Can Ramaphosa deliver on his social pact? How he's faring so far

Alan Hirsch

Almost two months into his Presidency, we hardly need to be reminded what challenges President Cyril Ramaphosa faces: the continued overlapping of deep economic inequality and race, corruption, impunity, state capture – especially of state-owned enterprises and infrastructure departments – private sector collusion and corruption and, above all, policy uncertainty (What’s happening around energy, telecoms, water, mining, land and BEE?).

One of the reasons some members of the ANC were persuaded to replace Jacob Zuma with Ramaphosa as president of the country must have been the dire economic situation. The economy had flatlined and both Eskom and SAA were about to default on their loan repayments. Business and consumer confidence was weak, and investments from both the private and public sectors were dwindling fast. The economy was grinding to a halt.

The agenda

Ramaphosa quickly made his agenda clear: he focused on rule of law and integrity of institutions and on fixing the justice system: the leadership of the justice cluster of ministries, the NPA and the police. Corruption would be addressed through the application of law – prosecutions and a judicial commission of inquiry.

He would make a social pact or pacts with stakeholders, business and labour in particular, which would help achieve the objectives of fiscal discipline, microeconomic reforms especially supportive of small businesses and what he called “re-industrialisation”.

In addition, he has a fragile and brittle ANC, bad eggs in top structures, and deep rooted patronage systems in some provinces, cities and towns.    

As a result, there is a lack of trust in public institutions.

There is little trust between business, government and labour; and business and labour are each deeply fragmented. This will make social pacts more difficult to achieve.

Land reform (without interrupting production) is also on his agenda, as is improving the quality of education and increasing access to further and higher education.

The positives

Nevertheless, he has achieved an extraordinary amount already: he has changed the boards and leadership of both Eskom and SAA, thus averting loan defaults. He has made a commitment to reinstating the renewable energy procurement program (currently held up due to a trade union court action).

He has reshuffled the Cabinet, removing or relocating several corrupt or poor ministers. He has suspended the commissioner of SARS. The prosecution of Zuma (for the arms deal) is imminent and the prosecution of the Guptas is on the agenda. A judicial commission of inquiry into state capture has been established and Ramaphosa has overseen a tough budget.

Above and beyond this there are other positive developments, only some of which are the result of the ANC leadership change. Inflation is at the lowest level for years, which allowed the SARB to cut interest rates (though some think the SARB should have moved quicker). Firms’ inventory levels are at record lows, which means that new orders must be streaming into suppliers. Will the firms use their high cash balances to invest in new plants?

Moody’s upgraded their outlook of South Africa’s sovereign debt to stable, and maintained its investment grade, and while S&P did not upgrade their grading, they doubled their growth forecast for South Africa in 2018 from 1% to 2%.

After a long negative trend, business confidence is now slowly rising.

Read more: Track President Ramaphosa's progress

Also auspicious is the trajectory of the global economy, if US president Donald Trump’s trade war can be contained. The prospect of continued economic growth on the African continent and the huge improvement in the Southern African environment with new leaders in Zimbabwe, Angola, Mozambique and South Africa, are also positive for South Africa’s economy.

Most importantly South Africa’s democratic institutions have been tested, and have been found to be resilient. The judiciary, media, civil society, individual whistleblowers and our Constitution’s independent Chapter 9 institutions have proved to be a stern barrier against the corrosion of corruption and incompetent rule. Even Parliament found its voice. Institutional strength is a core foundation for economic development.

On Ramaphosa's to do list

But there is a lot left to do. How is macroeconomic stability going to be maintained in the face of wage pressure from the public sector? Employment in the public sector grew from 2.5 million to 3.2 million in the Zuma era. The coming public sector wage negotiations will be a tough test for Minister of Public Service and Administration Ayanda Dlodlo.

At the same time, the government has to try bring in capable and reliable policy makers and implementers in the many government institutions that lost talent during the frustrating Zuma years. Can Ramaphosa and his team make public service an admired profession again?

The macroeconomic environment for the re-industrialisation promised by Ramaphosa requires three key conditions: a relatively competitive currency, lower interest rates for investors, and real wage rates linked to productivity increases. Will Ramaphosa’s social pact be able to deliver these? If so, we will have taken a real step towards a democratic developmental state, as Mauritius did in the early 1970s and Ireland did in the late 1980s.

Hard decisions need to be taken about the governance and management of SOEs. Capital must be written off or sold off. Restructuring could be painful for workers too. A key challenge for Eskom, for example, is that unions need to be reassured that workers in the inefficient power stations and the coal mines that supply them will not simply be discarded when the power stations are closed down.

Also critical will be getting policies right on network regulation for electricity, ICT and transport, to provide a suitable environment within which SOEs can be restructured and refocused.

More certainty is needed about policies on mining, land and BEE to encourage investors to make significant new investments.

Regarding land, it's widely been noted that reallocating urban land could reduce inequality and erode the spatial legacy of apartheid. Most South Africans, rich and poor, black and white rightly see their future in the cities. But because poor workers and their families are located at great distance from sites of employment, workers' and employers' costs are raised, contributing to low competitiveness or, simply, unemployment.

Better located, safe and secure locations for workers and their families, and better public transport will improve livelihoods and lower employment costs. Local governments can leverage their zoning rights for social investments, and lever the value of municipally held land. Access to suitable and secure urban homes would be a massive step forward for many citizens, and a huge contribution to the reduction of inequality.

To support dynamic smaller businesses, government needs to act in a far more consistent, committed and coordinated way than it currently does, with the responsibilities still split over several ministries. Government needs to ensure that the dead hands of state monopolies and private oligopolies are lifted, which will entail, among other things, tougher enforcement of competition law. Underpinning this should be a stronger commitment to supporting investment by both small and large innovative companies in new research and development.

Finally, skills. It’s not only the general quality of basic education that is failing us. The World Economic Forum downgraded South Africa’s competitiveness ranking for the relatively low number of university graduates it produces. The new grant/subsidy scheme is a bold step forward, but the universities need more and smarter investment in their capacity.

The shortage of technical skills is equally worrying. The skills training environment remains deficient, and needs a better relationship between the demanders and suppliers of skills (employers and training institutions) to get it to work efficiently. A wiser policy on the skilled immigrants would help a great deal in the interim. And the greatest intervention to support skills development and reduce inequality in the longer term would be to take early childhood development (ECD) funding seriously.

President Ramaphosa has started brilliantly, in spite of the terrible state of the ANC and the weakness of too many government institutions. Getting to serious, inclusive growth is going to demand a great deal of work by skilled policy makers working within effective social partnership agreements.

In view of the limited resources available to the government and considering the fragility of the ANC, he will need to prioritise and move systematically through the issues, all the while ensuring that his government maintains sufficient support.

- Alan Hirsch is Professor of Development Policy and Practice and has directed the Graduate School of Development Policy and Practice at UCT since 2013.

Follow us here as we track President Ramaphosa's first 100 days in office

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