Business Maverick

DECLINE AND FALL

South Africa risks becoming a failed state, warn business leaders

South Africa risks becoming a failed state, warn business leaders
President Cyril Ramaphosa. (Photo: Shelley Christians)

Big business supported Cyril Ramaphosa when he threw his hat in the ring for the ANC presidency in 2017. But the goodwill around him is fading fast.

President Cyril Ramaphosa’s management of the economy over the past five years has come under intense criticism, with prominent business leaders warning that he is fast running out of time to turn South Africa’s economic fortunes around.

In recent weeks, more business executives from several industries, including Ralph Mupita of MTN, Gareth Ackerman of Pick n Pay, Sim Tshabalala of Standard Bank, Chris Schutte of Astral Foods and Hendrik du Toit of Ninety One, have sounded the alarm, even suggesting that SA risks becoming a failed state.

The reason business leaders are exasperated with Ramaphosa’s presidency is that it has failed to stem the tide of rolling blackouts and also failed to move with speed in implementing pro-growth and investment reforms in sectors such as rail, water and electricity.

Schutte, who runs SA’s biggest poultry producer, was withering in his assessment of Ramaphosa’s administration and its inability to ease electricity blackouts, which are pushing businesses to prepare for a total collapse of the grid. Schutte used the word gatvol (fed up) to describe how frustrated he was with the government’s inability to provide electricity and water, which “Astral Foods and many businesses in South Africa pay for through taxes”.

“We should be focusing on our main business, which is efficiently producing chickens. But we are spending energy, time and effort in putting in place alternative sources of electricity and water,” Schutte told investors on 23 May.

Schutte’s frustrations are arguably justified considering that Astral spent R741-million extra during the six months ending in March 2023 on services it already pays the government to provide.

Astral Foods is not the only company spending an inordinate amount of money to compensate for government failures. MTN recently spent R695-million to mitigate the impact of blackouts, Vodacom spent R300-million, Pick n Pay R522-million, Shoprite R560-million and Woolworths R90-million.

These eye-watering amounts of money could have gone into expanding company operations, and in the process created new jobs and boosted investments in the economy.

Relationship with Russia

More executives have expressed similar sentiments of frustration. FirstRand chief executive Alan Pullinger was one of the first C-suite executives to voice concerns publicly, calling the government out about its cosy relationship with Russia. Shortly after, Standard Bank’s Tshabalala pointed out that “meaningful structural reform and an improvement in the electricity supply could lift confidence and accelerate economic growth, job creation and social upliftment”.

MTN’s Mupita said SA risks becoming a “failed nation-state” if Ramaphosa’s administration doesn’t fix the many problems afflicting the country. Ninety One’s Du Toit said: “I just cry for the country”, about the “economic emergency in South Africa”, which, if left unresolved, might lead to social instability.

Pick n Pay’s Ackerman warned of an “existential threat” to the country’s food security if the government’s inaction over the electricity crisis persists. Coen Jonker, the CEO of TymeBank, has expressed similar views, saying there is a crisis of confidence in the country, worsened by blackouts.

“I’ve just spent time in London and New York, speaking to investors, and I’ve never seen investors this spooked about what’s going on [in SA],” Jonker told Daily Maverick.

Morale and confidence dipped further when the rand plummeted to a record low against the dollar after the US accused SA of covertly providing arms to Russia. South Africa has denied this allegation, which has sparked a diplomatic row between both nations.

Said a political analyst, who once worked with Ramaphosa and ANC head honchos: “This row might have been a big shock for big business as South Africa’s close and cosy ties to Russia will have big consequences for the former. Ramaphosa is leading us on a collision course with the US, and businesses in South Africa will emerge as big casualties.”

Fading goodwill

The growing criticism of Ramaphosa’s administration might infer that he may be losing support from business, which was a big supporter when he joined the race for the job of ANC president in 2017. After all, Ramaphosa was seen as one of their own; business-savvy, pragmatic and adept enough to fix the governance crisis left by Jacob Zuma. The support from business paid off, as Ramaphosa emerged victorious as the ANC president and went on to replace Zuma as the country’s number one citizen.

But the goodwill around Ramaphosa is fading because the economy is barely growing, jobs are increasingly being shed, blackouts are part of daily life, corruption and crime have become rampant, and key state-owned enterprises (SOEs) such as Transnet are failing to move trains and transporting goods to market efficiently.

Political analyst Ralph Mathekga said business leaders underestimated how complex decision-making is within ANC circles, which has probably led to many disappointments with Ramaphosa’s presidency.

Even public finances under Ramaphosa’s watch have deteriorated because of ongoing bailouts for SOEs and the ballooning cost of compensating the country’s 1.3 million public servants.

Michael Sachs, adjunct professor at the Southern Centre for Inequality Studies and former head of the National Treasury’s budget office, said that, over the past five years, the government’s spending programme had largely been consumption-led, especially in the wrong places.

“The National Treasury has increasingly resorted to using the Budget not as a good estimate of how much we are going to spend in the next three years, but as a negotiating position,” said Sachs during a recent webinar hosted by the financial services firm PSG. “A good example of this is wages [in the public sector]. The number that was put in the Budget for the wage increase this year was zero…”

But the government reneged on this promise and spent an additional R37.5-billion on public servants’ pay when it awarded them a 7.5% wage increase for 2023.

No sympathy

Dr Iraj Abedian, the chief economist at Pan-African Investment and Research Services, has no sympathy for business leaders, saying their criticism of Ramaphosa is too late.

“They should have been outspoken five years ago. Instead, Ramaphosa charmed big business by making commitments to business leaders that he would not be able to fulfil. South Africa’s decline didn’t start yesterday, but years ago,” Abedian told Daily Maverick.

He said business leaders were becoming more vocal because problems in South Africa, mainly the energy crisis, were increasingly affecting their pockets.

“Their financial performance and bonuses are going down because of the need to spend additional money on generators. The problems are now hitting where it hurts the most: their bottom line.

“Business leaders were hoping that Ramaphosa would offer a new dawn, but they have suddenly woken up to a new reality. It is not a new dawn but an old dawn wrapped up in a new cover.” DM

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  • Miles Japhet says:

    Business has zero confidence in the ANC. They are doubling down on race based laws, EWC, NHI, cadre deployment and other economically disastrous ideology led actions.
    They are so deep in it, with crime and corruption at the centre, that our only hope is for a centrist coalition to emerge to oust them from power, so we can rebuild this country and create jobs and hope for the poor. Their successful destruction of the education system, provides them with pliable voters who are unable to discern, sadly.

  • robertbreyer says:

    SA business should look back in history about what happened to business in the 3rd Reich.
    Most if not all of Germany industry was supportive of the war and many of its leaders were vocal Nazi supporters or even card-carrying members of the Nazi Party and Hitler.
    Industry employed concentration camp labour on a large scale to support the war effort.
    By 1945 it was of course all over. No industry, no jobs, no shares, just ruins.
    Some of the IG Farben consortium managers were sentenced to prison the Nuremberg War crimes trial.
    Of course West Germany had the white knight come to its rescue, the country picked itself up with the help of Uncle Sam and the Marshall Plan.
    Putin will not become our white knight and SA Industry has been living in denial for 5 years. Dr Iraj Abedian may be right, SA could be on an irreversible decline or already on a path to a failed state. Yet the criticism remains isolated.
    Every business leader small and large should be vocal. Every true free-market opposition party should be supported vocally and financially, and the communists, marxists and fascists in politics should become public enemy number one. (De Ruyter: “these are all marxists”).

    • Mark Gory Gory says:

      Wer’e another smme restaurant closing. Another 6 unemployed. Ironic to survive covid (against all odds) to crash and burn in the aftermath of anc corruption and ineptitude.
      Just why anyone with a brain still invests here is a mystery.

  • Richard Baker says:

    Abedian is quite correct-even lay but concerned DM readers have been warning of the obvious signs of this slow-moving train-crash for several years. Leaders of big business have been complacent and even complicit by being asleep at the wheel and ignoring these signals and failing to shout-out far earlier. Worse are the the bank leaders (and the banking council) who have actively abetted corruption and state capture and now have the temerity to begin speaking up only now.

  • Iam Fedup says:

    I’m delighted that a few brave business leaders have spoken out – at last. But we need thousands more of their more lily-livered colleagues to do the same. I would also point out that SA is not a failing state. It is a FAILED state. It fails to protect its citizens from all dangers and gangsters. It fails to take care of the frail and vulnerable. It fails to educate our children for a future life. It fails to look after infrastructure and all capital equipment in its care. It fails to preserve our magnificent physical beauty and nature. And so it goes on. The ANC/EFF succeed at two things magnificently: breaking and stealing, and as a result we have left the majority of our citizens in utter despair. Just this weekend, a young disabled SA boy brought tears to the eyes of the cynical Simon Cowell in England, and states that he now lives in his favourite country in the world – England. Idiots, every last one of them.

    • Derek Jones says:

      Thanks Iamfedup. Why is it that the obvious has to be pointed out. We were on course to be a failed state as soon as Zuma got the driving wheel, that much should have been clear from the start.

      • Jane Crankshaw says:

        Would have been great if Biz SA had reacted sooner – but sometimes inside formation does benefit some as much as tenders does for others!

        • Allan Wolman Wolman says:

          Oh come on ‘ reacted sooner’ – they didn’t and still little reaction. Banks complicit when millions are transacted within hours and not queried ? When even millions syphoned out the country without a paper trial? Culprit number one the banks!

  • Heinrich Holt says:

    Risk implies probability. I am afraid becoming a failed state is not a probability anymore.

  • Peter Doble says:

    Yeah well, hate to use the “told you so” argument but all the warning signs were there 15 years ago! You simply cannot have no plan, aim or desire to prevent the key infrastructure of a country to slide. Sadly the state has now hit ground zero and all the optimism in the world is not going to change it – at least not in the short term.

  • Henry Coppens says:

    Is this not exactly what the ANC wants: private businesses to fail, so that they can all be taken over by the state? All part of their ‘National Democratic(!!) Revolution.

  • James Fulton Fulton says:

    Isn’t it sad that in spite of the writing on the wall that the ANC is unrepentant and the masses support them
    Social unrest is high on the cards unless the decline is arrested

  • thomsongareth5 says:

    All I can say is that Ramaphosa has not disappointed me at all. He has lived down to all my expectations! I’m only surprised that anyone thought he would put the country before his party. In fact, I’m shocked!!!

    • Jane Crankshaw says:

      His early PR opportunities inspired us all – flying economy class and jogging on the Seapoint Prom with the rest! Haven’t seen him in economy or jogging since however! In fact….we haven’t seen him at all – are we sure he is actually still alive???? LOL!

  • Geoff Krige says:

    These very same business leaders must take al least some accountability for this state of affairs. Their paying themselves hundreds of millions of rands per year whilst paying their workers less than a hundred thousand and retrenching them very easily, leads to at least two important results. 1. It leads to government leaders assuming they also deserve hundreds of millions per year – after all, who has the more important job? The CEO of a company employing 200 000 people, or the President of the country of 60 million people? 2. It leads to the workers seeing a socialist government as a very attractive option.
    We must also not forget the extent of business complicity in the current state of destruction of our economy, with KPMG, PWC, Bain & Co and Ernst & Young all heavily implicated in state capture.

    • virginia crawford says:

      Don’t forget the banks! The extraordinary salaries paid to business ‘leaders’ is in stark contrast to the part-time status inflicted on staff despite working at a place for years
      (like the big supermarkets mentioned elsewhere). The difference between the average top salary and the average low salary is an indicator of social stability and cohesion in a country, according to research discussed in The Spirit Level published years ago. And I agree. Domestic workers are grateful for a daily wage that wouldn’t cover a good dinner for two. Money might be off shore and a visa easy to acquire, but it is not all roses over “there” either.

  • Hermann Funk says:

    Business still does not understand that it is part of society and therefore has an obligation when parts of that society are mistreated by government (lack of service delivery, collapsing infrastructure) to object that mistreatment. However, they only start protesting the moment it affects their back pocket. Weren’t many of the business in cahoots with government? Their crocodile tears don’t impress anyone.

  • Michael Kahn says:

    An interesting diagnosis.
    Perhaps it comes down to this. Who does ‘business’ think they can work with to get us out of the mess?
    Which grouping has the base and organization to turn the ship of state onto a different tack?
    In order to carry on the present dysfunction, government bludgeons the private sector with ideological positions that raise the cost of doing business, and it continues to get away with it.
    For the record, consumption-led economics has been a string on government’s bow for close to two decades, not just the last five years.
    This well-filled plastic meat and pap bowl shapes middle management and worker behavior. Read De Rutyer to understand that strangehold.
    We do truly need to break out of all these fetters.
    The empowering of the Electricity Czar is a first step
    Now sort out labour relations all the way down
    The National Development Plan laid it out a decade ago.
    So, will leadership please stand up

  • jcdville stormers says:

    Friends with Venezuela, Cuba,et
    al ,signs were there

  • rahlabi Mehlape says:

    we need deep cover operatives funded by private sector to rid the country of this cancer. By one by one

  • Walter Spatula says:

    #anyonebutramaphosa

  • Brian Doyle says:

    The ANC unfortunately does not listen to common sense. They are there to protect the party and themselves despite what they are told, read about or hear. It is time for all big business to do more, especially remove all funding of of the ANC. They say money talks and this must be one way to get the message across that the ANC and Ramaphosa have gone too far

  • h_holt says:

    I don’t know how far we have to sink to reach “failed state” status. However, after almost 30 years of ANC rule, the “liberation party” has failed to provide vast numbers of it’s supporters (and other citizens) with absolutely basic services such as water supply, electricity and proper sanitation, condones almost non-existent levels of basic education, pit toilets as well as rampant corruption – the latter without any significant consequences. This definitely constitutes a failed government!

  • Sam van Coller says:

    Business leaders have failed South Africa dismally. To start shouting now after all the warning signs is of no help. They are now paying the price for pursuing their own narrow self interest. It is not enough to criticize. They need to have a view on how government should address the hopeless education system, the dangerous public transport, housing backlogs, failed healthcare – all of which directly affect their employees. BLSA and BUSA have been sleeping. A new debate about the role of business in wider society is urgently needed. Generating profits and dividends are not their only responsibilities

  • Renn Moore says:

    Risks becoming a failed state? Goodness! What else can we possibly fail at? We seem to be trying hard enough!

  • Peter Watts says:

    I was involved in Foreign Direct Investment in South Africa in the course of my work for about 30 years. I went to many international conferences attended by hundreds of representatives of foreign companies. Early on I was greeted with enthusiasm and was the fortunate recipient of mandates to facilitate FDIs. As time went by and South Africa suffered the ravages of bad publicity about corruption, and political ideologies and uncertainties, I was greeted with less enthusiasm until I finally stopped attending these events when told by other attendees, not once, but a number of times, that “our clients no longer have any enthusiasm left for investment in your country”. In one case a US representative added that “your politics look like another Zimbabwe is on the way”. In my view we look like clowns to most of the Western World, and who trusts clowns with their capital? Sadly, it seems the ANC nest-featherers don’t care what happens to the country’s people who can only begin to thrive with the benefit of a stable, non-corrupt and inventive government with clear and visible policy direction conducive to business growth and DFI.

  • Rae Earl says:

    Imagine what our status as a country could have been today, if Ramaphosa came away from NASREC as the elephant in the room instead of the fly in the ointment. He has proved to be the ultimate political coward by continuously handing all decision making to the ‘collective’ (his own words), instead of having the courage to be a leader who could make tough decisions on his own and then delegate competent people to carry them out. His protection and retention of that ‘collective’ ie. useless cabinet ministers, and his sickening servility to Putin and his mobsters has led to this country’s downfall.

  • Jane Crankshaw says:

    Whilst I think it was irresponsible of the US Ambassador to declare arms were being shipped to Russia without providing proof, the fact that such a statement could so easily undermined our currency is proof enough of our failing status!

    • Allan Wolman Wolman says:

      The US Ambassador would not have made those accusations without the sanction of the State Department together with Secretary of State Blinken. The presidents response was to appoint a commission of enquiry – which has take 17 days to make that appointment – who is playing for time for all to forget and go on to the next fiasco. Remember Inkandla, remember the Zondo Commission, remember the Gupta’s – all forgotten all forgiven, remember all the promises about load shedding, jobs, smart cities, super trains, bla, bla, bla.

  • Jane Crankshaw says:

    What I find amazing is that it took over 300 years to build this country into the respected, self sufficient economic powerhouse and only 20 years to destroy it!

  • Jimbo Smith says:

    Ramasofa has failed on EVERY SINGLE MEASURABLE METRIC and yet, each week, he writes a Weakly Newsletter which conveniently steers away from his ANC Govt failures e.g. this week all the usual cliches about urgency etc. dealing with the cholera outbreak. But!! He almost implies that his Govt is not responsible for this catastrophic situation. His Govt is responsible for clean water supply and functioning sewerage systems. Enough said!!!

  • Bill Gild says:

    How one defines a “failed state” is crucial.
    My personal view is that a “failed state” is one where government, at every level (national, provincial and municipal), has failed to provide the basic necessities (security, sanitation, provision of potable water, and the provision of basic health services) to the population.
    In my view, South Africa is very close to “failed”.

  • Scott Gordon says:

    All well and good to blame big bussiness for not saying enough .
    Who elected them ?
    ESCOM and others have failed , the electorate has spoken .
    That is democracy , you get what you vote for .
    Big biz did not bring this country to its knees , it is the mass of the voters , ‘Their ANC ” , it their fault !

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