President Zuma’s 2015 SONA is bound to mark a critical watershed in SA’s democratic history for a number of reasons, and no doubt the historians will explore all the details in due course. For now, it is safe to suggest that the 12th of February 2015 is a date that will live in infamy in the annals of the history of the democratic dispensation of the country. Here follows an economist’s take.
In addition to the Parliamentary crisis, the broader socio-economic challenges facing the Zuma administration loomed large in the president’s speech. Broadly the speech focused on two key messages: one on reviving a drifting economy, the other on evidences that his administration is delivering services to the masses. It was evident that the ‘speech’ had been written under duress, lacking consistency, technical integration with other policies, and contextual coherence. With regard to the proposed plan to arrest any further fall of the economy, he introduced the following nine-point plan:
The President’s nine-point plan is essentially framed within the ideology of “developmental state”, a paradigm that has characterised the Zuma administrations since 2009. Despite the fact that since 2009 the GDP growth rate has consistently declined, and investor confidence has reached an all-time low, the Zuma administration refuses to acknowledge that the root cause of the complex macroeconomic situation is the over-reliance on a state which lacks the requisite capacity to plan properly and implement effectively. In the contemporary global political economy discourse, the developmental state model has been predicated on a technical bureaucracy capable of industrial leadership but still insulated from political interference. In South Africa, with corruption, BEE and cadre deployment that insulation is simply not there. Also the idea that state owned enterprises can catalyse growth when there is so much poor governance and political interference is just untenable.
One critical case in point is the electricity crisis facing the country-something which has deepened since Q1-2008. Despite the wastage of billions of rand of fiscal resources, the administration still insists on “resolving the energy challenges” via a wholly-owned state entity – Eskom. Clearly, after six years of grappling with the damaging effects of Eskom on the economy, the administration has not fully recognised the shortcomings of the national energy policy and its remedial solutions.
Nearly all other abovementioned points are state-dependent. This sidelining of the private sector since 2009 has led to a considerable loss of investor confidence, a continued and near-chronic shortage of key infrastructure, and hence a substantial fall in private sector investment. In this context, the president’s pronouncements on restricting foreign ownership of land and the declaration of some minerals as “strategic” do not bode well for improving investor confidence, be they domestic or foreign investors. The SA public sector fiscal situation is in no shape to compensate for the fall in private sector investments, and the inefficient and bloated bureaucracy developed under the Zuma presidency is no match for the challenges facing the economy. Yet, the president continues the over reliance on the machinery of the state to revive the economy.
As such, I remain highly skeptical that the proposed interventions will go nearly far enough to deal with the real challenges facing the SA economy.
Whilst the president’s considerable focus on the economy is a political imperative, and he has done well to do so, his package of interventions lacks credibility and is unlikely to convince an already skeptical private sector. With the country’s international creditworthiness downgraded twice since President Zuma assumed office in 2009, one can only look to the forthcoming Budget Speech of the Minister of Finance on 25 February, to offer a more credible policy package to avoid any further downgrade of government’s global credit rating. That task has now become so much harder. DM
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Iraj Abedian, CE: Iraj holds a PhD in economics from Simon Fraser University, Canada. He was professor of economics at University of Cape Town (UCT) before joining Standard Bank as Group Chief Economist in 2000. He was extensively involved in economic and financial policy as well as institutional restructuring of South Africas public policy after 1994. In 2005, he founded Pan-African Capital Holdings (Pty) Ltd. In addition to growing the companys investment portfolio, Iraj was centrally involved in the conceptualisation and capital raising for a KZN Infrastructure Growth Fund (R1,5 billion), and the establishment of South Africas first environmental clean tech Fund (US$ 94 million fund), as well as the design and establishment of a housing finance fund called Housing Investment Partners (HiP). Within the Pan-African Capital group, he has helped establish two private equity funds, totalling R650 million. Iraj currently serves as a non-executive director on the board of Munich Re of Africa and Capital Fund Properties Ltd. He maintains an active interest in public policy discourse (macroeconomic policy, mining policy and infrastructure finance) and is an extraordinary professor of economics at Graduate School of Business Sciences (GIBS) of University of Pretoria. Over the past five years, he has also served as a member of the National Spiritual Assembly of the Bahais of South Africa- a not-for-profit religious body with focus on the promotion of spirituality within the society at large.
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