Can Ramaphosa repair our broken economy?

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South African President, Cyril Ramaphosa, recently announced an “ambitious investment drive” which will see “investment envoys” engage domestic and foreign investor opportunities in order to grow the country’s economy so as to lower unemployment rates and reduce poverty and inequality. Mphuthumi Ntabeni is cautious about these ambitious plans. He raises important questions and concludes that if Ramaphosa manages to do this he will indeed be the “national saviour”. He warns, however, that should this fail there is little room left for an increasingly angry and agitated poor in South Africa.

President Cyril Ramaphosa in his first State of the Nation Address (SONA) pointed to the urgency of repairing our country’s broken economy as a defining challenge of his presidency. He has since reintroduced youth internships, especially targeted at unemployed graduates. And, recently, announced what he terms an “ambitious investment drive” that will be coordinated by four “investment envoys” tasked to attract domestic and foreign investors to our country.

The ambitious part is that this team must raise about R1 trillion in investment over the next five years for our economy. This, according to the presidency, “is a necessary condition for the growth of our economy and the creation of jobs on a scale that will significantly reduce current levels of unemployment.” By doing this they plan to reduce poverty and inequality.

The National Development Plan (NDP) anticipated a rate of 5% economic growth in our country by 2030. Such growth depends on a substantial increase in fixed investments. Current fixed investments stand at just under 19% this would need to be increased to 30%  of our GDP if the economic growth targets are to be realised.  In 2008, fixed investments accounted for 24% of our GDP, the reason given for the decline was the political instability of the Zuma administration (foreign direct investment also declined from around R76 billion in 2008 to just R17.6 billion in 2017).

Truth be told, Foreign Direct Investment (FDI) in South Africa has averaged R554.69 billion between 1956 and 2017, reaching an all-time high of R2,101 billion in the first quarter of 2016 – when Zuma was the president – and a record low of R1 billion in the fourth quarter of 1957, under apartheid. The investment by domestic companies and individuals showed promise in 1992 but was already in decline by 1996, and in flight mode during Mbeki’s first tenure. This was because he deregulated and allowed, especially SAs big companies, to list in the London Stock Exchange (LSE) and other foreign exchanges without the apartheid regime imposed penalties.

One has to therefore question the excuse often used that political instability caused low fixed investment. In fact, economics shows that investors value return over risk. Hence countries like Ethiopia and Somalia are listed among their top ten investment portfolios in Africa, because of their fast economic growth. I partially agree with the presidency that the low investor rate is “driven by low business confidence and regulatory uncertainty; and has resulted in slow growth, along with poor growth in employment.”

The presidency is also planning that the “investment drive will culminate in an Investment Conference to be held in August or September 2018,” not only as a discussion platform, but to report on deals already made.

The UK has already led the way by putting its confidence in Ramaphosa’s drive. British Prime Minister, Theresa May, announced an R857 million funding initiative over the next four years “to help South Africa improve its business environment to make it more attractive to investors including in the UK, and ultimately lift some of the poorest people in South Africa out of poverty by creating jobs and opportunities,” according to a statement from 10 Downing Street.

This kitty-kitty strategy of the president is all well and good. It demonstrates that he doesn’t suffer the credibility deficiency of his predecessor. He seems to be heeding the lesson that you stop digging when you’re in a rut – we’re not going to be able to borrow ourselves out of the economic mess we are in. Some suggest that SA should opt for an IMF or China developmental loan.

The South African Economic Update, released this month by the World Bank, accepts that the South African economy’s performance is improving. It cautions that higher growth will require ambitious structural policies. I get a sinking feeling that the president and his team don’t appreciate the scope of the required structural changes to our economy. He seems to think that a ‘business as usual’ attitude will suffice. If he does, we’ve not yet heard his promised implementable masterplan to solve the problems – beyond the usual rhetoric and hype of ‘Radical Economic Transformation’.

No country attracts fixed investment without economic growth. So the president, like the NDP, is putting the cart before the horses. My suggestion to him, his envoys and planned council, would be to brush-up on their Keynesian theory. Only state intervention can stimulate innovation out of the kind of stagnation that the South African economy is in. So the presidency should also be talking about direct state cash investment and co-investment– more than simply direct investment.

We need serious state investment in our infrastructure and innovation, like green energy, to stimulate our economic growth. Only this will attract private investment whether foreign or domestic. We have not seen any economic policies that raise our productivity in the past two decades. Doing the same things and expecting different results is, according to Einstein, the quintessential definition of madness. If the likes of Trevor Manuel were not able to pull huge investments for us under the most portentous era of our history (economically and politically), what makes you think they can achieve it now?

We’re told that with these envoys, advisors and councils the president is planning to bring about a new culture of transactional politics that will emulate the rigour of business culture deals in government. But will that produce the transformational results needed to change the apartheid economic structure that is pulling us into the abyss? This, in my opinion, is the only standard Ramaphosa’s presidency will be measured by. If it fails in this, it would have failed in everything else.

SA’s citizens have grown wiser now and will not be taken in by the false sophistication of neoliberals. More crucial at this moment in our history, is the way that the grassroots will be harnessed so as to counter the cynical push resulting from the poverty, ineptitude and perceived corruption of the recent past. No country achieves really staggering heights of economic growth without substantially investing in its own people first.

There is an encouraging if slightly naïve hope in the tone of President Ramaphosa that calls to mind the Mandela era. The problem is that as citizens we’ve been burnt, we no longer easily believe these sweet sounding words: “South Africa has entered a new era of hope and confidence.” If the “era of investment, growth, job creation and meaningful economic transformation,” really comes he will go down in history as the real national saviour.

God help us all if this is just a ruse, or he fails. There’s no longer any room for that in the national psyche, especially from the agitated and increasingly angry poor majority. SA.

Image: presidencyza/Flickr

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* The opinions expressed here by Spotlight.Africa contributors and editors are their own and not official statements of the Society of Jesus in South Africa or of the Catholic Church unless explicitly stated.
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Can Ramaphosa repair our broken economy?

 

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