Cape Town - Layers of politics, balancing of alliance partners, capacity constraint, a lack of urgency and distractions and mistakes all hold South Africa back from higher potential growth.
This is the view of Nomura's emerging markets economist Peter Attard Montalto following several days of meetings with a wide range of actors in the policy and political space in South Africa.
He said in a trip note they have found uncertainty rules in South Africa as they sought answers to three questions:
1) How stable will the budget be going forward?
2) How real is the positive sentiment emanating from business on its interactions with government? and
3) Who will win the battle between the tenderpreneurs and the rest of the ANC?
Montalto said Nomura's trips to South Africa are always to dig into specifics, but this one rapidly morphed from the usual examination of budget footnotes and annexes of the Budget Review into the economic impact of the Nene episode (and whether they should skew their gross domestic product forecast one way or the other).
South Africa was plunged in economic turmoil in December when President Jacob Zuma replaced Nhlanhla Nene as finance minister with unknown ANC MP Des van Rooyen, only to replace him four days later with Pravin Gordhan.
Montalto said they found a range of factors like unrecognised procurement savings and conservative revenue multipliers may hold the budget in check, though better communication around the readiness to undertake intra-year changes and exact consolidation targets (i.e. net debt in ZAR terms being stable) would be welcome.
They also found that a lot of the optimism among the business community in the reappointment of Pravin Gordhan is real, but focused on short-term growth.
"On the surface, there is a view that a few simple things can get South Africa out of its current post-'Nenegate' rut. Sentiment in this sense can be engineered by government action on parastatals, by amendments to the Mineral & Petroleum Resources Development Act (MPRDA), by fiscal policy stability and by engagement between government and business.
"However, dig a little deeper and this optimism seems 'constrained' to put it mildly. In growth terms, what people really see is the economy growing from stall speed or 'feels like recession' of 0% - 1% up to 1.5% - 2.0% in the short to medium run and to 2.5% - 3.0% from 4% - 6% in the long term."
The Treasury last month revised growth forecasts to 0.9% and 1.7% for 2016 and 2017 respectively.
On who will win the battle between the tenderpreneurs and the rest of the ANC, Montalto said it is impossible to judge.
"We think Pravin Gordhan may well win the public 'legal/constitutional/institutional' battle, but in the end Jacob Zuma may win the private political battle.
"However, it is impossible to forecast which battle will ultimately outweigh the other through until the 2017 elective conference," said Montalto.
He said discussions with policymakers confirmed to them that the National Treasury is now in charge of PR and marshalling interactions between the government and businesses, but it is not clear the wider policy circles – or indeed leadership – are on board with the need to make very tough, politically difficult reforms to education, labour, cadre deployment, etc. "Hence we still cannot raise long-run potential growth estimates nor remove expectations of downgrades."
Montalto said all the right policies are known to the ANC and right at the very top there is an understanding of the need for prudent macro-policies and growth-boosting reforms.
"The problem comes from a desire to find new policies that haven't been thought of before. The parastatals are important here. The type of private sector involvement and management changes proposed will be crucial – true or illusory. This is where the current political battles intersect. Business will look for 'clean' involvements."
In his 2016 Budget Speech on February 24, Gordhan made the right noises about not bailing out loss-making state-owned enterprises any longer, indicating that the number of parastatals could be reduced or that some could even be shut down if they no longer served a purpose. The possibility of a merger between South African Airways and SA Express also received praise from the business sector.
Montalto said they were surprised to find that the business community is becoming increasing dissatisfied with BBBEE.
"This is something of a surprise – for so long any concerns about its structure or costs were buried and seen as simply the cost of doing business in South Africa.
"Now, however, the costs from the ownership requirements in structuring BEE deals are being recognised as excessive, and the focus on ownership over true transformation of local communities, junior employers and junior managers is seen to be misdirected."