The one thing that President Cyril Ramaphosa failed to mention at all in his State of the Nation Address (SONA) this month, or in the debate that followed, is the black hole into which his and the nation’s ambitions for an economic recovery are being sucked – Black Economic Empowerment.
If its negative impacts are not addressed, Ramaphosa’s plan to ‘remove impediments to investment’ will be fruitless.
Mandatory BEE requirements are what foreign investors see when they take a glance at South Africa. They see an economic system which will impose an additional tax of 25 percent (possibly 30 percent in mining) before they even start to do business. Once up and running, they are required to meet onerous BEE procurement, sub-contracting, training and community development criteria. These are over and above the ‘ordinary’ business risks associated with a sluggish domestic market, unreliable and expensive electricity and intractable labour issues. It is no wonder they glance at South Africa and then look away. This is palpably a country that is not open for business.
Ramaphosa did at least begin his SONA by identifying some of the enormous economic challenges facing the country. By acknowledging that the economy has stagnated for the last decade, that unemployment is deepening, that public finances are under pressure and that state enterprises are in distress, he at least attempted to provide an honest assessment of the problem. But his list was incomplete. Neither BEE nor labour-market rigidity were mentioned, and, as a result, the president’s ‘solutions’ were unconvincing.
Strategy benefits insiders
The president’s answer to the growth problem – alongside public spending promises which will be undermined by fiscal constraints – is corporatism. He believes that ‘achieving consensus and building social compacts …is the very essence of who we are (as a nation)’. But this is a strategy which benefits insiders who get to negotiate over how to divide the existing pie. It doesn’t bring in new investors (who are by definition outsiders) and it does not drive ‘inclusive growth’. In fact, South Africans who are outside the ambit of his social compacts – the unemployed for instance – are nowhere in this scheme of things. It is no coincidence that corporatism is so often associated with economic stagnation.
Ramaphosa’s six priority actions to reduce youth unemployment all fail the test of scale. They are band-aids which may benefit a few individuals but fail to get to the heart of the issue. There is little point in ‘creating pathways (into employment) for young people’ unless the economy is growing. But, except for electricity supply, Ramaphosa is obtuse about the really big hurdles to growth. Fixing the regulatory environment will achieve little so long as its most onerous burden – the empowerment edifice – remains off limits.
In fact, at the few points where the president does mention ‘transformation’ he gave no detail, let alone a sense that he is aware of the trade-offs involved. So he was able to talk about a Tourism Equity Fund (‘to stimulate transformation in tourism’), the upcoming Procurement Bill (‘to empower black and emerging businesses and advance radical economic transformation’) and the IDC’s R10 billion to fund ‘women-empowered business’, as if these were discrete initiatives somehow separate from the wider economy.
Hurdle to growth
This gap is a clue to why Ramaphosa was unable to even mention BEE, let alone admit that it is a hurdle to growth. This is because it is not a growth strategy, even though it has been sold as such from the inception. It is a state-imposed redistribution strategy which comes with costs that he cannot, for political reasons, even mention.
In fact, it is most accurately seen as a social objective, not an economic one. True empowerment would follow growth, not precede it. That BEE is a flawed social objective – which benefits an insider elite, creates barriers to a more participatory economy and raises hurdles to investment – is a truth too hard to swallow.
But until the president accepts this truth, and acts on it, economic growth will be elusive. All the talk in the world about how social compacts are part of our DNA as a nation will not change that.
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