Being a reformist leader of South Africa is no easy task. President Ramaphosa has many obstacles – not the least of them his own party, the ANC, which makes it difficult to achieve an effective transformation of policy.
This comes as South Africa is facing declining living standards, with critical power supplies continually interrupted.
This paragraph from the South African Treasury’s own assessment explains why change is vital:
South Africa’s key economic challenges are well documented. Real gross domestic product (GDP) per capita has declined since 2015 (SARB 2018); productivity growth has been slow and appears to be slowing (Kreuser and Newman 2018; Aterido et al. 2019); the unemployment rate has recently been increasing from already high levels (Statistics South Africa 2017a); and inequality remains very high (Wittenberg 2017). The current state of the South African economy is unsustainable. Low economic growth entrenches poverty and inequality. High income inequality aggravates social fragmentation (Putnam 2007) and poses a risk to economic growth. Inequality contributes to extremely divergent views, which make compromises difficult—the resulting stalemate and policy uncertainty can contribute to economic weakness. [emphasis added]
Here are two articles which try to explain why this is the case.
Key Ramaphosa Ally Hinders Effort to Fix Power Supply CrisisBy
South Africa has been hit by rolling power cuts less than a month after President Cyril Ramaphosa gave renewed assurances that energy constraints were being addressed, making his pledges ring hollow and highlighting his administration’s inability to tackle the crisis.
While Eskom Holdings Ltd., the state utility that provides about 95% of the nation’s electricity and is overseen by Public Enterprises Pravin Gordhan, has borne the brunt of the blame for the outages, criticism is increasingly being directed at another target: Mineral Resources and Energy Minister Gwede Mantashe, who is also chairman of the ruling party.
The 64-year-old former miner and labor union leader is one of Ramaphosa’s most important political allies, yet his reticence to fast-track renewable power projects could prolong the electricity shortages, which have caused the economy to stagnate and sapped investor confidence.
“He is a calculating man. The reason he is where he is is because he comes with the unions,” said Ralph Mathekga, an analyst and author of books on South African politics. “He manages to restrain Ramaphosa in the interest of his old traditional allies.”
Furthermore, private producers dominate the production of green energy and an enhanced role for them would mean a diminished one for Eskom. It would also increase pressure on the utility to trim its bloated workforce of more 46,000 people — a prospect vigorously opposed by the unions.
Mantashe “does not believe in privatization,” Mathekga said. “He is a trade unionist at heart.”
The gravity of the situation has been demonstrated by several days of outages at a time when many power-hungry factories are closed for the holiday season. Most will restart this week, adding strain to the grid.
One of the quickest ways to boost electricity output would be to allow private business to generate as much as 10 megawatts without a license, up from a current limit of 1 megawatt. While former Energy Minister Jeff Radebe initiated the process of raising the threshold last year, Mantashe has failed to follow through since assuming the energy portfolio in May.
The minister has already engaged the regulator “in order to fast track the licensing for small-scale generators,” the energy department said in a response to questions. The ministry didn’t comment on whether exemptions could be granted and declined to comment on criticism of Mantashe’s performance.
“Nothing is being done” to enable additional power generation, said Dave Long, general secretary of the South African Independent Power Producers Association. “They are just dragging their feet.”
Sibanye Gold Ltd., the country’s biggest precious metals producer, has failed to get approval for a 150 megawatt solar plant, and many other firms have experienced similar problems, Chief Executive Officer Neal Froneman said last month.
The government could also tap private producers to supply more renewable power to the grid. South Africa had one of the world’s most successful green energy purchase programs, but stopped seeking bids for new projects in 2016 as former President Jacob Zuma pushed a nuclear power deal with Russia that’s since been abandoned.
The last power off-take agreements were signed with 27 independent producers in 2018. Mantashe last month said discussions were underway to establish which of those projects could still be brought on stream this year and that additional investment rounds won’t start until that process is concluded.
“We need to place procurement rounds out there like yesterday,” said Wido Schnabel, chairman of the South African Photovoltaic Industry Association, who estimates that sizable solar projects can be up and running in a year. “Every day that we delay buying new capacity is a day lost and a day that’s going to cost us dearly.”
The minister was galvanized into action last month when Eskom instituted its deepest power cuts yet, reducing supply by 6,000 megawatts, and published a request for information for short-term power supply options of as much as 3,000 megawatts within a year. That process is unlikely to deliver the desired results, according to Long.
“The request for information is worthless” because there’s no way you can procure that much capacity quickly, he said.
The process of the formal request is necessary in order “for the minister to consider all options without any bias against or preference for a particular technology,” the department said.
Ramaphosa, himself a former union leader, is likely to be loath to act against Mantashe because his control over the ruling African National Congress remains tenuous and he needs to keep his labor allies on side.
“If you replace him, the unions will overrun Ramaphosa,” said Mathekga. “If you retain Mantashe you say you are happy with this moderated approach,” and that the unions’ interests are paramount, he said.
Will Ramaphosa do a De Klerk?
Thirty years ago (on New Year’s Eve 1989), FW de Klerk knew that the South Africa was on the verge of massive change. The combined debilitating effects of apartheid’s shackles on the economy (including sanctions) and the impossibility of continuing with the disenfranchisement of the majority of the population, prompted him to prepare his watershed 2 February 1990 speech in which he effectively pulled the plug on apartheid.
Just as the NP had tried to shape the economy through racial laws and regulations (think job reservation, influx control, restrictions on trade), South Africa’s economic and enterprise policies since 1994 have been driven more by the ANC’s goal of transformation than by expanding the economy.
The NP’s approach effectively enforced economic inefficiencies like high commuting costs and disregarded the full human resource potential of the country. The ANC’s rule also passionately embraced approaches that have side-lined the full human resource potential of the country (think BEE and affirmative action). This has contributed to economic inefficiencies, slow growth and rising unemployment.
The government often tries to blame low-economic growth and rising unemployment on corruption and state capture. Whilst these have contributed to the economic and institutional melt-down that South Africa is experiencing, they are the children of a range of anti-growth policies.Ramaphosa had committed himself in his 2017 manifesto – “New Deal for South Africa” – to:
– make the creation of decent jobs the central plank of every policy, programme and action; and
The obituary of Ramaphoria
Two years down the line the ideological chickens have come home to roost. With at least two quarters of negative growth and the Eskom, SAA, the SABC and Denel effectively bankrupt businesses, 2019 was one long obituary on the demise of Ramaphoria.
The compromised acceptance of that document by the ANC’s NEC with firm commitments to the “transformational” role of the state in the economy, however, has put a damper on that. Ramaphosa himself poured iced water over the idea of selling off Eskom’s power stations: he referred to Kusile and Medupi as crown jewels that should be retained by the state.
Both Bantu & ANC education undermine the economy
Lack of policy clarity – as acknowledged in Treasury’s document – continues as South Africa is entering 2020 under threat of an investment downgrading by the last of the rating agencies that still has SA on their investment list. And whilst the uncertainty about policy direction continues, the country is steadily slipping from the top position of upper-middle income countries to the ranks of lower-middle income countries.
But the ANC government, just like its NP predecessor, try to run the economy by disregarding important components of the country’s human potential.
Apartheid’s systemic racial discrimination and its disregard for the human potential of its total population is often summarised in Hendrik Verwoerd’s remarks on the role of “Bantu education”:
“It is the policy of my department that the Bantu must be guided to serve his own community in all respects. There is no place for him in the European community above the level of certain forms of labour. Within his own community, however, all doors are open.”
The systemic legacy of that approach is well-known and documented. The irony is that several well-known education experts and commentators have remarked that the transformed public-school system is not providing improved outcomes.
A dismal public education system (already more than a quarter century under the ANC’s auspices) is, therefore, a barricade that prevents the unlocking of the country’s human potential. Through inefficient school management systems, an underperforming teaching corps, and the legacy of entitlement, the output of the education system is failing to provide the skills and knowledge base to accelerate economic growth.
An efficient public education system with high outcome standards would have been the most effective empowerment instrument any government could mobilise.
Verwoerd is alive and well and living in the heart of the ANC
But it is in the field of economic development that Verwoerd’s ideas are alive and well and living in the heart of the ANC…
In the 1930s Verwoerd advocated the idea of affirmative action and preferential opportunities for the Afrikaans-speaking white population, against the country’s Jewish population, calling that approach “ewewigtige verspreiding” (a balanced distribution) or a quota system.
As editor of Die Transvaler, he argued in 1937 that Jews had a disproportionate share of the wholesale and retail trades and that a balanced distribution that “corresponds to their percentages of the white population” for the Afrikaans and the English speaking white communities will only be achieved by refusing the Jews further trading licences.
He also argued that the expansion of the economy must be placed at the disposal of the English and Afrikaans speaking white communities. For that he argued for legislation that would gradually but decisively ensure that each white section of the population should (as far as practical) enjoy a share of each major occupation in accordance with their proportion of the white population.
(Verwoerd’s ideas on legislative support for balancing the business opportunities between Jews, Afrikaans and English-speaking whites, did not materialise. The civil service and state-owned enterprises were, however, mobilised to combat the Poor White phenomenon. And apartheid’s statute book entrenched the colour line for job reservation and overwhelmingly for entrepreneurial opportunities.)
But the ANC is implementing Verwoerd’s approach with its obsession about a racial share in employment and the economy. On that score, Ramaphosa’s ideas sound akin to those of Verwoerd. In his New Deal Ramaphosa said: “We need to massify the creation, funding and development of black-owned small businesses, township businesses and co-operatives.” And Point 5 of his New Deal stressed the acceleration of the transfer of ownership and control of the economy to black South Africans. It is not about growth oriented economic policies: it is about “transformation”.
Verwoerd would be envious of Ramaphosa’s social engineering
In March 2016 when vice president Ramaphosa was just as vocal as pres. Zuma on white monopoly capital, he said the time of white business monopolies was over and that the government was hell-bent on making sure blacks owned and managed the economy (We will end white control of the economy.)
“For far too long this economy has been owned and controlled by white people. That must come to end. For far too long, this economy has been managed by white people. That must come to an end. Those who don’t like this idea – tough for you. That is how we are proceeding.”
Verwoerd would be jealous of this zealous social engineering.
On economic development in the “homelands”, Verwoerd was adamant that white-owned companies should not invest or trade there: that was the terrain for the development of black owned businesses. He was realistic enough that survivalist agricultural activities would be insufficient to sustain the black population. He therefore argued for white capital to invest in industries in “white” towns close to the homelands (border industries).
In addition, urban development with a modern economic sector was also required in the homelands. These “future Bantu towns and cities may arise partly in conjunction with Bantu industries of their own in those reserves.” In the establishment of such industries white businessmen must be prepared to help with capital and knowledge “in consciousness that such industries must, as soon as possible, wholly pass over into the hands of the Bantu”.
Underpinning this approach is a vision of separable economies and separate economic spaces. The vision is shared by Ramaphosa with several statements that the new factories and businesses will be located in the townships. And in September, one of the new stars in Ramaphosa’s (still bloated) cabinet, Ronald Lamola, talked about legislation that will bar foreign nationals from operating in certain sectors of the economy. Verwoerdian ideological economics with a perspective on areas where only some South Africans (Ramaphosa’s “our people”) will be allowed to invest and trade, is alive and well.
Ramaphosa must be aware of the damning criticism on BEE by the ASGISA International Advisory Panel.
The question is whether his SONA will indicate an awareness of how affirmative action and BEE is side-lining and driving productive knowledge abroad to the detriment of economic growth, efficiency and therefore also services to the poor.
Thirty years ago, De Klerk finally abandoned Verwoerdian ideology. The question is whether Ramaphosa will do the same or whether he will continue to embrace Verwoerd’s economic thoughts.
(This is a somewhat shortened version of an article that first appeared on the website of the Enterprise Observatory of SA. )