South Africa’s third-quarter GDP figures say it all. A contraction of 0.6% means that the country is, once again, flirting with a recession, should the fourth quarter be similarly negative.
The GDP numbers mirror the dismal unemployment figures and the broader issues of rising debt-to-GDP, falling business confidence sentiment and an ongoing battle to keep-the-lights-on, both literally at Eskom and figuratively among a host of ailing SOEs.
More forgiving commentators have spoken about the carefully nurtured strategy of President Cyril Ramaphosa to incrementally direct reforms across a wide variety of governmental sectors.
They point to the broad-based recovery of institutional integrity – particularly at the NPA, the Hawks, the South African Revenue Service and in the reconstitution of a host of SOE boards. A better governance ethic is apparent while the PR machine aimed at the investor community is gaining traction, albeit largely when flashy investor summits occur.
Yet despite these not insignificant shifts, nothing from the past year seems to be having any direct impact on the performance of the domestic economy. While re-booting a state from an incapable status to one that is more capable can take many years thanks to the rot of malfeasance, time is of the essence for a country desperately in need of economic growth.
The poor GDP figures are likely to add to the tangible degree of frustration and concern increasingly being echoed from key government ministers.
The rhetoric of both Finance Minister Tito Mboweni and his deputy, David Masondo, in recent weeks has sharply focused on the need to reform – particularly on the government sector wage bill and a greater push to involve the private sector in the domestic economy. Both issues cut to the heart of the ideological straitjacket which has prevented the broader ANC alliance from being more pragmatic with policymaking in recent years.
It’s a pretty rude awakening for the broader ANC though.
The party has spent the last 25 years decrying the exploitative nature of the business community while attempting to be a guarantor of jobs for pals – and pals of pals too. The centralised and nationalist philosophical orientation of the ANC has veered towards over-regulation and over-employment – both recipes for economic disaster in the medium-to-longer term.
It’s all pretty unpleasant when you have believed this to be right – yet are now confronted with the harsh reality of the damage it has caused. Add a massive dose of state capture, deep policy uncertainty (and investor suspicion) on land expropriation and the NHI to all of this, and you have a clear recipe of the state of the nation today.
On the cusp
The ongoing inability to deal with South African Airways – an SOE representative of so many of the factors in the broader macro-environment – points to the increasingly lack of confidence that government is able to tackle the necessary issues and face its own internal music.
With barely six weeks to go before the 2020 Budget, there is a sense that some sort of policy-framework climax is being reached. With the ratings’ agencies on the cusp of a full downgrade, the potential capital outflows and resultant knock-on effect into the currency and equity markets, there is now no time to waste. Indeed, it would seem as though the country has a rapidly closing window of opportunity in which to make bold moves.
Whilst accelerated economic decline will be the outcome of a failure to act, these are now high stakes times for President Ramaphosa and his faction within the ANC.
Continued economic decline is likely to exacerbate an internal debate within the ANC over economic policy. While institutional repair is one pillar of the Ramaphosa revival, should the economy not bear similar fruit, those supporting the "New Dawn" narrative may increasingly drift to other political postures.
President Ramaphosa therefore finds himself in a double bind. Cleaning up the State requires a fearless NPA and the political will act against powerful vested interests very much still at the centre of power in the ANC.
However, in addition, a broader economic meltdown opens the door for a new murkier and even sinister narrative to emerge within the ANC which is likely to be much more populist and possible demagogue-esque in nature. It’s hardly an atmosphere conducive to a relaxing Christmas break for President Ramaphosa.
As we move into early 2020, it’s now clear that substantive structural reforms are required. The political demons of privatisation and job-shedding have to be addressed. And critically, this means that the ANC – and Cyril Ramaphosa – have to acknowledge that their next few years will be fraught with managing and navigating austerity-style policies which will also put a strain on the broader alliance and South Africans alike.
These demons require very rapid attention as the ANC moves towards a crucial 2021 local government poll in which it cannot afford to preside either over the deteriorating economy or a combustible internal Alliance fracas. South Africa’s relatively short election cycles between national and municipal heap pressure when substantive yet polarising reforms are required.
Simply put, if you wait too long to institute the tough reforms needed, you can miss your window for reform as political factors like elections loom large. And with the large shopping list of reforms required, time is now narrowing to complete the most urgent of these.
Perhaps, therefore, as President Ramaphosa settles down to a Christmas season, the best advice for him would be to stop being so careful of his own shadow. There are many South Africans – well beyond the narrow confines of the ANC – who will support him should he choose this course. But be warned, failure to take political risk in the very short term will lead to much greater political risk for both the president and the country.
Daniel Silke is a political analyst, author and keynote speaker. Views expressed are his own.