Beset by a plague of violence, poor growth and a legacy of state capture and corruption, South Africa faces a deepening crisis. David Thomas examines the problems facing President Cyril Ramaphosa as he seeks to implement his reform agenda.
In early September, delegates meeting for the first day of the World Economic Forum were sharing a drink in the ground floor bar of the Westin Hotel in Cape Town with colleagues and friends. Suddenly, the low-level hum of conversation and clinking glasses was broken by ear-splitting bangs.
Delegates rushed to the windows to investigate the source of the commotion – stun grenades detonated by police – and were greeted by the sight of angry protestors besieging the doors of the nearby conference venue, observed by lines of helmeted riot officers.
The mostly young, idealistic crowd of students and activists sang songs of resistance and waved placards as they railed bitterly at the government following a wave of fatal attacks on women – dubbed femicide – across the country. For the South African government and its embattled president, Cyril Ramaphosa, the expression of righteous anger at the plague of violence was the latest incident in a week of disastrous PR.
As delegates arrived in Cape Town, Johannesburg’s poverty-stricken townships were convulsed by a wave of xenophobic attacks that killed at least 12 people, including foreigners and South Africans. Images were beamed around the world of crowds burning and looting foreign-owned stores, prompting a furious backlash from African capitals and leading the government of Nigeria to boycott the forum. Hundreds of fearful Nigerians took free flights home offered by their government, refugees from a country where they hoped to make a better life.
With Ramaphosa scrambling to respond, the forum – a showcase for his attempts to crowd billions of dollars into a struggling economy – became a sideshow. Violent events and government inaction have fuelled a genuine sense of national crisis and deep shame. Writing in the Sunday Times, academic and author William Gumede said that the depth of national despair is having dire financial implications.
“The wave of xenophobic, gang and taxi violence, femicides and a general breakdown of law and order have created a sense that South Africa is lawless, leaderless and spiralling into the Armageddon of a failed state. It has dented local and foreign confidence, making it unrealistic to expect any local or foreign investors to seriously want to put their money in this country… the ANC and government leadership appears to have been out of their depth, many not grasping the severity of the crisis the country is facing.”
With crises mounting on multiple fronts and Ramaphosa distracted by political battles within the ruling ANC, fears are mounting that the economic reform agenda desperately needed to keep societal problems at bay could be neglected. With growth of just 0.6% projected this year by the central bank, critics fear that the government is incapable of soothing township anger bequeathed by apartheid and worsened by Jacob Zuma’s damaging presidency. Without an immediate response, trust will further erode, says political analyst Ralph Mathekga.
“You have a very strong anti-establishment sentiment that started with the collapse of local government, then corruption, then state capture. At the end of the day you’re talking about the loss of moral authority by the ANC to govern. It’s a moral crisis, a political crisis, a national crisis if you ask me.”
A multi-millionaire businessman, former trade unionist and one of Nelson Mandela’s key lieutenants in the negotiations to dismantle apartheid, the cerebral Cyril Ramaphosa has long carried the hopes of the ANC’s economic reformers and international investors. Following his comfortable victory in May’s general election – the first major test of his popularity since assuming office in February 2018 – Ramaphosa expressed his support for an economic reform programme to create growth and combat widespread joblessness and inequality.
“We have been given this responsibility on an overriding basis to revive our economy, to create jobs,” he said shortly after wrapping up his victory.
After years of compromised rule by predecessor Jacob Zuma culminating in the corruption of “state capture”, the in-tray is bulging. From fixing debt-ridden state-owned enterprises (SOEs) like Eskom, the bloated and inefficient power utility, and South African Airways, the loss-making national carrier, to boosting the ease of doing business and reforming a sclerotic labour market, few doubt the scale of the task facing the government. Yet instead of moving with freedom, the months since Ramaphosa’s win have been defined by reticence and inaction, say analysts.
“There’s been less reform than we expected of any type (positive or negative) given the inability to deploy political capital and also wrestle the functioning of the state into gear,” wrote Peter Attard Montalto, head of capital markets research at Intellidex, in an August reform update.
“It has become clear that the Presidency is seeing reform in a much longer ‘10-year governance master plan’ outlook for two terms in office, ignoring, or taking a calculated risk, on the fact that there won’t be able to be a second term without the economy turning in the first… sentiment has rapidly deteriorated based on the lack of actions undertaken and repetitive rhetoric.”
Hamstrung by political rivals in key ANC portfolios and the entrenched opposition of the labour movement he once helped lead, Ramaphosa’s political options appear to be narrowing as the inequalities that boil below the surface of South African society threaten to erupt.
Yet economic reformers in the party are launching a renewed push for relevance just as the government’s momentum appears to be stalling. In late August, the Treasury, led by garrulous Ramaphosa ally Tito Mboweni, released a 77-page economic policy discussion document intended to focus minds on creating 1m jobs and boosting economic growth by up to 3%.
While many of the recommendations have long been suggested – including breaking up Eskom, launching spectrum auctions and liberalising the banking sector – the importance of the “uncompromising” document lies in its bid to crowd political momentum behind a new reform push, according to Attard Montalto.
“National Treasury has issued a detailed, well-referenced, evidence based economic policy document… it will force people to take sides for or against evidence based policy and against or for endless social compacting. It will however receive strong resistance but we think its ultimate aim is to be divisive and to mobilise support.”
That strong resistance is likely to emerge from the trade union movement that wields huge influence in the ANC. Trade unions have long been opposed to job-shedding measures at Eskom and other SOEs, and see the reform document as an austerity programme that will trigger further unemployment when almost 30% of South Africans are out of work.
The Congress of South African Trade Unions (COSATU), the ANC’s historic ally alongside the South African Communist Party, has called for the document to be withdrawn, labelling it an attempt to push unpopular “right wing” policies. Given the precariousness of Ramaphosa’s political situation, any hopes for the specific measures detailed in the “wishful thinking” policy document will have to result from sustained negotiations with alliance partners, says Mathekga.
“That document itself is an expression that there is no consensus on policy… Those are austerity measures and mostly about rationalising state-owned enterprises to cut budgets, and unions are never going to like that. Ramaphosa will have to protect Mboweni and negotiate with his alliance partners, mostly COSATU, and try and push minor reforms. You cannot sit and do nothing.”
Senior politicians argue that the government is already forging ahead with credible reforms. Appearing at the World Economic Forum, minister of public enterprises Pravin Gordhan, another long-term Ramaphosa ally, insisted that progress was being made on reforming SOEs, pointing to the introduction of chief restructuring officers to work on the financial restructuring of entities and key performance indicators to measure improvements in board performance.
“We are emerging from a period of state capture and corruption and are in the process of restabilising many of the major institutions, getting them to become more effective operationally in relation to their finances becoming more stable, which is a difficult task, and in some instances beginning to explore alternate business models and repositioning them as well,” he said.
At the heart of that strategy will be a new push to split Eskom’s transmission operations from the rest of the company – “the beginning of a journey that will teach us a lot of things and hopefully lead to a different type of future,” said Gordhan.
And yet by now, analysts would have hoped that the country would be far further along the journey of reforming Eskom and other entities. In September, ratings agency Moody’s said that maintaining the country’s investment-grade credit rating will depend on the speed of reform implementation.
“There are many in the business community and society who feel that dealing with Eskom, appointing a new CEO, really making the changes announced in February, have not happened,” Anne Bernstein, executive director at the Centre for Development and Enterprise in Johannesburg, told the WEF.
“All of our issues are now big ones. There is some low-hanging fruit but if you’re president each issue requires you do to deal with trade unions and vested interests… I think it’s been a disappointing period since the election – the country is in deep trouble, our fiscal situation is looking very bad and we require stronger leadership than ‘everything is fine, I have a plan.’”
Absence of leadership
It is that seeming absence of strong leadership that has so concerned supporters of the president. Far from appearing decisive, Ramaphosa has vacillated in the face of the violent events and struggled to project his moral and political authority during the xenophobia and femicide protests.
“His response was poor, shambolic indeed, no doubt about it. I’d say he was tone deaf and didn’t understand the pulse of society. People want leadership… this president has got his hands tied, he’s on too many battlefronts at the same time. In this moment how do you justify job cuts at Eskom and the narrative of austerity? This is where the problem is – the crisis of justification,” says Mathekga.
Given the ANC’s crisis of legitimacy, the president will struggle to force through mass retrenchments and other difficult fiscal choices demanded by the markets, he argues. And yet while crisis does not seem too strong a word to describe the events of September, some business leaders remain more optimistic about the country’s chances, arguing that South Africa’s economic fundamentals remain sound even amid the political disruption.
“I think South Africa already has that resilience, the structures are there and the ability to bounce back, if only business and investor confidence would return,” says Kweku Bedu Addo, CEO for South Africa and Southern Africa at Standard Chartered Bank, pointing to deep financial markets and robust monetary policy.
“I think probably it’s coming from social and political pressures rather than anything else but structurally I don’t see why it should not grow, all the ingredients are there… [SOE] reform would help but it would also have economic and political consequences. That’s where economic managers need to engage more with civil society and business to give clarity to the pathway to reforms. But the choices are not easy and would have some consequences.”
In order to combat the ANC’s perceived lack of legitimacy, Ramaphosa will have to tread carefully, negotiate with his opponents and allies and ensure that losers in any retrenchment process are compensated. Whether the president is alive to that challenge in an era of confrontation remains an open question.