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A streamlined cabinet to rekindle SA’s economic prospects

By Investec 13 June 2019

Ramaphosa’s consolidation of power during the recent cabinet reshuffle may not be much politically, says political analyst Dr Somadoda Fikeni, but once the various commissions of enquiry gather steam, the President will be able to build his own team.

 

On 29 May President Cyril Ramaphosa announced a leaner cabinet to serve South Africa during the sixth democratic Parliament. Tertia Jacobs, Treasury Economist at Investec Corporate and Institutional Banking (ICIB) talked to political analyst, Dr Somadoda Fikeni, about the economic, political and social impact of the cabinet changes during a recent Investec client conference call.

What the cabinet reshuffle means for SA

Listen to the full conversation: Investec economist Tertia Jacobs and political analyst Dr Somadoda Fikeni read between the lines of the new cabinet announcement.

According to Jacobs the cabinet appointment marks a shift in focus from election and post-election hype to what the president would do insofar as economic policy is concerned.

She expressed the view that government faced an uphill struggle to reinvent policy against the backdrop of poor GDP growth; weak business and consumer confidence; an ongoing electricity crisis; and embattled State-Owned-Enterprises (SOEs). Not to mention the recent wrangle with the SARB.

She also noted government’s weak balance sheet and the lack of internal drivers for economic growth – a situation complicated by an environment where it could not hike taxes to support higher government expenditure, nor cut taxes to stimulate corporate or consumer spending.

No ideological stranglehold on growth

Investors and market commentators have expressed concerns that the ideologies of various cabinet ministers would constrain growth. Dr. Fikeni took a different view.  “There [has never] been a strong adherence to ideologies in the South African political context.”

“When Thabo Mbeki drove GEAR, it was under mainly communist ministers – minister Gordhan may have belonged to the left, but he could be financially pragmatic and prudent”.

He added that investors should expect the same complex mix of socialist, democratic and capitalist principles from the new Cabinet.

A wake-up call for labour

Government has already prioritised job creation in its post-cabinet utterances; but organised labour holds many of the cards in this space.

“It would appear that acrimonious labour relations have been a contributory factor to our difficult operating environment,” said Jacobs.

She quizzed Dr Fikeni on how labour might develop under the new cabinet. “We have emerged from a period during which labour was trying to position itself, with fragmentation in the sector leading to increased competition,” he said.

“Now some of the labour formations are coming together.” He added that the performance of the ‘experimental’ Socialist Revolutionary Worker’s Party in the 2019 elections “was a wakeup call to labour not to overestimate their power”.

The fewer than 25,000 votes this party received nationally in 2019 contrasts starkly with national trade union membership. Some analysts expect labour to reassess its bargaining positions due to the evolving work environment and fears that the fourth industrial revolution will lead to fewer work opportunities – perhaps their focus will shift from ‘more money’ to the prevention of job losses in coming years.

NEDLAC 2.0?

Jacobs asked whether business and labour might move closer to one another, perhaps under a reinvigorated NEDLAC process. Dr Fikeni said this would depend on the respective leadership teams, before calling on business to take a tougher stance: “Business tends to retreat and sit back on issues of public policy, politics and the direction of the country – they ought to enter the space and make sure that they are legitimately there for the interests of the country.”

He added that business should show collective leadership and have the important discussions necessary to achieve inclusive economic development: The debate about small businesses and township economies must take centre stage – and we need to encourage large conglomerates to take a lead in that process.

The land question

The wide-ranging interview considered how Ramaphosa might tackle corruption, inequality, land and transformation.

“Transformation, land reform and efforts to create black business and an inclusive economy (with the focus on township economies and rural development) still loom large,” said Dr Fikeni.

He believes the ANC position on land reflects internal divisions and that the outlook will be heavily influenced by which of these factions wins through.

Investors will not favour a reckless process of land expropriation without compensation, he argued, but they can expect Ramaphosa to take serious steps to address inequalities as failure to do so will result in political and social disorder.

Ramaphosa’s most important appointment?

International relations came briefly under the spotlight with both Jacobs and Dr Fikeni agreeing that SA needed a seasoned, capable and respected politician like Naledi Pandor to head up related portfolios. “South Africa [will soon be] entering negotiations with post-Brexit Europe and Britain,” said Dr Fikeni.

“We also face a volatile situation due to the developing trade war between the US and China.” These challenges need to be seen alongside those introduced by the free trade zone initiative in Africa.

The importance of a business, government and labour partnership

There is broad consensus that corruption must be tackled ‘head on’. “Evidence in front of various commissions of enquiry confirms corruption as a major source of leakage [in South Africa],” said Dr Fikeni.

He argued that a tough stance on corruption – by making examples of a few senior people – would send a clear message to all levels of government. People need to understand that “there are consequences when they do something wrong.”

SA’s future economic and political dispensations will evolve to accommodate business, government and labour. “We have moved from the time when business and the ruling party were at war with each other – there is a recognition that the complexity of our problems will need government, business, trade unions, political formations and civil society to work together to dig us out of the current hole,” concluded Dr Fikeni.

Priorities included tackling corruption and identifying areas where government could cut costs without damaging employment. “It is time for a creative rethink on how we utilise resources and improve efficiencies by better coordination between government departments and all levels of government.” BM

 

This article originally appeared on Investec FOCUS.

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