A storm is coming and the urgent response needed is nowhere in sight, says Mphuthumi Ntabeni who looks at the International Monetary Fund's recent visit to the country, its advice to the country, and the president's seeming lack of haste and action. Ntabeni writes an open letter to Cyril Ramaphosa urging the promised bold reforms.
Dear Cyril, or as we natives call you, Syllil
When you announced your call for a “New Dawn” I was encouraged. Many called on you to act boldly and even took the liberty to compare your call to those that heroically came before. Yours was likened to the promises felt during the tenure of two US presidents, Roosevelt and Obama, who started their presidency in similar conditions to yours. Since then, I’ve not seen much concrete action beyond the rhetoric you offered in respect to the New Dawn.
Instead, as an incumbent, you chose to go to the perfumed avenues of the Davos World Economic Forum, where you claimed to have won the confidence of foreign investors. I disagreed with the need for that move when your grasp in power was still tentative. It subsequently sowed much confusion behind the political scenes of your party and exposed you as being indecisive and weak. Given that nothing much has materialised from the Davos trip, I hope that this is a stern reminder that those talk shows are not as important as they seem. What gives investors’ confidence are clear policies that eliminate uncertainty.
What the IMF thinks
I hope you now believe those of us who have voiced our opinions. When finalising its mission visit to South Africa recently, the International Monetary Fund (IMF) said that unclear policies are what is hindering our national economic growth, amongst other lesser factors, and called for “bold actions” in our economic policy in order to kick-start the growth that they generously predict to be around 1.5% in the next quarter. The IMF delegation was gentle in reminding you that your projected economic growth of 5% by 2030 as set out in the National Development Plan (NDP) is unrealistic at the current pace, something that many of us urged you to adjust. In fact just about the only realistic thing about the NDP is its Diagnostic Report.
As for proposed solutions, I've said before that you need to throw it out the window for more radical and innovative ones. Now the IMF seems to agree. They said that even their projected 1.5% economic growth for SA, which is a percentage point higher than the last, will still be too low to make any meaningful dent on the scourge of unemployment in our country. They have urged the country to make 'bold reforms' that may boost growth above 2%. They've reminded us that we have strong institutions and a healthy young workforce that should have placed us well above the sub-Saharan average, yet we're far from the double digits projected for countries like Ghana.
Concluding their remarks on their visit, from 28 May – 11 June, the IMF mission statement said: “Policy uncertainty and a regulatory environment not conducive to private investment have resulted in GDP growth rates that have not kept up with those of population growth, reducing income per capita, and hurting disproportionately the poor.”
You may recall that STATS SA recently announced that our real domestic product has fallen by 2.2% in the first quarter of 2018. In a nutshell, this would mean a downward revision of almost everything that the minister of Finance, Nhlanhla Nene, announced in the February 2018 Budget speech.
The saddest part is that because of the VAT increase and the huge petrol hikes, inflation will rise, resulting in significantly less disposable income for households. So our vision for immediate economic growth is dire, given that the primary enabler in last year’s 3.1% growth was household spending.
Perhaps, now you understand why I’ve said your government has launched an attack on the poor?
I never thought that I would see a day when the IMF, the austere economic preachers that they are, would advocate for a boost in social grant benefits and incessantly point out the red lights of the inequalities in our economy. Moreover, they argued that governments should always be on the side of the poor. This is likely because they’re acutely aware of the storm that is coming if things continue along this trajectory. The proliferation of violent cash-in-transit heists exposes the desperation out there, especially from the youth who feel they have nothing to lose.
Next, once this mood catches, these criminals will appeal opportunistically to those from the poorest socio-economic classes, presenting themselves as the liberators and provoking great social upheaval – that for which the EFF, more than any other party, has been a ripe conduit. And, before we know it we’ll have Umzansi Spring on our hands.
I am sorry to say, but nothing in your presidency thus far has convinced me that you’re aware of the urgency of this matter. Even in your superficial suaveness, it seems to me that you lack boldness and a comprehensive grasp of the issues.
Leaning towards the bold reforms agenda and your New Dawn, I have argued for a scrapping of all existing grants and replacing them with a centralised Basic Income Grant for every citizen above 18. For the employed, it can be offset from their salaries and managed through the Department of Labour. The Department of Social Development can easily be collapsed into Correctional Services, allowing them to provide real rehabilitation services for our offenders, and also to give them a stronger mandate to turn around schools and clinics in disenfranchised areas. Trust me: the whole thing, coupled with a complete overhaul of our tax system, for the Land Value Tax option, will end up cheaper and far more implementable and self-funding, than what we now have.
The IMF delegation said that we need to refine our mining regulations if we want to foster investments. They call for a broad spectrum approach to mining and the current business of SOEs to be allocated to the private sector to increase competition. You could sell a certain portion to the private sector, and run our SOEs on the same model as Airports Company South Africa (ACSA), probably the most efficient and effectively non-corrupt SOE in the land. Though basically state-owned, ACSA is run by a private entity. You could pilot Eskom, SAA, PRASA and others along similar lines, while giving the competence to run Metrorail to municipalities, removing it from the clutches of PRASA.
The IMF delegation also told us of many other things that we already knew: that our education system is ineffective and that our public wage bill is too high compared to the size of our economy and our population. But, of course, our unions are too strong; this is a daunting task for any sitting government looking to rationalise the public wage bill. Furthermore, if the revelations of the recent strike by bus drivers are anything to go by it is clear that the ability of workers to negotiate wage increases well above the inflation rate seems to be limited. This speaks either to a waning power in the union or in the business classes that have become emboldened by your presidency. The restructuring of the Public Wage Bill through voluntary severance pay and by enticing early retirement is a brilliant way of doing this. Well done.
What can you do now?
Cyril, let us be done, once and for all, with our economic mining complex. In order to reduce production and environmental costs, the mining sector is investing heavily in technology. So, again, no big jobs will be coming from them.
I recently attended a Roundtable discussion that was organised by Catholic Parliamentary Liaison Office where they had invited Karien Erasmus, whose organisation, Promethium Carbon, has published the Renewable Energy Toolkit 2017: A practical guide to project development. This document provides guidelines both for a national transition to decentralised renewable energy, making communities responsible for the generation and distribution of their own clean and affordable energies, and a how-to guide for building just and sustainable land reform projects. If I were you, I would treat this as the “implementation Bible” for my presidency. They've piloted projects where old mines, in collaboration with communities, work together to generate bio-energies. We have even shown you in these pages how things like giant king grass and sugar beet can be planted on lands that were previously used for mining activities. What is more, these crops can be used to generate bioenergy that can be sold for use in municipal buses, provided you regulate the buses into using a certain amount of biofuels to limit their carbon footprint in cities. This is crucial, Cyril, especially when you also consider the fact that our GDP this quarter has slumped largely because of the sharp 24% decline in our agricultural sector.
Ms Erasmus also suggested a way to kill three birds with one stone – not only are fossil fuels replaced but there are great opportunities for rejuvenating the soil, cleaning water and involving local communities. These synergies between big businesses (mine closures) and the social issues of surrounding communities are the economics of the future that the forthcoming Mining Charter should be addressing and not the passé attitude of looking for mining jobs that we have forever lost and replaced with machines. We need to greet the future we are entering, with bold and truly innovative ideas and not simply by recycling the old ways of thinking that have got us in the mess we are in.
I can forgive the IMF for not dwelling too much on domestic investors, but what is your excuse, Cyril? South African upper middle classes and big private companies are among the most liquid in the world, and they have basically been sitting on their huge cash reserves for the last two decades while hardly investing anything locally. They have annual profit margins that are 150% above the global average. Why have you not taken them to task for this? They have any number of excuses for not investing internally: from slow growth, weak currency, political uncertainty, job and skill mismatches to the rigidity of labour laws and the list goes on.
I remain hopeful that you shall bring bold and innovative reforms to get us out of the economic rut we're in. At least, since you came, we have stopped digging despite finding ourselves in a ditch.