‘Our country and the world we live in,’ President Cyril Ramaphosa assured South Africans a month ago, ‘will never be the same.’
Echoing this, much has been said about how the disruptive Covid-19 pandemic will profoundly alter the world and, in particular, the way we manage our economies. A trip to the shopping mall, we are told, will be a profoundly different experience. So will buying a car. The digital economy will flex its muscles and remote work will be conducted on a scale not hitherto thought possible. Countries will become more aggressively protectionist and insular. An equitable balance between nature and industry will be found. And so on.
Yet, it is perhaps in the nature of public commentary to emphasise the extreme and the dramatic – that this or that is landmark, or epic, or a watershed, or that it ‘changes everything’.
The truth is though, we don’t know what the future holds.
In South Africa, the pandemic may not be quite the transformation event that many imagine.
South Africa’s economy was grinding into anaemic territory long before Covid-19 or the lockdown hit. Growth had never really recovered from the Global Financial Crisis. South Africa was in a recession (trying to soften the reality, semanticists insisted in calling it a ‘technical recession’). If the country had not yet been driven off a fiscal cliff, the latter was clearly in view. Unemployment was at nearly 30%.
The pandemic compounded these circumstances, or perhaps it delivered a coup de grace. But it did not create them.
Key among the factors that have brought us to this point has been the inhospitable policy environment. Unclear and business-hostile legislation, intrusive regulations, and sup-optimally functioning institutions have all played their role. These represent choices that the government has made – and even something it recognises. Yet movement to address the problems has been slow in coming.
Profoundly dissuasive
The pursuit of Expropriation without Compensation (EWC) deserves special mention. This is profoundly dissuasive to investors; respected economist Dr Azar Jammine credits the policy with destroying the possibility of an economic windfall after the accession of Mr Ramaphosa to the presidency. It is also threatening the integrity of South Africa’s constitutional order – it seeks, after all, to gut a clause in the Bill of Rights which even most of its proponents concede does not rule out expropriation, even at zero compensation. Together, these have been a toxic combination and do much to explain South Africa’s declining fortunes these past two-and-some years.
Neither South Africa’s government nor its people must expect that the end of the health crisis will mean a correction to the country’s ills.
President Ramaphosa has spoken of ‘structural reforms’ that will be implemented to restore the economy. Whether this means anything is difficult to say. ‘Reforms’ have been a feature of government rhetoric, if not action, for a long time and it is by no means clear that the current circumstances mean anything different.
Moreover, when the president pairs this with a commitment to ‘radical economic transformation’, it is a salutary reminder that ‘reform’ need not imply anything business-friendly. It could mean an acceleration of some current policies, as some within the ruling alliance are no doubt eager that it should. The pandemic may not ‘change’ much, but may further accelerate what is in motion.
Looking towards the future, EWC will be both of substantive and of symbolic importance. This is for two reasons. The first is that to plough ahead with EWC would be to destroy the very possibility of economic recovery. EWC remains an investment killer, only now in a dramatically more troubled context. Expect more damage to a much smaller economy.
Collapse of tax revenue
The second is that any attempt to access large sums of money to fund a recovery – a ‘stimulus’ – or merely to paper over the damage associated with a collapse of tax revenue, while holding on to EWC, will be massively unsuccessful. South Africa’s credit rating has taken a battering with its downgrade to sub-investment grade by the big three ratings agencies, not least because of its policy stances (Moody’s mentioned ‘uncertainty over property rights’ when announcing its downgrade).
It’s hard to imagine that lenders would be willing to put their money at risk where a government is threatening the security of assets, at least not without the prospects of very large rewards. Indeed, it may be worthwhile to note that the United States has an effective veto over IMF funding and will probably not look favourably on an application under these circumstances.
Indeed, if such funding is sought it needs to be tied to the discarding of EWC. This is not so much a matter of the lenders setting conditionalities, but rather of firm undertakings that South Africans must themselves make. Loans are a charge to the future, and to incur them in tandem with a policy that will undermine whatever good they might do would be to deny us that future. A debt trap with no escape would be the outcome.
This is a future that would represent the triumph of ideology and a failure to imagine a solution beyond what has been mooted in the past. The ‘change’ here would only be to assert the misguided course that South Africa had been on before the pandemic intervened. The country might not be the same as it was, but it is hardly a future we should wish for.
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