South Africa in 2019 – Is the Country at a Crossroads?

On April 17, 2019, Ann Bernstein, the Executive Director of South Africa’s Center for Development and Enterprise, provided a broad summary of the issues confronting South Africa as it heads for national elections on May 8. She began by noting that, in many ways, the question before the country is whether it can recover from 10 years of misrule by the African National Congress (ANC), broken down into four broad challenges. The first is economic growth, as the economy has generally stagnated to the point that population growth has exceeded economic growth. By 2015, just under half of the population survived on $70 per month. The second is unemployment, with only 43% of the population actively employed, compared to an OECD average of 60%. The third challenge is fiscal, as debt has tripled in the last ten years, and expenditure growth on bloated State Owned Enterprises and corruption now far exceeds growth in revenue. The fourth challenge is what Bernstein termed collapsing state institutions, illustrated by rolling blackouts and a lower level of electricity generated in 2018 compared to 2004, despite the State Owned Electricity Generation company increasing prices 170% over the last ten years.Bernstein noted that President Ramaphosa has recorded some wins during his tenure. He did manage to get rid of former President Zuma, and has set up five commissions of enquiry, which have made an important start in cleaning up corruption. Bernstein applauded the very quick work on the commission looking into the South African Revenue Service (SARS), which concluded an extensive report was not necessary to fire the then-commissioner, Tom Moyane, who has been replaced with a much more capable person. Bernstein also credited Ramaphosa with ending Zuma’s attacks on the private sector. There are some downsides, however, including that Ramaphosa remains the head of a deeply corrupt, highly factionalized political party, where no one has gone to jail for corruption. The economy is worse than a year ago, and real new foreign direct investment is not coming in fast enough.Bernstein flagged several areas for concern. She explained the background of the land issue in South Africa, and noted that Ramaphosa’s government first rushed to move ahead with provisions that now seem so stalled that there is an active public debate about whether the government will ever actually expropriate property. Bernstein was also concerned that that Ramaphosa is pushing ahead with the National Health Insurance provisions despite not having any significant funds for it in the budget. One of two bills in parliament effectively attacks the private health system. The third area of concern is constant discussions about “nationalizing” the South African Reserve Bank (Central Bank), which has a quirky share structure. The fourth area of concern is that the former “native homelands,” or Bantustans, of the apartheid era, accounting for roughly 30% of the land area, are slowing moving their land tenure system to re-entrench the power of tribal chiefs. The fifth area of concern is discussion over the national minimum wage. Bernstein noted that CDE came out against the proposal for several reasons, including that the level proposed was far too high for South Africa, and could end up costing 700,000 jobs across the country, particularly from small and medium sized companies. All of these issues will come to the fore in elections held May 8. While few doubt that the ANC will win the most votes, the big question is what share of the vote will it win. Bernstein noted that the ANC could end up winning less than 50% in the critical province of Gauteng (home to Pretoria and Joburg). If the ANC polls less than 50%, it faces the prospect of either trying to govern as a minority party, or forming an alliance. The dream alliance for business would be teaming up with the main opposition party, the Democratic Alliance, which is polling around 30%. A probably more likely scenario would be teaming up with the Economic Freedom Fighters, which polled 6% in the last national elections.Is there hope for South Africa? Bernstein gave a resounding yes as an answer. She noted that, even in the darkest days of the Zuma presidency, key institutions stood up to Zuma, notably the judiciary. The media remains generally strong, as does the SARB, and the business community finally found its voice. The May 8 election will be the beginning, rather than the end, of the battle. South Africa needs a higher economic growth rate, a labor-intensive economic model that promotes job creation, letting cities lead the country’s development, and coming up with a new narrative for the country. All of this means constructing a platform for the required tradeoffs between big issues. Some holy cows “must be slayed.”Bernstein encouraged organizations like CCA and U.S. businesses in general to provide a dose of reality for South African politicians, rather than cheerleading. South Africa needs the corporate sector to think more strategically. Unfortunately, no one seems to have a serious strategy to develop higher and faster growth that creates jobs. Absent such a real plan, parties will remain wishy washy. Unfortunately, reformers in the political context all come from a statist perspective. It is critical to reduce barriers to entry for firms, both foreign and black-owned.