Ramaphorian air spray no longer conceals the stench of a decaying economy

Johannes Wessels
@johannesEOSA1

President Cyril Ramaphosa’s commitment to revitalise the economy reminds one almost of president Zuma’s commitment to combat corruption: spraying air freshener to divert attention from a rotting carcass.

The person who promised in his New Dawn manifesto a growth rate of 3% in 2018 through “an unrelenting focus on economic growth” has delivered after 18 months a growth rate of 1.3% in 2018 and negative growth up to date for 2019. Some people would say low growth is still growth, however economic growth below the population growth rate impoverishes the population.

He presides over an economy in worse shape than when he assumed power: one characterised by:

• a growing mass of unemployed;
• an Eskom-saving strategy akin to re-arranging the deck chairs on the Titanic;
• State-owned enterprises that can hardly meet salary commitments;
• a widening budget deficit due to increasing company losses and liquidations; and
• an acceleration of the exodus of productive knowledge.

Sipho Pityana, Anglo Gold Ashanti chairperson and convenor of the Save South Africa campaign, who congratulated in December 2017 by open letter CR on his election as ANC president, recently criticised Ramaphosa for his reluctance to take “the hard decisions required to stabilise public finances and create conditions that are more conducive to economic growth”.

Cocking a snook at Moody’s?

In the past 18 months, several incidences point to this reluctance. Rather than using the time to introduce the hard decisions required to stave off the Moody’s downgrade that hangs like the sword of Damocles over us, Government persisted with an approach and activities that effectively boil down to taunting Moody’s.  Some examples suffice:

• Above inflation salary increases were introduced for the civil service (shortly after Moody’s had warned that state expenditure getting out of control posed a high risk).
• Pravin Gordhan overriding Eskom’s management decision not to offer an increase to the already overpaid and underperforming employees at the bankrupt SOE, resulting in an on average 9% salary adjustment.  Apart from a poor intervention, it underlines the fact that the state as shareholder is interfering in internal operational matters of SOEs.
• Despite no indication where the funding would be sourced, Government persists with pursuing a National Health Insurance scheme that would increase the budget deficit.
• Rather than the incoming ANC president rejecting Zuma’s announcement in December 2017 of free tertiary education as contrary to the commission’s recommendations and without a proper assessment of the funding implications thereof, Ramaphosa embraced it knowing the state would have to increase its borrowing.
• Persistence with SOE bail-outs, believing the next set of directors and CEOs would improve matters. (There has been no hesitation or even an indication that the model of government-led economic development may, if not wrong, be at least ineffective and inappropriate).
• A bankrupt SAA and SA Express are allowed to continue operating at losses whilst private airlines are bleeding due to this unfair competition. Gordhan as Minister of Public Enterprises is simply sitting on his thumbs concerning this, doing nothing except complaining when the crying SOE is given a next bit of bail-out candy. (Ask Comair, Safair and Cemair, the latter effectively put out of business by an affective subsidy of R3 850 per passenger per SA Express flight, according to the Free Market Foundation).

Government hostility to business

Rather than an “unrelenting focus on economic growth” these examples indicate a more-of-the-same-approach that underpins the anti-business sentiment of the ANC.  Nedbank CEO Mike Brown refers to “hostility to business in government circles” (Sunday Times August 11, 2019). Brown had expected fast action after the May elections especially since government has run out of taxpayers’ money. However, the rhetoric of those purporting to support growth “remains anti-business”.

Brown is not the only business leader disappointed in the lack of urgency to introduce reforms. Magda Wierzycka of Signia voiced her despair on Twitter.

Pityana says unless government itself acts to cut government spending, it will be forced into an austerity programme by the International Monetary Fund (IMF) when private lenders turn their backs on the country, taking a different approach from Ramaphosa apologists like Peter Bruce that argue Ramaphosa is playing a long strategic game and will over time introduce his business-friendly policies by out-foxing the anti-business grouping.  

Bruce’s line of argument, even if correct, is not one of comfort: it rather emphasises the fact that the anti-business sentiment in the ANC as governing party is so entrenched that its “business-friendly leader” is ensnared thereby.

How business-friendly is CR?

Even less comfortable: Is the assumption of a business-friendly Ramaphosa in fact rooted in reality?

Favours the employee over the employer…

He is on record with his preference to protect labour interests, rather than balancing these with business interests.

Workers’ rights are paramount

Ramaphosa with his roots in the organised labour movement since his days at NUM and Cosatu, has repeatedly pandered to the workers’ side. At the 2019 Workers’ Day rally, Ramaphosa said the government would “never betray the workers and sell them to private interests”. He pledged that his government would “ensure that workers’ interests come first at all times. We must never surrender your interests and indeed the revolution to other interests and subject the interests of the working people of our country to any interests. We will not, comrades, hand over (to private interest) the institutions that are meant to advance the interests of the working people in our country.” 

We’ll keep you employed even if we can’t afford to

On Eskom (that government wants to divide into 3 entities) Ramaphosa promised there would be no job losses.  This promise is indicative of his default position of considering employee rights as more important than the well-being of the enterprise employing them. 

What makes matters worse, is that Fitch and Moody’s recently warned that the Eskom debt exposure of Government aggravates the sovereign investment-grading concerns. Ramaphosa cannot be shocked about the fact that Eskom is overstaffed and that that over-staffing is contributing enormously to its desperate financial position:  in 2016 the World Bank found that Eskom, compared to other energy utilities in Sub-Saharan Africa countries, was 66% overstaffed and that a benchmark employee total of 14 244 employees would suffice, rather than the 41 787 then on the Eskom pay roll.

Rather be uncompetitive than laying off workers

Ramaphosa called on businesses for a moratorium on retrenchments in order not to increase the level of unemployment. The viability and competitiveness of SA firms in mining, manufacturing and banking are less important.  

White monopoly capital and all that…

At the Presidential Investment Summit in October 2018, Ramaphosa acknowledged the existence of an anti-business sentiment in government circles and called for a change: “It was time for South Africa to do away with vilifying businesspeople and that the label ‘white monopoly capital’ should be discarded once and for all.” 

That was a welcome change from him, since as deputy-president under Zuma, Ramaphosa himself sung heartily the “Down with White Monopoly Capital” song in the Zuma choir. Whether that signalled an about turn accepting the role of the private sector and a business-friendly environment as a condition for growth, remains in dispute.

I disagree that the private sector is more effective…

In his reply to the SONA debate, Ramaphosa said there would be no privatisation of SOEs and that he disagreed “with the view that the most effective and efficient way to provide services to our people is through the private sector.”

Cost of crime a potential Olympic medal winner

As a regular visitor to Davos to tell the World Economic Forum (WEF) South Africa was open for business, Ramaphosa should be aware that the WEF considers the SA police service as one of the 20 worst in the world. That contributes to the cost of crime for business being the fifth highest in the world: a burden that hampers growth, profitability and investment. A thorough revamp of the police service is long overdue, but there has been no action plan to tackle this institutional barrier to growth in the first 18 months.

All property will be secure, but some will be less secure than others…

Ramaphosa is committed to ANC unity and not only embraced expropriation of property without compensation, but made it part of his election platform. Pursuing this policy whilst trying to lure investment, makes an uncomfortable portfolio for his four investment ambassadors.

EWC acts like a giant scarecrow keeping investors away. Expropriation without compensation (EWC) is not a new approach of the ANC.  Mineral rights as well as water rights were revoked without compensation when the ANC commanded a two thirds majority in parliament.  Intellectual property rights (patents as well as copyright) are pushed back by the ANC.   

SA enterprise in a critical condition

The anti-business and anti-growth policies and strategies with budgets aimed at increasing state control since the dumping of GEAR, are at the root of the scourges of low economic growth and high unemployment levels.

The enterprise world of SA is in a critical condition.  Were the company tax returns of the 768 000 companies combined and submitted as that of a single entity (say SA Amalgamated (Pty) Ltd) there would not have been any Company Income Tax (CIT) payable to SARS for three consecutive tax years due to assessed losses exceeding assessed taxable income .

Despite increasing the VAT rate to 15%, the budget deficit is increasing.  It is an inevitable outcome when both government expenditure and population growth exceed the rate of economic growth.

Champions in scoring own goals

EOSA plotted the budget balance as well as the current account balance on a soccer field for the years 2002 to 2018.  Since the dumping of GEAR in 2008/9, SA has been stuck in its own half, mostly right in front of its own goal posts.

Every SOE bail-out, unfunded initiative like the NHI and free tertiary education, scarecrow-policies like EWC, productive skills flight due to anti-growth policies are effectively an own goal. The budget deficit for 2020/21 will probably breach the 6% level. Considering GDP growth of 1.5%, playing right in front of the own goal posts is therefore likely to continue.

The Ramaphorian anti-corruption air freshener can no longer disguise the stench of a decaying economy. It is time to discard the ideal of a developmental state given the low quality and productivity levels in the public sector.

As De Klerk realised one could not dismantle apartheid without dumping the Population Registration Act and the Group Areas Act, it is time to dump anti-growth policies and practices and to unleash the (remaining) potential of the private sector.

Take three steps to give SA hope

Just three concrete steps would go much further than another Investment Conference or Job Summit:

1. Downsize Eskom’s employees to 50% of the 2019 level within 30 months
2. Pull the plug on SAA and SA Express so that private airlines can fill the space
3. Place a moratorium on BEE.

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