Parties in the Government of National Unity (GNU) are putting on road shows across the country to try and get business to boost investment.
At the first of the road shows last week, David Makhura, the ANC’s head of political education, warned a business gathering that the country is “headed for revolution” if the GNU fails, according to Business Day.
“If it [the GNU] fails, we are all finished. Capital must come to the party. Noise makers, populists and ethno-nationalists are waiting for us to fail, said Makhura.
The ANC has for long called on business to invest as a duty, and now we have Makhura saying that “capital must come to the party.”
Prime responsibility
There cannot be a “must” for capital to invest to save the GNU. The prime responsibility of capital is to its shareholders, then to its employees and customers, and to pay tax to the government. Since the 1970s, many of the big South African companies have taken on large-scale social responsibility projects. These can be justified to shareholders as a means to improve the environment in which they operate.
But business cannot just “come to the party” when the South African economic landscape is fraught with policies that actively discourage investment. Get rid of these, and investment will come on its own.
Clearly the ANC has not done much introspection about its policies, even with the 42 percent drop in new investment from 2022 to 2023, according to Nedbank’s survey of new private capital expenditure. Three oil giants: BP, Shell, and Total have all quit major projects in the country in recent months.
The list of policies and practices which negatively impact the business environment is long and well known.
For example, wage setting is largely done through negotiations between unions and firms in bargaining councils. These councils set wages throughout an industry, including for smaller firms that often cannot afford such rates.
So, what do the smaller firms do?
They often have to shed labour and scrap planned investments in the face of higher labour costs and internally uncompetitive rates.
Infrastructure
There is deterioration in infrastructure – road, rail, and ports – and, despite the more than four months without power cuts, uncertainty remains over the reliability of the country’s electricity supply. This is another big factor that discourages investment. Activities of the construction mafias which have operated with impunity are another deterrent to investment.
While the recently passed expropriation without compensation (EWC) law might initially be first used to seize agricultural property, other assets are also at risk under the legislation. The very fact that EWC is on the books sends a message to business that your firm could also be at risk.
The National Health Insurance project aims to place the entire health sector under government control. This will force investors to ask themselves what sectors might be next in line for government control.
The poor management of the state enterprises has dragged down the country’s productivity and economic growth. Many of the public enterprises such as Eskom operate in critical areas of the economy and have become bottlenecks on growth. Privatising these and creating a more business-friendly environment could result in massive new investment and faster growth, and spur investor interest in the country.
Many of the state enterprises might not sell for a great deal, but the new owners would be in a better position to make new investments than the state, which faces tight financial constraints.
Big business
It is not as though organised big business has not come to the party for government over a long time. Business Unity South Africa, which represents the really large companies, is actively helping the government to improve power supply, infrastructure, the ports, and security.
The “must come to the party” injunction puts the cart before the horse. Making policies more investor-friendly would be the best way to encourage investment. If that is done, we would have a fresh investment story to tell the world, and there would be no reason for us not to become an emerging market star.
But that is not going to happen with this GNU. The ANC will not give up its empowerment and transformation policies, which aim at the expansion of the black middle class and the creation of some very rich industrialists. That is more about dividing the pie, rather than enlarging the pie. If the ANC were serious about seeking out investment, it would try to enlarge that pie.
To encourage the private sector to invest, it is the ANC and the GNU that should instead come to the party by changing core policies and ensuring that infrastructure is not a bottleneck on the economy. That is not to happen any time soon.
Commitment
In the “Statement of Intent” agreed to by all the parties in the GNU, there is a commitment to an all-inclusive National Dialogue with political parties, labour, business, the unions, and other entities, to discuss critical challenges in the country. The “Statement of Intent” says the aim of the dialogue will be to come up with a “national social compact” to enable the country to reach development goals. A social compact is an agreement by key role players on the duties and responsibilities each should have.
For some time, President Cyril Ramaphosa has pushed for a social compact between the government, business, and labour as a way of taking the economy forward. Business has been reticent to sign such an agreement, as it would risk tying their hands. It is not clear what it would get from the government and the unions.
But what would business get out of such a deal?
Organised business cannot realistically commit its members to a fixed value of investment or to creating a set number of jobs over a certain period. Besides, what would the unions and government trade for this sort of commitment by business?
It is unlikely that the unions would agree to wage restraint or that the ANC would agree to scrap policies which undermine business confidence. What the push for a social contract does show is the ANC’s belief in a type of corporate state in which all citizens are placed in an officially recognised group.
Italy under the dictator Benito Mussolini was a corporatist state in which the government saw its role as a mediator between groups. The National Dialogue and social compact cannot possibly include the numerous special interest groups that exist, and some of which are not organised and have no official recognition. The unemployed are not represented in the dialogue, for example.
There is really little point to a national dialogue and attempts at a social compact when we had an election a few months ago. A meaningful social compact of vested interests in the unions, government, and big business will not give that push for growth.
What is required, rather than more talk, is a leader and party with a strong electoral mandate that takes the risks and goes ahead with the big bang reforms needed to encourage investment.
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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