The rand rallied strongly as news spread that Jacob Gedleyihlekisa Zuma had resigned. When the new president, Matamela Cyril Ramaphosa, made his maiden State of the Nation Address, just over 24 hours after he was sworn in, it continued trading at its new, stronger level.
This is moderately surprising. It makes one think that investors either did not listen to the speech, or had already factored in the terrible policy ideas it contained.
Ramaphosa promised us a “new dawn”, committing to root out corruption, restore the bleeding State-owned Enterprises to financial health, rekindle economic growth, reduce unemployment, and fight poverty. These are all the usual platitudes we hear from politicians. Ramaphosa spoke these banalities with charm, fluency, charisma and apparent conviction, which posed a stark contrast to the hesitant, monotonous bumbling of his predecessor.
“Carefully worded, diplomatically delivered and with an air of credibility and gravitas, President Cyril Ramaphosa’s first State of the Nation Address clearly heralded the promise of change,” wrote Daniel Silke for Fin24.
“A selfie with the president is something people want now,” wrote Antoinette Muller.
“Even for the deepest cynics among us, it would be hard to dispute that something rather special was in the air at the 2018 State of the Nation Address,” wrote Rebecca Davis.
Almost everyone appears to be delighted that the venal, corrupt and dishonest Zuma is gone. Everyone, that is, other than his disgraced cronies, and those who had pinned their hopes on Zuma to topple the ANC and discredit its socialist ambitions.
Those people – call them our “deep cynics” – are more than aware that with the election of Ramaphosa as South Africa’s president, the ANC has ensured that it will continue to win elections in 2019 and beyond.
The Democratic Alliance’s hopes of beating Zuma in an election were not at all far-fetched, even if the party appears unprepared to govern at a national level. Their hopes of defeating a government led by Ramaphosa, the gallant knight in shining armour who defeated the dragon Zuma, are nil.
Ramaphosa’s statement that the Western Cape (along with the other two Cape provinces) had been “elevated to national state of disaster” kicked the DA while it was down. It gave the impression of a national ANC government galloping to the rescue of the flailing DA-run province, even though the legal declaration of a national disaster had not even been made, and the national government had failed to act despite a request as early as 2015 to declare a state of disaster. It was, so to speak, the act of a deep cynic.
Gwede Mantashe, the national chairperson of the ANC (and former chairperson of the South African Communist Party), pointed out the obvious: the reason Ramaphosa was able to give a State of the Nation speech so soon after his election is that it was written by the ANC long in advance. It needed only minor tweaks to personalise and update it. This fact seems lost on those who with their enthusiastic applause signalled that they approve of this new president and expect him to deliver on his promises.
But let’s have a look at those promises. Commenting on the public relations masterstroke of quoting the words “send me” from Hugh Masekela’s song, Thuma Mina, Antoinette Muller wrote: “It’s hard to imagine a speech containing the words ‘land expropriation without compensation’ being welcomed by such feverish hashtag catch-phrasing if it were uttered by other vocal chords. Or in different circumstances.”
Indeed. With one hand, Ramaphosa promises to enact land expropriation without compensation, which would require a constitutional amendment to the property clause. With the other, he says he wants to woo both domestic and foreign investors. What fool of an investor will bring their capital to South Africa if they cannot be sure that their property rights are secure?
Besides, how many farms are there in South Africa? In 2011, the Natal Mercury quoted the head of Absa AgriBusiness, Ernst Janovsky, as saying that there had been around 128,000 commercial farmers in 1980, 58,000 in 1997, and just under 40,000 in 2011. He predicted that this would drop to 15,000 by 2026.
If Ramaphosa expropriates every single one of those farms from their current owners, that’ll create perhaps 25,000 new black farmers. It’s a drop in the ocean in the context of six million unemployed people. And at what cost? A signal that the property rights of South Africans can be taken away at will, for nakedly political purposes?
Ramaphosa promises to “place [one million] unemployed youth in paid internships in companies across the economy”. At whose expense will he do that? If companies could afford to create these jobs, because they would improve productivity and profits, they already would have done so. Throwing tax revenue into unproductive jobs will do nothing to stimulate the economy. It can only perpetuate economic malaise.
He promises to invest in entrepreneurs and startups. This is just insane. Startup investing is the most difficult and risky business you could possibly be in. There’s a 50% chance that startups will fail by year five (or four). In the technology sector, the numbers are far more brutal. Startup investing requires immense skill, dedication and attention to detail. It requires advanced coaching and mentoring, to ensure that young entrepreneurs rapidly gain the maturity and experience to succeed in a highly competitive business world. Even creators of successful startups are rarely able to repeat their success.
In a competitive market, startup investors who fail only lose their own money. Only successful ones are able to continue to invest. If government assumes such a role, it will not face such self-correcting competitive pressure. Government can fail all day long, pouring millions after millions down the same bottomless pit, with no consequences, and nothing to show for it. And, as we can see from our State-owned Enterprises, it generally does.
On the upside for government cronies who feel a bit nervous about their financial future, a startup and entrepreneurship fund sounds like an excellent way to siphon money out of government for doing very little. After all, almost half of all failed startups cite the lack of a market need for their product as the reason for their failure. Who wouldn’t love the idea of government investing in them to produce things nobody needs? Never mind that this money could be used far more productively, and at far greater benefit to the economy in general, by the taxpaying companies who – by definition – are already producing things the market needs.
Like the old National Party, Ramaphosa promises a “buy local” programme. This is, of course, nothing more than protectionism. When local production is good enough, nobody needs a directive to buy local. Buying local when one would otherwise have bought foreign, however, implies that one sacrifices value in terms of either price or quality. Protectionism artificially props up an uncompetitive local industry, which means it will never become competitive with foreign rivals, and remain forever dependent on tariffs, subsidies, and preferential government contracts.
A protectionist policy also means Ramaphosa is proposing to make the government spend more on lower quality goods and services. This flatly contradicts his promise that:
“It is critical that the structure and size of the state is optimally suited to meet the needs of the people and ensure the most efficient allocation of public resources.”
He promised to implement the National Health Insurance programme. He will not wait until he has actually restored our State-owned Enterprises to health, thereby proving that it is possible for government to operate a business successfully. Instead, he’ll gut the successful private healthcare market, to force everyone into the same one-size-fits-all socialised model. Expect to see the quality of healthcare decline, prices to rise, waiting lists to grow, and medicine to be rationed.
Ramaphosa described mining and agriculture, which are both in decline, as “sunrise industries”. This is absurd. In any developing economy, the economic focus should be moving away from raw resource extraction and working the land, to manufacturing and eventually services. Mining and agriculture should be in decline.
It is in poor countries that we expect agriculture to be a large employer. In Zimbabwe, Uganda, Madagascar and Tanzania, it employs over 60% of the population. In Albania, Georgia, India and Cambodia, it employs over 50%. In most of western Europe, Japan and Australia, farm employment is below 5% of the population. In the United States, Canada and the UK it is below 2%. Who should we prefer to emulate?
“We are determined that expropriation without compensation should be implemented in a way that increases agricultural production [and] improves food security,” he said.
But the history of land grabs does not favour him. The most recent example has been that of Zimbabwe, where farm productivity collapsed after expropriation. And if he breaks up large farms so that more than just a handful of people can become new farmers, he’ll only guarantee lower productivity, because of worse economies of scale.
Ramaphosa’s hopes for the agricultural sector betray an old-fashioned but common socialist infatuation with the idea of an agrarian society, in which most people are peasants, living on the land, under the paternalistic gaze of the state. But that is a poor, medieval world, with no freedom and no prosperity except for a very tiny elite (of which Ramaphosa is certainly a member).
He tied his hopes for the mining sector to two factors. One is resolving the crisis in the industry caused by the imposition of the Mining Charter, with its onerous black ownership requirements. But that crisis is entirely of the ANC’s own making. Simply mouthing words about “engagement” and “trust” and “shared vision” will not make investors flock back to South African mining stocks, nor make mines more productive.
His other hope for the sector comes from rising commodity prices. But it is stupidly short-sighted to build one’s hopes for growth, sustainability and employment on a volatile and cyclical factor like commodity prices.
Says the Natural Resource Governance Institute:
“Economies heavily dependent on natural resources can face serious challenges in sustaining growth because of swings in prices for those resources. The need for diverse sources of income goes beyond fluctuating prices. Being rich in natural resources can hurt macroeconomic stability, crowd out domestic industry such as the manufacturing sector, increase the likelihood of civil unrest and undermine democratic institutions.”
Yet while Ramaphosa is revitalising the mining sector, he also promises to address the decline in the manufacturing sector, and “re-industrialise on a scale and at a pace that draws millions of job seekers into the economy”. Not without reducing the electricity price he won’t.
But that’s not all! Everyone can grow and create employment! And Saint Cyril will make it happen! The number of jobs in tourism could easily double, he said. He did not say how easily, or who would be doing the doubling. Is he pinning his hopes on the same people who have been staring at stagnant tourism arrivals since 2014? Or is this another magic wand thing, like most socialist promises?
Ramaphosa promises a “Digital Industrial Revolution Commission”, which will be amazeballs. As if government has ever shown itself to be capable of “[seizing] the opportunities and [managing] the challenges of rapid advances in information and communication technology”.
This is just empty talk. Ask the private sector why South Africa’s technology sector has not performed better in the last 20 years, and almost all will tell you tales of government monopolies, incompetence, policy uncertainty and over-regulation. I’ll eat my hat if anyone says, “If only we had a Digital Industrial Revolution Commission, we’d all be rich.”
Amid all these promises about stimulating business, he also promises to introduce a national minimum wage. Understand that this is not just something that magically increases the wages of the poorest-paid workers. This is something that makes it illegal for anyone to accept a job at less than a government-determined wage. It makes a number of potential jobs illegal.
There are those who argue that minimum wages do not negatively affect employment levels. Some of those people are even economists. But what they fail to explain is why wages, as the price of labour, would act unlike any other price, and why the demand curve for labour is upward-sloping, unlike every other demand curve.
The effect of a minimum wage is often masked by a growing economy. It is also partly invisible, because nobody can count the number of new jobs that were not created because the minimum wage was too high. Nobody counts the jobs lost to automation because human labour was too expensive.
Despite some recent revisionist papers, with conclusions that no economic theory can explain, a majority of the research (including recent work) still shows that implementing (or raising) a minimum wage has negative employment consequences. This contradicts Ramaphosa’s promises about creating new jobs.
Since it raises the cost of doing business, a minimum wage will also inevitably have negative consequences for company profits, which will reduce the tax take, and reduce economic growth. Only a socialist can imagine that South Africa can afford that.
The only good thing in his speech was his commitment to an African free trade agreement, but that contradicted the protectionist sentiments he expressed elsewhere.
Since he proposed no concrete plans (despite waiting in the wings ever since Nelson Mandela retired), the only great beneficiary of the speech will be the venue hire and catering industries, who will host the numerous conferences, commissions, councils, working groups and summits that Ramaphosa announced.
Do not mistake Cyril Ramaphosa for anything other than a committed socialist. That he thought it was okay to become a billionaire while millions remained mired in poverty makes him a hypocritical socialist, but a socialist he is.
His policies are those of the National Democratic Revolution, to which the ANC recommitted itself at its 54th national conference in December last year. They were written by the South African Communist Party in 1962. As the SACP’s general secretary, Blade Nzimande, wrote:
“[We] had always understood the national democratic revolution as the most direct route to socialism.”
Socialism fails. It always does, in the end, because it requires a perfect world with perfect people who are altruistically motivated. It is pure idealism, impossible to realise. Capitalism recognises that people are most often self-interested, and exploits this trait to improve outcomes for everyone in society. It has produced the sharpest, most sustained, and most inclusive improvement in living conditions in human memory.
What South Africa really needs is a political party that is explicitly opposed to socialism. One that does not make apologies for free markets, or threaten private property. One that, unlike socialist politicians, can make believable promises of lower unemployment and less poverty, because that is the historical track record of free economies.
The DA’s recent rhetoric seems to claim it will be better at implementing ANC policies than the ANC. That it can be better than Zuma. Sure. My dog can be better than Zuma. But we don’t need a better ANC. We don’t need more socialism, just done better. We need less of it. We need a rational economic policy that does not lead a president to promise us pie in the sky and blatant contradictions.
Cyril Ramaphosa will not be South Africa’s saviour. He will lead it further into the mire of socialism. It is easy to oppose evil that blatantly appears to be evil. Even a child can do that. The far more dangerous evil is that committed by a person who is intelligent and well-educated, who appears well-meaning, and who expresses his intentions with charm and charisma. That, in essence, is the difference between Jacob Zuma and Cyril Ramaphosa.
Of the two, Ramaphosa is the more dangerous. DM