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What Ramaphosa has to do to meet his ‘ease of doing business’ promise

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

Another State of the Nation Address by Cyril Ramaphosa, another basket of prettily wrapped promises. The naïve and hopeful masses, including investors, lapped it up. But Ramaphosa hasn’t been great at keeping promises — and the new ones will be just as hard to keep.

Last week, president Cyril Ramaphosa delivered his second State of the Nation Address (SONA). His first SONA was delivered mere days after his appointment as president in 2018, so this is the first in which he would have had a significant hand.

Unlike many observers, who were struck with a severe case of Ramaphoria, I was not impressed by his first SONA. Despite the heartening progress of corruption investigations in the past year, that judgment has not aged badly.

I pointed out that his promise of luring investment to South Africa was inconsistent with his promise to change the Constitution to allow property expropriation without compensation. Indeed, foreign direct investment (FDI) into South Africa, which had stagnated since its peak in 2016, failed to show a marked uptick in 2018.

If you count outward investment, South Africa is losing capital at a rapid clip, with net FDI stock in 2017 amounting to -34% of GDP. Only the Netherlands and Luxembourg export more capital as a share of GDP than South Africa does.

Despite trumpeting that R300-billion in investment had been pledged at the South Africa Investment Conference in late October 2018, all the projects were already at the implementation, pre-implementation or bankable feasibility stage. They were going to happen anyway, with or without Ramaphosa’s involvement.

In this year’s speech, he said he wanted to “mobilise R1.2-trillion in investment over five years”, but that is a drop in the ocean (just over 3%) compared to the roughly R1.9 trillion in FDI inflows the country receives each quarter. Besides, as he showed with the R300-billion claim, he’ll happily take credit where it’s not due.

In 2018, Ramaphosa made a big deal of the tourism industry, which he said could easily double. There is no evidence of any of this in the statistics, however. After two decades of steady growth since 1994, tourism numbers have stagnated for the past five years.

The cumulative number of tourist arrivals between January and November 2018 rose only 1.8% by comparison with the same period in 2017. The number of overseas visitors declined by 1.6%.

This year he made a new promise. He said the intent was to raise tourist numbers from 10 million in 2018 to 21 million in 2030. Yet the statistics to date show only minor variations from a stagnant baseline, not the robust growth that would be needed for this promise to come true. We’ll need to see a sustained increase of almost a million tourists each year for that promise to come true.

In 2018 he announced a Youth Employment Service (YES), with a target to create a million paid internships across the economy in three years. This year he merely acknowledged its announcement and implored companies to participate. This might be because in the first year a mere 391 companies registered for the initiative, creating 6,939 “committed work experiences”. Of those, about 2,000 people are still employed in some capacity. That is a far cry from a million internships in three years.

Needless to say, the initiative has not made a dent in South Africa’s youth unemployment rate, which was higher in the second and third quarters of 2018 than in the first quarter, when Ramaphosa announced it, and remains well above 50%.

The Accelerated Schools Infrastructure Delivery Initiative programme was launched in 2011 to replace 483 inadequate schools with facilities “that meet basic functionality”. In 2018, Ramaphosa said it had “completed at least 187 schools to date”, and would complete all outstanding projects by the end of the next financial year, which is a month from now. The total at last count stood at 212 schools.

This is grossly inconsistent with the Department of Education’s 2018/19 Performance Plan, which says 16 schools were built in 2016/17 to bring the total up to 179, and “estimated performance” for the 2017/18 year was 115 schools built. Targets for future years are 50 schools to be built in 2018/19, 17 in 2019/20 and 15 in 2020/21. Even assuming the estimates in the performance plan are true, this still leaves 107 projects uncompleted by 2021.

This time around, Ramaphosa promised that the nearly 4,000 schools that still have inadequate water and sanitation infrastructure would all receive safe and appropriate facilities in the next three years.

So it goes. Wonderful promises, designed to allay the fears and concerns of South Africans, go unfulfilled. And when the next SONA rolls around, new promises are made and everyone gets all excited again.

Let’s take a look at just one of the promises from 2019 and figure out what Ramaphosa’s government would have to do to meet it.

The World Bank’s annual Doing Business Report currently ranks South Africa 82 out of 190 countries tracked,” Ramaphosa said. “We have set ourselves the target of being among the top 50 global performers within the next three years.”

This promise has the benefit of being specific, and it comes with clear criteria for success.

The World Bank’s Doing Business Report for 2019 does indeed rank South Africa 82nd out of 190 surveyed countries. This is the same as 2018, but the country has been plummeting down the rankings for years.

World Bank Ease of Doing Business Index: South Africa





























Source: World Bank Doing Business Reports from 2006 to 2019.

The ranking is derived from a score, which in turn is composed of 10 criteria: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

It is notable that the country’s collapse from a ranking in the mid-30s occurred despite the fact that the ease of hiring and firing was removed as a criterion in 2011. South Africa, of course, has a reputation for inflexible labour laws, strong unions, and fraught relationships between labour and employers, none of which make doing business in the country any easier. The removal of this criterion, therefore, should have helped, not hindered, South Africa.

In only one category did South Africa make significant progress since 2017, and that is getting electricity. Its score improved by 12.5 percentage points. This improvement is misleading, however. The reason given for the increased score is this:

South Africa improved the monitoring and regulation of power outages by beginning to record data for the annual system average interruption duration index (SAIDI) and system average interruption frequency index (SAIFI).”

So South Africa gets points for collecting data on blackouts. Yay us! Despite the unearned improvement, the country still ranks 109th in the world in the ease of getting electricity.

The only other category that deserved even a mention was the ease of starting a business, which improved by 1.25 percentage points because the time for online business registration had been reduced. It still takes 40 days, however, and South Africa is still ranked a dismal 134th in the world on how easy it is to start a business.

These two items account for the entirety of South Africa’s slight improvement from 2018, which was so small it did not merit a change in the ranking.

On six out of 10 criteria, South Africa underperformed its overall ranking. The other four are trading across borders (a terrible 143rd), enforcing contracts (115th), registering property (106th), and dealing with construction permits (96th). The four criteria on which the country outperformed its overall ranking were getting credit (73rd), resolving insolvency (66th), paying taxes (46th) and protecting minority investors (23rd). In only two categories did South Africa break the 50 barrier that Ramaphosa seeks to achieve.

If you consider the criteria in terms of percentage scores, instead of rankings, the worst performances were on enforcing contracts, resolving insolvency, registering property, trading across borders and getting credit.

The only criterion about which Ramaphosa made a substantial pronouncement was where South Africa performed the worst: Trading across borders. And instead of making it easier, he’s making it harder: “We will intensify the ‘buy South Africa’ programme.”

The public sector can, of course, be told what to do. The private sector cannot. The only way to achieve higher domestic procurement by the private sector is to raise tariffs on imports, making it even harder to trade across borders than it already is.

In Ramaphosa’s favour is the fact that there isn’t that great a gap between 82nd and 50th place, which is occupied by Montenegro. The score for South Africa was 66.03%, while Montenegro scored 72.73%. That really is Ramaphosa’s only hope for returning to the top 50 in three years. Of course, even if that is achieved, it still leaves the country far worse off than the 32nd ranking it enjoyed when Zuma became president in 2009.

Frankly, there’s nothing in SONA 2019 that gives me confidence that South Africa can get out of its present rut, in which population growth exceeds economic growth. And there’s nothing that suggests it will improve in the ease of doing business rankings.

Now that we know at least some of the things Ramaphosa would have to do, and their inconsistency with the rest of his ideological positions, the only thing that is clear is that the odds are not in his favour. DM


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