turn the economy around and build a prosperous nation. The UDM, IFP, DA and FF+ have figured it out long ago. Ramaphosa van merely go and have a look at the economic policy of these opposition parties and he will find all the solutions there. In short – it is simply impossible for a political party with the economic policy of the ANC to turn any economy away from disaster.

If the people want an economy, they should not vote for the ANC. It is like giving a bar-tending job to an alcoholic.

with all the tribal factions, different cultural habits etc. the SA political situation is very complicated. With all respect I think you need to be a “black” person raised in the black culture to really understand ANC supporters way of thinking. Just as one can’t expect a white farmer to vote for the ANC the same goes for ANC voters. With Zuma out of the way the ANC will only get stronger. CR just need to be a strong unbiased leader for all and he must even be stronger in enforcing the law of the land. Sadly CR is still far from that leader.

I understand what you mean. My family supported the National Party because our great-grandmother was in a British concentration camp during the Aglo-Boer War. We voted for the National party because we supported independence and freedom from British rule. So basically people keep on supporting the ANC today for the same reasons why voters supported the National Party during those days. So how can I blame them?

I merely try to inform, by using a free press and free speech. Don’t we enjoy wonderful liberties under the ANC government? If I wrote these things during Apartheid, I would have been a parliamentarian today because I would have been a prisoner on Robben Island.

Yes Sensei your are absolutely right. I want to stress again that there is and will only be one party in SA namely the ANC. Changes/ innovations will have to come from them. All other parties are mere “sojourners”. If the ANC/CR doesn’t make the right moves to please all, we will be in bigger trouble than in the Zuma era.

Unfortunately, even if all the minority parties formed a coalition, it wouldn’t change the status quo so we have no choice but to support CR’s initiatives and give it a go.
These suggestions are very positive although in neither Ireland or Mauritius were people given land and housing for nothing. If we want a first world economy perhaps we should get rid of Third world expectations first?
If that is not possible we have no choice but to compromise and do the best we can.

The youth of SA need to be taught more about entrepreneurship and government must make funding for the youth easily accessible. Universities need to prepare youth better for the working environment. Youth in SA are more than capable of getting rid of unemployment. All we need are proper resources and a chance to prove ourselves!

You cannot make an entrepreneur and you cannot teach people to become entrepreneurs. You can only create an environment that enables people with the entrepreneurial spirit to take the risks, exploit the circumstances and opportunities to render a service to consumers in order to make a profit.

Entrepreneurship is a cultural phenomenon. It is very hard for collectivist cultures, where the focus is on the advancement of the group, rather than on the responsibilities of the individual, to cultivate entrepreneurship. In order to become an entrepreneur an individual must have the deep-seated conviction that he is responsible for himself and that he needs to take responsibility for every outcome in his life. There is a fundamental difference in the belief system of entrepreneurial societies and collectivist societies.

The East- and West Germans share the same ancestors, but 30 years after unification, entrepreneurship in East Germany lacks entrepreneurship in West Germany. Socialism, communism and collectivism destroys the entrepreneurial psyche in a community, irrespective of race, levels of education and living standards.

The basis of the ANC manifesto, that the “responsibility lies with the collective” is detrimental to the entrepreneurial spirit and creates a society of social grant dependents. This is why we are at the bottom of the list of the Global Entrepreneurship Monitor.

The only way for South Africa to boost entrepreneurship is to import them, or to cultivate and nurse the local groups who already have the entrepreneurial spirit.

Forex controls have been scrapped…how else were the Guptas able to export so much of their stolen gains to beyond the reach of the South African authorities?

…..with the help from government “friends” that doesn’t even know what forex controls are.

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