If ever the stars were aligned for a leap into economic reform, it is now.

With his victory late last month over the forces of African National Congress (ANC) Secretary General Ace Magashule, and former president Jacob Zuma, President Cyril Ramaphosa has firmly secured his position as leader of the ANC. At the key ANC National Executive Committee meeting he was able to institute a probe into state capture and thwart attempts to dislodge him.

His victory presents an opportunity for big bang reform. This is a victory over detractors who have led a push for radical economic transformation and have stood up against serious reform.

South African economy in crisis

The depth of the South African economic crisis should also allow Ramaphosa to act with urgency. The economy was well into a crisis due to high government spending, high debt, and a large pre-Covid-19 deficit, and our circumstances have greatly deteriorated since. The country is badly positioned to come through the Covid-19 mess with strength.

The second quarter contraction of 16.4 percent from the previous quarter was mammoth, but hardly a shock in view of the dire lockdown. Unemployment at over 30 percent, and a rate of 45 percent if those who have given up their job search are included, underscores the need for policy change.

For this year, most economists are predicting a contraction of between seven and ten percent, taking the economy back to a GDP level of about six years ago. Equity markets in the US and Europe are expecting a fair recovery in earnings and therefore growth performance. But in South Africa stocks have been heavily discounted indicating market scepticism about reform and growth prospects. Without serious reform we are stuck.

Reformists could be well positioned

With Ramaphosa’s enhanced authority and the dire economic situation, reformists like Finance Minister Tito Mboweni should be well-positioned to embark on full structural reform – credible budget cuts, curbing wage rises for civil servants, ceasing bailouts and even privatising state-owned enterprises, and introducing flexibility into the South African labour market to make it easier to employ people.

Any reform programme that is now presented had best not disappoint with half measures that fail to address the fundamentals. If deference to labour demands on public sector wages and layoffs, as well as greater flexibility on the labour markets mean half measures, reform will be off course. Labour has said it will not agree to any of these measures. That must raise questions about whether there is a deal to be done on what is required, even with the Ramaphosa victory over his challengers.

If there is not a deal to be done we will have to wait for either divisions within the ANC or an IMF programme to unleash the SA economy.

Government is in the final stages of drawing up a recovery plan and talking to its “social partners”, big business, labour, and community groups in the National Economic Development and Labour Council. The risk of seeking compromise is that any plan that emerges will be based on a lowest common denominator. Also promised is Operation Vulindlela, which Mboweni says is “aimed at accelerating structural reforms” and is all about “fast-tracking implementation”. There is also likely to be a nearly R20bn job plan.

Mboweni must come up with credible budget cuts to stabilise public debt in next month’s Medium-Term Budget Policy Statement. Anything less than what is required will show that stabilising government finances has become a political impossibility.

Government recently came up with key infrastructure projects to boost the economy. South Africa has long faced a net depreciation of its infrastructure, but investment alone cannot give the economy a boost. There will also have to be changes in policies that will allow infrastructure to be better maintained and yield its full potential.

Without substantial room through drastic cuts, there is no space for any big ideas on how the country might improve its social safety net with an expansion of grants or indeed a Basic Income Grant in some form. That would require abolition of a number of departments and programmes, which might be a good idea as part of a post-Covid-19 rethink about the role of government.

In thinking about any post-Covid-19 lockdown policy initiative, the role of black empowerment will have to be questioned. The DA has rejected the idea of BEE saying it simply does not work for development. It is central to the ANC’s economic offer, but the role of BEE could have less of a role in a reformulation of government functions and role that might be triggered by the Covid-19 crisis. 

In any new policy initiative, potential investors will also want some certainty on what the new plans mean for proposals on prescribed assets, expropriation without compensation, the state bank, a state pharmaceutical company, and National Health Insurance.

Missed opportunities

Ramaphosa has failed to take up previous favourable moments for reform raising questions about whether it is all just politically impossible for the party. The months of “Ramaphoria” soon after his election in December 2017 would have been an opportune moment as would the months immediately after the lockdown. His victory in the internal political battle against the economic populists could be squandered if we see reform half-measures in the coming weeks. 

In the post-Covid-19 lockdown world economy, we will be especially poorly placed if reform is half-baked. Much of the world economy has begun to recover with an easing of lockdowns and the massive stimulus given by central banks and governments. A Covid-19 vaccine is awaited for a sustained global recovery, but over the next few months and perhaps afterwards governments and central banks will have to give added stimulus to businesses and incomes, and support a social safety net.

Government’s R500bn Covid-19 emergency package, the efforts of the private sector, as well as the massive easing in monetary policy by the Reserve Bank have supported the economy over the past few months. But South Africa is now running out of fiscal and monetary firepower to support the economy. The option which can yield real results is policy change.

As a country that underperforms its emerging market peers, South Africa will find financing its deficit increasingly difficult. With economies constrained, governments will have considerably larger funding requirements. South Africa has already been downgraded by the international credit rating agencies and will be faced with more severe borrowing constraints in the post-Covid-19 world.

The Great Recession in the aftermath of the Lehman Brothers collapse in 2008 and the Covid-19 pandemic have reminded the world that we should better prepare for crises. That means resources will have to be set aside to see economies through bad times. This ultimately creates extra demands on governments, but ones they will have to bear for resilience. We are in no position to do this. 

With Covid-19, there is no room for sluggishness on policy changes and implementation.  South Africa’s private schools were rapidly able to come up with online classroom solutions for children in lockdown, but those attending many government schools went without education. Dealing with that and the need for telemedicine should have been priorities for the government. This would have allowed far more effective delivery to the poor.

Countries that are fleet of foot on making policy changes are the ones that will emerge strong in the post-Covid-19 world. 

Covid-19 and the lockdown have made reform a lot more critical. The question in South Africa is how long it will take to unlock the politics that will allow proper reform to happen.

The views of the writer are not necessarily the views of the Daily Friend or the IRR

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Image: Wikimedia Commons

14 COMMENTS

  1. I my goodness. I cannot fathom that there are still pundits that see Cyril as some sort of reformist or even that the communist ANC is remotely capable of governing. Hope is not a strategy. Get real.

  2. This is like reading a script from La La Land. I view Cyril worse than Zuma. More astute and cunning in his ability to pull the wool over most people’s eyes. He is the worse thing that has happened to this country. And unless there is a major collapse of the ANC from internal struggles, then we have a dark future ahead for all of us, irrespective of race. Sadly what is worse, many many South Africans still believe he will revamp this country into a land of milk and honey. Well the recipe so far has been a total disaster and unless he changes that recipe, literally in the next few months, we have a tough very tough future here. If you have been making bread daily for 25 years with a set recipe, then little, if no chance you are going to change it even if it comes out tasting like…..

  3. It would seem that corruption and self-interest is in the very fibre of the ANC. CR is a negotiator but you simply cannot negotiate successfully out of corruption and self-interest with the corrupt and self-interested.

  4. It sounds plausible in a liberal democratic way of thinking. Yes, the President may have won in the NEC, but the NEC does not set policy. It is a Tripartite SACP led committee that does and they will argue that the public have not given such a mandate in the last election.
    The tripartite Governnent is not a Unimog in the bush, which can change course and direction as the need arises, but more a train on a railway track that is limited to going where the tracks go and those tracks have been laid at the last tripartite conference.
    I’m not holding my breath.

  5. The only way that SA will move forward is if we are a united people South Africans working together with a common goal of restoring our economy and dealing with corruption.
    1. The time has come to do away with all forms of racial discrimination such as BEE, quota systems, affirmative action. At the time I understand why these policies were introduced however the main benefactors of these policies have been ANC members their children and friends, not the impoverished community. It is time for them to be scrapped. Yes we all have our different identities but let this not be a tool to discriminate against others.
    2. I think this matter needs to be taken up with the international human rights courts and pressure needs to be put on our government.
    3. In 1994 there were many poor whites and still are today.
    4. According to our constitution every individual South African has equal rights so why do we have these racial policies in place which directly target whites only.
    5. Why are white children and young people who have born since 1994 many in poor families being discriminated against on the basis of their color. In the age group 1 to 30 the white population makes up 4,5% of the population. Black people coming from rich families having gone to top private schools can apply for any job however if you are white you are you are not considered on the basis of your skin color even if you come from a poor family.
    6. Today our schools are mixed all with equal opportunities to all yet we have quota systems based on the color of your skin. Families stay in the same suburbs work in the same job market.
    7. What about mixed marriages where you have blacks and whites how do these systems apply to them and how are their children treated, as according to legislation the white parent was previously advantaged even if this was not so.
    8. Many children since 1994 have grown up together not seeing race as an issue becoming friends some getting married yet these policies continue to drive a wedge between people. While watching a school cricket match a black gentleman and myself a white were having a similar conversation since then we have become friends. What he said to me was it is not the young people who are a problem it is the older generation and until they had moved on we would continue to have these problems.
    9. Not everyone agreed with the previous government and when the opportunity was given to the whites they voted in majority to do away with apartheid. Since 1994 we have seen the white population reduce by about 1/3 as under the current racist policies they can see no future for their children and have left the country.
    10. I do believe that the majority of South Africans are good people however how can they consciously support a government after 27 years of rule who has run this country into the ground, continues to fail in dealing with corruption and continues to push racist policies.
    11. We need a government that unites all South Africans under 1 umbrella that puts the people first and are not ruled by party politics.
    12. We need to urgently address restoring our economy and attracting foreign investment this will not happen while our economy is junk status and policies such as land grabbing etc exist.
    13. The ANC has almost driven our country to the point of no return where they now want to plunder our pension funds, with no major reforms taking place, still battling with internal party politics many focused on personal gain how do they intend to pay this money back my theory is that they do not have no clue it is a desperation move just to try and plug a hole what happens when this runs out ??
    14. Another issue that needs to be urgently addressed is the population explosion that we have seen in SA over the last 15 years realistically new jobs cannot be created at the pace of new births leading to more impoverished people accelerating over time.
    15. We need to start somewhere to restore our country lets start by uniting as one South Africa and trying to tackle these problems together.

    • I commented the below on another forum dealing with the same problem.

      “I hear what you say, but would you not consider the last 26 years as having tried to create a working democracy for all? The move for the WC to secede is an acceptance that it will never work. The ANC has a deep seated belief that socialism/communism is the way to go, while the other camp (be they blacks, whites, coloreds, Khoi etc) are capitalists and want to live in an economy that is free market and capitalist, and which does not have a stifling over-regulated centrist approach. That is the divide. Not blacks v whites. Secession is an acceptance that these two opposing ideologies can not co-exist. We have 26 years of trying behind us and no one can realistically argue, that this has been a success. The only solution then is to provide a part of the country where those holding a free market bent can practice their belief and way of life, while not interfering with those people who are of another view. What is wrong with that? On top of that, it has been made very clear to the capitalists that they are hated by the socialists/communists. The reason the WC has been mooted as a possible candidate, is because it is the only province in SA which the whites colonized first and adopted their free market capitalist beliefs in developing the Cape. The Khoi and San were here first, so are owed a leading seat at the table, in my view. It is international law that a people who identify with a certain way of life, have the right to self-determination. That is what we want.”

      There is no way the ANC will or can see reason. That horse has been flogged to death.

    • To quote you Mike:
      “14. Another issue that needs to be urgently addressed is the population explosion that we have seen in SA over the last 15 years realistically new jobs cannot be created at the pace of new births leading to more impoverished people accelerating over time.”
      This is, as I see it, the main issue that few people seem to recognize as being a limiting factor to the future of South African’s quality of life. Current economic policy cannot provide jobs for all these people; moreover I have to agree with Jonathan that CR seems unlikely to take the opportunities for reform that now stand before him, whatever the reason… so, may God help us all.

  6. Wow… I am flabbergasted.
    There is (and was for a very long time) a more sinister hand at play, not just locally, but globally. Smoke and mirrors, and the COVID19 card in this hand are the ultimate technocratic global financial reset. It is in the name itself, Certification Of Vaccination ID (identification) 1 (A) 9 (I)(also known as the 4th industrial revolution where humanity merges with artificial intelligence). If we take the masks off we might be able to actually think and see straight… not being muzzled might actually help us speak too.
    The question is, do we conform or fight for our sovereignty?

  7. Mr Katzenellenbogen must be one of the very few optimists with the views he has penned. If what he wishes dearly happens, then Cyril might even get 10% more optimist on his side. Not only were numerous opportunities missed to get the Real Issue Changes implemented during 2020 so far, needless to say that they were all squandered. During the whole Lockdown of 2020 so far in the RSA, the overall management of the crisis was the management of the crisis itself with the number of absurd restrictions that were imposed that damaged the economy and to try and “save the economy” to “borrow from the future to relieve the current situation” show a total lack of understanding economic principles and CONSEQUENCES. The money borrowed so far is not enough to get the economy going again since it only shows a money-grabbing hunger that exists within the higher comrades within the ANC whilst the masses pay dearly for it. Sadly the ANC does not have any better candidates since the next ones in line like Ace and Zumas erstwhile wife are some of the worst corrupt comrades in the ANC. Just voicing wishes and well-sounding strategies only fools the media and reporters. So far the epidemiologists who have been endowed with star-like status have just proven to be the worst predictors of the future between themselves, weather predictors, clairvoyance and witches – due to the lack of their capability to adapt their previous totally wrong models and emerge with some sort of respect from it. The fact that the ANC clings to their predictions and keeps on believing it, is like throwing a grain of salt into the sea and expecting it to stop the waves. Wake up people, stop being misled by media reports that just paints the rosy dreams that are being vomited.

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