This article was first published on Business Day on
8 February 2023

SONA: Don’t hold your breath for reform

President Cyril Ramaphosa is due to deliver his sixth State of the Nation Address (SONA) on Thursday. Will it be any different from the previous five? Don’t hold your breath.
 
In his 2019 address, the President indulged in whimsical fantasies when he asked the public to imagine a future South Africa of ‘smart cities’ connected to one another by bullet trains. Then, in last year’s SONA, the President committed to “100 days to finalise a comprehensive social compact to grow our economy, create jobs and combat hunger.”
 
Politicians are prone to empty platitudes, but Mr Ramaphosa has greatly damaged his credibility by making extraordinary promises he simply cannot keep. It’s time for the president to stop indulging in magical thinking and to get real about the problems facing South Africa.
 
Mr Ramaphosa has long promised to introduce economic reforms, but this has not been reflected in the policy choices of his government. For this, he must take full responsibility. Under Mr. Ramaphosa’s leadership, the operating environment has become more hostile to business, resulting in the domestic economy going backwards over the last five years.
 
South Africa’s fundamental problem is a lack of investment. Gross fixed capital formation as a proportion of GDP has declined from 22% in 2008 to 13% in 2021. Mr Ramaphosa clearly believes that ‘social compacts’ and investor conferences will unlock new investment, but his consensus-seeking approach has only resulted in policy drift and inertia. No amount of social compacting will get us out of the multiple and concurrent crises currently affecting the country.
 
To unlock investment, the president must move boldly away from the existing policy framework that deters potential investors, including cadre deployment, BEE and localisation. The supposedly ‘reformist’ president has consistently defended such policies, which have only become more onerous and burdensome under his administration. The Expropriation Bill and Employment Equity Amendment Bill are just two examples of the destructive legislation that this administration is pursuing.
 
South Africa’s unusually high unemployment rate – 34% on the narrow definition – is largely a result of these policies, which are further exacerbated by the government’s restrictive labour policies. Jobs are the byproduct of economic activity, they are not ‘created’ by government. Until growth is restored, South Africa’s unemployment numbers will only worsen.
 
Eskom remains a chokepoint for the South African economy. In addition, the breakdown in the country’s transport and logistics infrastructure – the rail network and ports in particular – is driving up the costs of production. These costs are then passed on to consumers, resulting in higher prices at the till.
 
While the collapse of energy and transport infrastructure is a grave threat to commerce and trade, it also represents an opportunity for greater private sector involvement in the economy. However, this won’t happen automatically.
 
Fixing Eskom will require the state to get out of the way by relaxing licensing requirements for private providers and allowing firms to trade directly with one another in an open market for energy, unmediated by the state.
 
On rail, it is encouraging to see moves being made to outsource Transnet’s Johannesburg to Durban container corridor line to a private operator. To succeed, this process should not be undermined by requirements that keep Transnet as the ultimate custodian of infrastructure (as is the case for requested investment in other rail lines). Many more such initiatives are needed across South Africa’s other failing state-owned enterprises.
 
Opposition parties should be owning this policy debate but seem too preoccupied by ego-driven conflicts over council seats. If the president were savvy, he could embrace privatisation and head off the threat of an opposition coalition at the 2024 election. However, he may find it too difficult to escape the ideological chains of the socialist ‘National Democratic Revolution’ to which he has expressed his commitment.
 
If his promises of reform are to be taken seriously, the president must explicitly reject policy proposals such as Expropriation Without Compensation, National Health Insurance and calls for the revising of the mandate of the Reserve Bank, all key resolutions of the ANC conference in December.
 
Not only are these draft policies poorly conceived, but the uncertainty surrounding their possible introduction has already caused great damage. Last month, when asked for his views on the ANC resolution to change the mandate of the SARB, the president was quoted as saying:
 
“It requires a constitutional amendment, it’s not just a matter you embark on. It’s not something that’s about to happen, it’s something that’s being debated.”
 
Yet again, Mr Ramaphosa refuses to be drawn on his actual position, preferring to call for more ‘debate.’
 
For too long, commentators have blamed the President’s equivocations on his weakness within the ANC, arguing that he lacks a ‘mandate’ to implement reforms. In fact, after weathering the Phala Phala scandal and being re-elected by a healthy margin at Nasrec, the president is in a relatively strong political position within the party. We can only conclude that he is not serious enough about challenging the policy status quo.
 
Reforming government’s economic policy framework will require the president to go against the ideologues and the looters within his own party. He can still choose to pursue pro-market reforms, but his track record suggests that he will be reluctant to do so. Consequently, expect more of the same wishful thinking and empty promises in this year’s SONA.