Cast your mind back to January 2024. South Africa was in Stage 3 loadshedding. We were a nation traumatised by 2023 – the year with the worst loadshedding on record, with no fewer than 335 out of 365 days affected.
Looking ahead towards the future, the situation seemed bleak. It looked as if loadshedding would go on forever, with perhaps a few months of precious relief as Eskom recklessly burned lakes of diesel just to keep the lights on ahead of the elections. We were certain darkness would descend as soon as we had cast our votes.
Businesses were closing, investors were pulling out. Unemployment kept rising inexorably. Our logistics infrastructure was falling apart, criminal gangs were expanding their reach unchecked. The trade and industry minister was suffocating the economy under weighted blankets of regulation, localisation, indigenisation, and master plans.
Our politics seemed stuck in a quagmire. The ANC was destined to remain in government forever and continue driving the country to ruin through a mix of ineptitude, corruption and socialist ideology. The opposition – allied under the wishful banner of the Multi-Party Charter – had no realistic prospect of influencing events and reversing the trajectory.
How different things look today.
Co-governing
The ANC and the DA, fierce political rivals for three decades, are co-governing as part of a Government of National Unity with eight other parties. Despite the occasional spat – which was to be expected – they seem to be getting along. There have been zero days of loadshedding since the election (and, indeed, since 26 March). The electricity minister, Kgosientsho Ramokgopa, has managed to do what none of his predecessors could: to raise the energy availability factor of the Eskom fleet, which measures the share of all plants that is able to produce electricity, from 51% at the beginning of the year to 68% now.
In cabinet, ministers, mainly from parties other than the ANC, have rolled up their sleeves and got to work on their portfolios. Some of them have started with such alacrity that ANC leaders reportedly expressed their upset that their ministers were being outperformed. This clearly struck a nerve because the ANC was quick to issue a denial, saying that there hadn’t even been discussion about this at its National Working Committee meeting at the end of July: “There was no such a discussion precisely because there is no such outperformance of the ANC by anybody.”
Reading between the lines, many ANC ministers must be aware that they will have to lift their game if they want to keep up with their counterparts at Home Affairs; Sports, Arts, and Culture; and Public Works, to name just some examples.
So, where to from here? These are promising early signs of a country that is figuring out how to get things right. To be sure, the road ahead is arduous and full of perils. But at least it is pointing in the right direction: towards improvement rather than terminal decline.
Promising early signs
Here are some of the promising early signs. First, loadshedding imposed a hard cap on South Africa’s growth. If Eskom can produce sufficient electricity, as now appears to be the case, then an important constraint will have been removed. For this to be sustained, the private sector needs to continue to be involved in fixing and maintaining existing plants as well as installing new capacity, and South Africa must resist the lobbies that want the country’s coal plants shut off and dismantled, the sooner, the better.
Secondly, competition is good for business. Having former political opponents in the cabinet is giving lethargic ministers a jolt. By all accounts, the departments now under the charge of non-ANC ministers are getting a wake-up call – and public officials are getting the message that they need to shape up or ship out. Many of them, one intuits, want to do their jobs well and will be appreciative of getting some dynamic leadership.
Thirdly, we are seeing early signs of improving investor confidence in South Africa. The rand is strengthening, government bond yields are falling. Investors are beginning to take an interest in the country. However, yields and the currency are fickle indicators that should be regarded with a healthy dose of suspicion. Whether these improvements will be sustained is open to question; the same applies to levels of foreign direct investment, another commonly used measure that fluctuates substantially over time.
A more meaningful number is the rate of gross fixed capital formation, which measures how much money gets spent on things like factories, bridges, heavy machinery, power plants, roads and rail – all the things that make the physical economy tick.
South Africa’s 2023 gross fixed capital formation number was 15% of GDP. That is dismal. The world average is 26.1%, according to the World Bank, and the 2012 National Development Plan targeted 30%. To kick off faster economic growth South Africa’s gross fixed capital formation rate has to rise substantially.
Low growth
The reason South Africa’s rate is so low is that both the government and the private sector are not investing enough. In the case of the government, it is because it is spending so much of our tax money on consumption that little is left over for investment (and what is spent, is often spent badly). In the case of the private sector, which accounts for about two-thirds of gross fixed capital formation, it is because investors distrust the South African investment environment too much to place their money in assets which cannot easily be moved.
This is one of the main problems that needs to be addressed for the early hopeful signs not to be squashed. The state must spend money more responsibly, which can be done by adopting the recommendations of the Zondo commission and placing public procurement on a value-for-money basis. The IRR Blueprint for Growth paper “Slash waste, cut taxes” explains how to do it. (As a side note, the new Public Procurement Act does the exact opposite, which is one of the reasons the IRR opposes it.)
But even more importantly, the state has to produce an investment environment that investors feel confident in and attracted to. This means, for example, protecting property rights by abandoning harmful initiatives such as Expropriation without Compensation (EWC) and the National Health Insurance (NHI), and improving law enforcement so investors don’t have to fear their property being expropriated without compensation by criminals.
The question of policy reforms is critical.
It determines whether South Africa will be able to build on these tender, hopeful beginnings – or slump back into the spiral of slow deterioration. The ANC-led sixth administration passed much harmful legislation which is now on the statute books (the Public Procurement Act, the National Health Insurance Act, the amended Employment Equity Act, the Land Court Act, the Climate Change Act, the list goes on) or merely awaits the president’s assent (the Expropriation Bill). Removing these laws – or, at a minimum, mitigating their deleterious effects – is going to be one of the most important challenges the new government faces. Much hinges on whether it has the political will to do so.
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Image by Jill Wellington from Pixabay