How will the economic history books judge the sixth administration of President Cyril Ramaphosa? Will it be the administration in which the economy finally failed? Or the one that proved the turning point for reforms that laid the basis for the economy’s eventual success?
We may not know the answer for years, even decades. But the question matters, as SA goes to the polls to elect a seventh administration.
The failure narrative tends to be compelling. Load-shedding went to stage 6 for the first time at the end of Ramaphosa’s first year in the presidency in 2018, and then ramped up to record levels five years later. The trains went off the rails, the ports staggered, unemployment picked up to 33% and the government’s debt burden jumped from 53% to 72% of GDP. Economic growth averaged just 0.5% over the six years. Even excluding the 2020 Covid-19 crash, average growth was hardly higher than the 1.5% of the nine years of Jacob Zuma’s presidency.
Major reforms
Yet this was also the administration that enacted more economic reforms than SA had seen since the early days of democracy. Indeed, several of the legislative changes that Ramaphosa has now at last pushed through date back to policy decisions in those early days. Flawed though it may be, the Electricity Regulation Amendment Bill that finally went through parliament last week gives effect to the 1998 white paper that aimed to open up the electricity sector to competition; likewise the new National Transmission Company which is due to go live in July.
Transnet’s national port authority is now finally an independent subsidiary of Transnet with its own board, a change that was meant to happen two decades ago to level the playing field for new private port operators. Last year’s auction of new broadband spectrum was planned more than a decade ago.
The sixth administration’s reform programme was in the spotlight this week at a close-out briefing by Operation Vulindlela. The joint presidency-Treasury unit has focused on driving specific, measurable reforms in five priority areas with the most impact on economic growth — energy, freight logistics, water, telecommunications and visas.
It gave expression to former finance minister Tito Mboweni’s 2019 economic strategy and Ramaphosa’s 2021 economic reconstruction plan. It has worked with government departments and state-owned enterprises, with the president’s backing, as well as dovetailing with the work of the crisis committees Ramaphosa set up in energy and logistics with support and expertise from business.
It reported this week that it had ticked off 89% of the items on its list, including all the legislation. The most tangible success has been in electricity, where reforms to open the market and incentivise renewable energy have attracted more than 22GW of corporate renewable energy projects worth R390bn, which will come on stream within two to three years, not to mention more than 5GW of solar already on SA’s rooftops, all of which is already helping to keep the lights on.
But the unit has also ticked off the freight logistics road map which went through cabinet late last year, which opens the way to private participation in rail and ports, the Economic Regulation of Transport Bill and Transnet’s interim infrastructure manager, which has made a start to bringing private trains on to SA’s rail network. All the reforms on the telco list have been completed; and with the gazetting at the weekend of new skilled work visa regulations, so too have the visa reforms to promote tourism and attract skills.
It’s crucial that the next administration not just “stay the course”, as Operation Vulindlela put it, but speed it up.
So if they’ve done all this why is SA’s growth and unemployment still so bad? That, unsurprisingly, was the first question to the team at this week’s briefing. The answer, from the presidency’s Rudi Dicks, was that we needed to recognise we might not see immediate changes to growth and jobs — but the reforms would have a significant impact in the medium to long term.
The Treasury’s original projections were that the Operation Vulindlela reforms would lift SA’s economic growth rate to 3%-3.5%, but over a 10-year period. And that’s really the point. These structural reforms are precisely that — structural.
They change institutions and the rules of the game to dynamise the economy, primarily by bringing in private players and creating competitive markets. They can make a difference even in the shorter term, but they take a long time to have their full effect in terms of making network industries more efficient and competitive, and improving quality and service. That’s one of the reasons it’s so difficult to get political buy-in for such reforms — their full benefits may be felt only well after the tenure of the politicians who have to make the often difficult decisions. But once they take hold, the impact can be huge.
Former Treasury official Roy Havemann’s new book on how to fix SA’s economy starts with a tour of economic success stories, including SA’s own economic success in the early years of democracy when the economy opened up and growth hit 6%. What jumps out though is the extent to which some of the growth “miracles” were founded on sweeping reforms of decades earlier.
The roots of India’s 6%-a-year growth now go back to 1991 reforms that untangled red tape and fixed the financial system. China’s growth miracle went back to Deng Xiaoping’s opening up of the economy in the 1970s. Kenya’s rapid growth has been helped by excellent education that goes back to the early days of independence, as well as a big literacy drive more than a decade ago. SA is more ripe for reform than many other developing countries are because it has a sophisticated private sector and financial system that can quickly jump in once markets open up. Ours is an economy that’s ready to be competitive — if it’s allowed to be.
But there is much more still to be done: all these reforms still need to be activated and implemented, and there is more that needs fixing. It’s crucial that the next administration not just “stay the course”, as Operation Vulindlela put it, but speed it up.
Important too is that the president must staff the new administration with people who support growth-boosting reforms, instead of finding every which way to resist them as some have done in the current one.
This presidency has also been unprecedented in the way it’s worked closely with business, if not always easily. That’s kept the pressure on to fix the economy. It must continue. And anyone who doubts the impact of reforms need just look at electricity. That influx of private energy has already helped to halt load-shedding; it can transform lives in the longer term.
• Joffe is editor-at-large.
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