Stay­ing on the growth path

All eyes are on the ANC as its suc­ces­sion bat­tle will ul­ti­mately de­ter­mine whether much-needed eco­nomic re­forms can be im­ple­mented.

Finweek English Edition - - THE OPTIMIST’S GUIDE: ECONOMIC POLICY - Ed­i­to­rial@fin­week.co.za is a free­lance jour­nal­ist who came to SA in 2000 as chief fi­nan­cial cor­re­spon­dent for Reuters news agency af­ter work­ing in the Mid­dle East, the UK and Swe­den, cov­er­ing top­ics rang­ing from war to oil, as well as pol­i­tics and economi

the bat­tle for suc­ces­sion in the ANC in 2017 will de­ter­mine whether the eco­nomic re­forms needed to boost South Africa’s mea­gre pace of growth can be fully im­ple­mented, en­abling the coun­try to hold on to its in­vest­ment grade credit rat­ing and pro­vid­ing the kind of lead­er­ship re­quired to re­store business con­fi­dence and so­cial sta­bil­ity.

The re­formist fac­tion in the party may man­age to ex­tend its in­flu­ence at the ex­pense of “rent-seek­ers” ben­e­fit­ting from pa­tron­age at the ANC’s elec­tive con­fer­ence in De­cem­ber 2017, af­ter the most po­lit­i­cally tur­bu­lent year since the end of apartheid left Pres­i­dent Ja­cob Zuma and his cronies weak­ened, al­though still with the up­per hand.

Deputy Pres­i­dent Cyril Ramaphosa, who has the open back­ing of both the business com­mu­nity and Cosatu, is widely per­ceived as the best can­di­date to man­age con­flict­ing ide­olo­gies in gov­ern­ment for a pol­icy path that is in the coun­try’s best in­ter­ests.

He would have to beat can­di­dates favoured by Zuma, who has presided over an eco­nomic de­cline blamed largely on pol­icy con­fu­sion, mount­ing mis­man­age­ment and bla­tant cor­rup­tion in gov­ern­ment since he took over the lead­er­ship of the ANC in 2007.

Zuma sur­vived top-level calls for him to step down at an ex­tended meet­ing of the party’s Na­tional Ex­ec­u­tive Com­mit­tee (NEC) in Novem­ber, but his po­si­tion was hotly de­bated, and a de­ci­sion taken to dis­cuss the state of the party at a pol­icy meet­ing in mid-2017.

“Po­lit­i­cal res­o­lu­tion will al­low for sig­nif­i­cant mo­men­tum to build in the econ­omy,” said Colin Cole­man, Gold­man Sachs manag­ing di­rec­tor for sub-Sa­ha­ran Africa. “We will ei­ther man­age to get the ba­sics right, or mud­dle through with the sta­tus quo main­tained through a pa­tron­age type of rul­ing ar­range­ment which won’t be con­ducive to deep­en­ing re­form and will lead to a con­tin­u­a­tion of stag­nant growth.

“Re­form and mod­erni­sa­tion must take root in lead­er­ship – that is crit­i­cal to a co­her­ent eco­nomic path. The bat­tle lines have been drawn for suc­ces­sion in the ANC and the war will be fought in 2017,” he added.

An­a­lysts say the choice of the “top six” lead­ers of the NEC is prob­a­bly even more im­por­tant for the coun­try’s pol­icy di­rec­tion than the se­lec­tion of a pres­i­dent. It in­cludes the posts of ANC sec­re­tary-gen­eral, deputy sec­re­tary-gen­eral, trea­sur­ergen­eral and na­tional chair­per­son. If cur­rent trea­surer-gen­eral, Zweli Mkhize, was se­lected as a com­pro­mise ANC pres­i­dent, it would be taken as a sign that eco­nomic re­forms were on track given his high-pro­file in­ter­ac­tions with the business com­mu­nity in 2016.

Frans Cronje, CEO of the In­sti­tute of Race Re­la­tions, be­lieves that there is an op­por­tu­nity for what he de­scribes as the “mod­ernist” camp in the ANC – black en­trepreneurs, the emerg­ing black mid­dle class and a cross-sec­tion of older party stal­warts – who un­der­stand that pol­icy re­form is needed to se­cure the fu­ture of the ANC.

“If the mod­ernist fac­tions of the rul­ing party can eject the left­ists and form a new bal­ance of power with the tra­di­tion­al­ists, then a new range of re­formist sce­nar­ios are open to South Africa,” he wrote in an anal­y­sis ti­tled The Rise of the New Right.

Cole­man de­scribed 2016 as a “vic­tory for democ­racy” in SA, a view shared by many as some of the coun­try’s most re­spected in­sti­tu­tions – in­clud­ing Trea­sury – were at­tacked by powerful pub­lic of­fi­cials. Sup­ported by civil so­ci­ety, business lead­ers, and the in­de­pen­dent me­dia, they fought back in the courts, which made judg­ments demon­strat­ing their in­de­pen­dence.

An­other favourable devel­op­ment was fi­nance min­is­ter Pravin Gord­han fac­ing down flimsy fraud charges. He ral­lied gov­ern­ment, business and labour unions in a suc­cess­ful bid to con­vince credit rat­ing agen­cies that eco­nomic re­forms – or at least some of them – were on track.

The fact that SA was not down­graded to sub-in­vest­ment grade in De­cem­ber will make it very dif­fi­cult for Zuma to dis­miss Gord­han, who has blocked ev­ery at­tempt to un­der­mine state in­sti­tu­tions and com­pa­nies since he was ap­pointed in De­cem­ber 2015.

The rat­ing agen­cies have all said that the coun­try’s broad po­lit­i­cal in­sti­tu­tional sta­bil­ity sup­ports its credit rat­ing, even though po­lit­i­cal events have hin­dered im­por­tant growth-en­hanc­ing re­forms. These in­clude im­prov­ing gov­er­nance at cash-strapped state-owned en­ter­prises and clar­i­fy­ing some of the business reg­u­la­tions seen as de­ter­rents to in­vest­ment.

Ar­guably the big­gest achieve­ment for pol­icy re­form over the past year has been the un­prece­dented co­op­er­a­tion be­tween business, gov­ern­ment and labour in the midst of po­lit­i­cal in­fight­ing. Pro­longed strikes in ev­ery sec­tor were averted, and a mul­ti­year wage agree­ment was struck in the plat­inum in­dus­try at lev­els in line with inflation.

While SA’s labour re­la­tions are rated as among the worst in the world by the World Eco­nomic Fo­rum, a monthly min­i­mum wage of R3 500 has since been pro­posed and cau­tiously wel­comed by labour unions, al­though there has been no agree­ment as yet on strike bal­lot­ing, which business wants.

“Re­form and mod­erni­sa­tion must take root in lead­er­ship – that is crit­i­cal to a co­her­ent eco­nomic path.”

Cur­rent ANC trea­surer-gen­eral

Zweli Mkhize

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