It’s a perception index, so the RMB business confidence index is not always founded in data or fact. But this month’s tanking of confidence down to its lowest level in two years should make President Cyril Ramaphosa sit up and take notice.
The business community was overjoyed when "Cyril", as they call him, took office as ANC president in December 2017, and was then inaugurated as president two months later. Since then, Ramaphosa has listened, charmed and summited with the private sector securing investment promises of over R250bn over the medium term. He has pledged to lift that to R1trn in the ANC manifesto.
It’s quite a promise, and to achieve it, Ramaphosa needs the confidence of business. He is losing that, while his popular confidence among the broader public is still very high, according to a Sunday Times article a fortnight ago.
Yet, investors are sitting on their hands.
According to the 2019 Budget Review: "As a percentage of GDP, investment has persistently declined, reaching a 13-year low of 17.7% in the third quarter of 2018…Investment growth is projected to rise from 1.5% in 2019 to 3% in 2021 as confidence gradually increases, worn-out capital is replaced and the state improves its ability to execute capital projects."
But confidence is going in the wrong direction, which imperils the investment drive.
If you look carefully, it looks like confidence tanked in the same week that Ramaphosa carelessly told parliament that the SA Reserve Bank will be nationalised when he answered questions.
Nationalising the SARB is a non-story because the central bank’s shareholders hold no influence whatsoever over monetary policy. The people pushing for the resolution are using it as a bigger proxy battle against the president and as part of a complex fightback by the forces of patronage.
The other development at the time of taking the snapshot of business confidence was widespread power cuts, which came at roughly the same time as the announcement of a hefty power price increase.
By failing to nip it in the bud and align with SA Reserve Bank governor Lesetja Kganyago, Ramaphosa risks becoming unreadable or unknowable to the business community. This, I think, is one reason behind the plummeting risk perception of those quizzed to build the confidence index.
There’s another thing: the construction industry is going to the wall, with five companies in business rescue. Ramaphosa has staked his flag on an infrastructure-led growth programme, which should stimulate the flagging industry.
Over the medium term, the government has budgeted R864.9bn for infrastructure. This is a rolling target, but it simply has not flowed into the economy, despite claims that the spending was happening.
Rent-seeking has extracted a cost, as the energy and rail infrastructure planning at Eskom and Transnet have shown. None of the projects, including the Kusile and Medupi power stations, or the purchase of 1 064 trains, or the extension and maintenance of the country’s railroad network, has been effectively executed.
At Transnet, forensic reports have shown that none of the major contractors – Bombardier, General Electric and China South Rail – met their delivery deadlines for the locomotive contracts.
At Eskom, we all know the story painfully: Medupi and Kusile are years late and billions of rands overdue, with the Special Investigating Unit claiming that an eye-popping R130bn may have been corrupted.
The Budget Review dedicates a five full pages to infrastructure projects that are in commission or to be commissioned by the government. This could be a welcome boost to the construction industry and to the economy; but in previous years, the pattern showed that almost every big infrastructure project has a side-line of rent-seeking, middle-men, and politicians with outstretched hands, waiting for a slice.
Ramaphosa has his work cut out to match word to deed, or he risks business confidence going into a deep funk – just as he needs the private sector to yank South Africa from its low growth miasma.