LUMKILE MONDI: Ramaphosa’s economic reform agenda could change the trajectory

The recent revision by the Reserve Bank of its economic growth forecast for the year from 1.7% to 1.3% has been supported by the IMF’s World Economic Outlook, which expects SA’s GDP to grow by about 1.2%.

Any positive number emanating from gross figures should be welcomed, as it assumes the current condition will prevail in the short to medium term. However, such low levels of economic growth reinforce the existing conditions of exclusion, marginalisation and high levels of dependency on the social wage by many South Africans.

After the May 8 general elections many economic reforms are expected that could change the economic trajectory of the country. Although there is an ongoing debate about the nature of land reform following the amendment of section 25 of the constitution and what the nationalisation of the Reserve Bank will entail in practice, there is broad consensus that SA is in an economic crisis. The expansionary fiscal policy of the Jacob Zuma years did not yield the expected results and the low interest rate environment has not been able to stimulate an investment drive because of policy uncertainty and a lack of decisiveness on the part of the political leadership.

What will it entail for SA to come out of the economic crisis and exploit opportunities in the world economy? President Cyril Ramaphosa will soon show his hand through the appointment of two new deputy governors of the Reserve Bank as the terms of Daniel Mminele and Francois Groepe expire. Financial markets will be watching to see how hawkish or dovish the two new individuals are, but also their gender given that men in dark suits have historically dominated the Reserve Bank.

Ramaphosa signalled a commitment to reform during the state of the nation address, specifically relating to splitting up Eskom. He is expected to announce a series of reforms not seen since the early 1990s following the first democratic elections. As a start, he will need to enter into an agreement with the trade unions for the restructuring of state assets. At the centre of his bargaining strategy will be fiscal discipline. This will entail a redirection of public expenditure priorities towards fields offering both high economic returns and the potential to improve income distribution, such as primary health care, primary education and infrastructure.

Privatisation of state assets and deregulation must aim to abolish barriers to entry and exit, based on the recommendations of the industrial development task team. To effect these Ramaphosa will require a national framework agreement that provides a platform to develop a social plan for those who will be displaced when the national government is restructured for efficiency gains, and some state-owned entities are sold to raise funds to reduce the national debt, which has reached an unsustainable level at 56% of GDP. SA’s current fiscal position is very similar to the one inherited in 1994.

Having brought public sector unions to the table, Ramaphosa will be expected to announce a series of economic reforms to boost inclusive growth to levels last seen in the period preceding the 2008 economic and financial crisis. These must include the strengthening of corporate governance given the series of scandals and wheeling and dealing that resulted in the state being captured.

There must be a focus on small, micro and medium enterprises to provide growth opportunities, a new tax source and employment. And there must be a new commitment to eradicating corruption by reinforcing the National Prosecuting Authority and Asset Forfeiture Unit to recover stolen property and prosecute those found to have operated on the wrong side of the law.

Although Ramaphosa has been the champion of the minimum wage, research on the economic effects has produced different results, and there is an undeniable need for flexibility in the labour markets.

The African Continental Free Trade Agreement remains a huge opportunity for industrialisation and inclusive development in the continent, but it will require encouragement and support by the government.

Many of these reforms will be opposed; the real Ramaphosa will need to show up and deliver.

• Mondi is a senior lecturer in the Wits School of Economic and Business Sciences.