With our economy stagnating and the unemployment rate being among the world’s highest, one would have thought that there would be urgent pressures for the ANC to embark on a reform programme to generate growth and jobs.
The absence of deep reform in SA is due to the ANC patronage system, which gives the civil servants, the unions, the tenderpreneurs, and the beneficiaries of black economic empowerment deals a veto over changes which could generate faster growth. Even a government of national unity has not been able to break this gridlock on reform, and it will be difficult for successors to make progress.
Yet the patronage system will end either in crisis or at the ballot box.
We have been in a low-growth, high-unemployment crisis for years. Last year, our emerging market peers, excluding China, grew at 4.3 percent, whereas we only grew by 1.1 percent. The year before, we grew by only 0.5 percent. For some time, we have been growing at well under our population growth rate of 1.3 percent, which means we continue to get poorer. For years, our unemployment rate has been at around 32 percent, one of the highest in the world.
As our growth stagnates, unemployment remains high, and the state faces a higher debt burden, and increased demands arise for spending on social security, there are bound to be more intense pressures for reform. Yet, if the ANC continues to hold key ministerial portfolios, key reforms have little chance. If these pressures are combined with an external shock, there might be changes.
The list of key reforms for growth is long. We no longer have power cut-offs to the same extent as we did up to March 2024, but we are not entirely in the clear. Under pressure of a severe drop-off in growth, the ANC allowed the private sector to produce power and brought in the original equipment manufacturers to oversee power stations. While private power producers are no longer restricted in the amount they can generate, there are still hurdles. And our railways and ports are in a mess, although things have marginally improved and there are plans to allow private operators to run certain tracks.
Poorly managed public enterprises mean that growth in productivity, an important contributor to growth, is negligible. Black empowerment policies and corruption mean purchasing costs are higher than these would otherwise be for the public enterprises. The public enterprises still have a stranglehold over key functions of the economy and are driving up costs, lowering efficiency and economy-wide productivity, and hence putting downward pressure on growth.
Dampener
Black empowerment is a dampener on investment as local and foreign investors just don’t see why they should give stakes to partners that don’t bring anything to the deal, other than access to the government market.
The labour laws mean companies, particularly smaller companies, cannot afford to absorb more labour at rates set by unions and big companies. In its reports on the SA economy, the International Monetary Fund repeatedly points to excessive red tape, simplifying government procurement procedures, and bolstering competition as key to unlocking faster growth.
President Cyril Ramaphosa has initiated Operation Vulindlela, a reform programme which has opened up the energy market and been behind the leasing of rail lines to private operators, and a few other initiatives. Although it is narrowly focused and not sufficiently ambitious, and will not bring about leaps in growth, Operation Vulindlela is positive in showing some momentum on reform. Yet the overall direction of reform is not clear.
One of the very partial signs of reform is the easing up on the country’s tight labour laws for small businesses. The Common Sense has reported that the labour laws might be changed to allow the dismissal of employees without formal hearings during their first three months on the job. And new small businesses will be exempt from bargaining council agreements in their first two years of operation. These changes are in the right direction, but small firms will still ultimately fall under the full scope of the labour laws.
These laws, unless exemptions are granted, force small firms to pay wages at the same levels as larger ones, making it difficult for them to take on more labour.
At best, reforms are hesitant, and incomplete, and not all are in a positive direction.
Being tightened
Black Economic Empowerment (BEE) is in the process of being tightened. Earlier this year, Ramaphosa defended BEE and said he would “refine, realign and strengthen” the programme. The government has proposed amendments to BEE laws that would reduce the points that 51 percent-black-owned firms accrue to place them in a position to obtain government business. At the same time, it wants to increase points for those that are 100 percent-black-owned. That would mean that more government contracts will go to a smaller number of businesses. That could severely restrict competition and mean the state would have to pay higher prices.
Elsewhere in the world, reform has very often been sparked by severe crises that threatened imminent disaster.
India was forced to reform when its foreign exchange reserves were almost depleted in the early 1990s. Poland embarked on “shock therapy” under its Balcerowicz Plan, named after the then Prime Minister, in response to hyperinflation, acute shortages, and a collapse of the centrally planned system. Almost three years ago, a libertarian, Javier Milei, was elected President of Argentina, which had suffered from long periods of hyperinflation, a series of debt crises, and large government budget deficits.
China did not face a crisis when Deng Xiaoping initiated the reform process in late 1978, but its leaders were worried about a slowdown in agricultural productivity and long-term growth, in contrast to the experience of the four Asian “Tiger economies”.
If the SA economy were to face a severe shock, there would be more urgent pressures to reform, but so far, we have been spared. So, at least for the time being, the IMF is unlikely to impose a list of conditions to force reform. Our Reserve Bank is independent and has done a good job in meeting its inflation target. While government debt is a problem, the Treasury has to a large extent kept the politicians with big spending ambitions under control.
Patronage system
Crisis-driven reform is unlikely, but so is reform by agreement. In the Government of National Unity, the DA has been kept well away from posts where it could push for the big reforms that would undo the patronage system. And it is unlikely that the DA would pull out of the GNU, as that would make way for the radical parties – uMkhonto weSizwe and the Economic Freedom Fighters – if it did not get its way on reform.
Could the DA and the ANC reach a deal on reform?
The problem is that the ANC might have alternatives to forming a government with the DA and having to end its patronage system.
But in exchange for certain positions in a coalition, the DA might insist that the ANC support a reform programme. Reform could be contingent on this being the ANC’s best alternative.
In cities across the US, patronage systems have ended at the ballot box. The voters were not benefiting from patronage and wanted well-run cities. Other such systems have ended when resources ran out. It just might be possible that, in time, this will happen here.
[Image: Peter Bryan on Unsplash]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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