On December 18, the ANC will elect a new president for the first time in 10 years. This comes at a time of unprecedented political and economic crisis for post-apartheid SA.
Publishing its annual Global Competitiveness Report in September, the World Economic Forum ranked SA 61st out of 137 countries, finding that "SA’s economy is nearly at a standstill, with GDP growth forecast at just 1% in 2017 and 1.2% in 2018 … while its unemployment rate is currently estimated above 25% and rising".
These figures have only deteriorated since the report was released. In October, Finance Minister Malusi Gigaba indicated that projected GDP growth is now 0.7% for 2017 and 1.1% for 2018, while the statistician-general revealed that unemployment stands at a record 27.7%.
Appreciating how SA has arrived at this state and deciding how best to emerge from it will be important sites of contestation at the ANC’s elective conference.
The two leading candidates, Nkosazana Dlamini-Zuma and Deputy President Cyril Ramaphosa, have come to represent conflicting visions not only of the country’s future, but also its recent past.
The vision articulated by Dlamini-Zuma attributes SA’s economic malaise to "global headwinds" and "white monopoly capital", rather than the policies and practices of the government.
Her vision also includes the endorsement of President Jacob Zuma’s record of leadership (of party and state) and his "radical economic transformation" and an imprecise policy of economic nationalism combined with increased state participation in key sectors such as mining, agriculture and even banking.
Despite recent encroachments, its core institutions remain independent and strong, with a well-functioning civil society. Adherence to the Constitution and the rule of law continue to be the key pillars of SA’s institutional strength
— Moody's
The alternative vision, voiced by Ramaphosa, involves recognition that SA’s stagnation is largely brought about by poor governance of state departments and state-owned enterprises as much as severely corroded by corruption (styled as "state capture").
Ramaphosa has warned that the brand of "radical economic transformation" described by the president and Dlamini-Zuma will further weaken investor confidence, stifle growth and thus exacerbate unemployment, while serving as little more than a mask for further enrichment of a politically connected elite.
Ramaphosa proposes a pragmatic strategy of market-based "inclusive growth", that may require the reinstatement of some of the investment promotion mechanisms established by former president Thabo Mbeki.
These included a network of international investment and trade agreements, which had been criticised for generating "jobless growth" by the ANC’s leftist factions and alliance partners that replaced Mbeki with Zuma at the party’s Polokwane elective conference in 2007.
No significant changes in government policy happened, however, until after the ANC’s July 2012 policy conference, at which the party resolved "to transform the structure of the economy through industrialisation, broad-based black economic empowerment … and expanding the role of the state and the role of SOEs [state-owned enterprises]".
Beginning the following month, the government terminated SA’s bilateral investment treaties with its main trading partners in the EU and introduced a host of legislation encroaching on property rights, including far-reaching proposed amendments to the Mineral and Petroleum Resources Development Act.
These measures did not, however, deliver the jobs Mbeki had been criticised for sacrificing at the altar of growth.
On the contrary, the unemployment rate is now 4.7 percentage points higher than it was at the end of 2007 (23%), when the GDP growth rate was at a record 5.5%.
This is indicative of the country’s declining competitiveness. In the Global Competitiveness Report released shortly before the 2007 Polokwane conference, SA was placed 44th in the world, the highest in Africa, receiving "strong marks for its property rights (22nd), corporate ethics (39th) and goods (32nd), as well as financial market efficiency (25th), business sophistication (36th) and innovation (32nd)".
Ten years later, SA is ranked 56th for property rights and 72nd for corporate ethics. Strikingly, the country’s ranking for policy making transparency and government spending efficiency has plummeted from 29th to 74th and an abysmal 103rd, respectively.
To gain a proper perspective on SA’s economic prospects, it may be helpful to compare the country with two of its immediate neighbours, Zimbabwe and Botswana. SA still vastly outperforms Zimbabwe, which was 124th in the 2017 Global Competitiveness Report and is one of the world’s five worst economies in respect of property rights (136th), regulatory burdens (133rd), and the effect of rules on foreign direct investment (137th).
It may be hoped that Zimbabwe’s recent change in leadership, after 37 years of autocratic rule by Robert Mugabe, will — notwithstanding a less-than-inspiring cabinet — bring about improvement in those areas most vital to reversing the fortunes of the country. It may also be hoped that these events will remind SA’s future leaders of what fate awaits those who pursue economic nationalism and personal enrichment over a social market economy under the rule of law.
It is perhaps more useful to reflect on the opposite trajectory of Botswana, which is now ranked 63rd globally — only two places beneath SA. Ten years ago, Botswana was 76th, 32 rungs lower than SA (then 44th).
Botswana closed this gap despite still lagging by far in terms of market size (108th), business sophistication (93rd), technology (90th), innovation (90th) and infrastructure (90th), areas in which SA still ranks in the top 40 globally.
Botswana’s competitiveness is mainly owed to its exceptional macroeconomic management. It now ranks first in the world for controlling inflation, fifth for managing government debt and ninth for gross national savings — areas in which SA ranks 105th, 69th and 95th, respectively.
Botswana success
Leading economists have attributed Botswana’s success to "its adoption of good policies", which "resulted from an underlying set of institutions — institutions of private property — that encouraged investment and economic development".
This is reflected in its top-40 ranking for property rights, policy-making transparency and government spending efficiency. This would also explain why Zimbabwe, through the erosion of its institutions and the evisceration of property rights, became one of the least competitive economies in the world.
The contrasting experiences of these neighbours hold profound lessons for SA’s political leadership. The road to competitiveness can only be built on secure property rights, predictable policy-making and prudent and efficient fiscal management.
This does not, however, appear to be fully appreciated by SA’s finance minister, whose adherence to Zuma’s agenda of "radical economic transformation" has discouraged investors and disappointed sovereign credit ratings agencies. Shortly after Gigaba’s appointment as finance minister at the end of March, S&P Global, Fitch and Moody’s Investors Service each downgraded SA’s sovereign credit rating.
In June, when Mineral Resources Minister Mosebenzi Zwane published a new Mining Charter without consulting the mining industry, Gigaba called it a "welcome step". By contrast, the ratings agencies described it as proof "that the government was prioritising radical economic transformation even if this led to a weakening of the business climate and could reduce growth".
The drastic changes the new charter would bring about (imposing rigid and unrealistic empowerment quotas for the ownership of mining companies, their management and procurement requirements) could not have come at a worse time for an industry that shed around 70,000 jobs between 2012 and 2016.
Zwane’s refusal to consult or compromise forced the Chamber of Mines to seek an urgent interdict preventing implementation of the charter pending a full judicial review, which is to be heard in February.
This recourse to the courts reveals SA’s saving grace: a strong and independent judiciary, as well as a vibrant civil society fully prepared to use it. The courts have generally not hesitated to impose the discipline of the Constitution when the executive or the legislature have violated the Bill of Rights, principles of good governance or the country’s international law obligations.
This is the bulwark protecting SA from economic ruin. Two weeks ago, the country was placed on three-month review for a possible downgrade by Moody’s — the only leading ratings agency that still ranks SA’s sovereign bonds above junk status.
Moody’s explained this stay of execution: "Despite recent encroachments, its core institutions remain independent and strong, with a well-functioning civil society. Adherence to the Constitution and the rule of law continue to be the key pillars of SA’s institutional strength."
As such, while December 18 will be a significant day in the country’s history and the outcome of the ANC’s election process will go some way towards answering the question "quo vadis, SA?", it will not tell the whole story. SA has strong public and private institutions that will, under whatever political leadership, continue to help shape the country’s economic destiny.
• Leon is partner and Africa co-chair at Herbert Smith Freehills LLP. This is a summary of the speech he gave at the recent Investing in African Mining seminar in London.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.