How Ramaphosa’s reforms ran into 2019’s big fat reality check
This was the year of the reality check. We began 2019 with forecasts that economic growth would lift to 1.7% and a state of the nation speech in which President Cyril Ramaphosa promised long-awaited reforms to boost the economy and fix ailing state-owned enterprises, especially Eskom. We have ended the year flirting with recession and stage 6 load-shedding — to the “surprise and shock” of Ramaphosa, whose economic reforms have been delivered excruciatingly slowly, if at all. The latest GDP figures showed the economy turned negative in the third quarter; a week or more of load-shedding could see that repeated in the fourth quarter, and it’s now possible the full-year 2019 number will be negative — for the first time since 2009. SA had become a 1% economy over the past five years. Now it’s falling even below that; 2019 has driven home just how stuck we are in the low-growth trap and how hard it’s proving to get out of it, despite oft-repeated promises of reform.
The Ramaphosa administration’s struggle to deliver growth-boosting reforms is often blamed on alliance politics and pushback from organised labour. That clearly is a factor, and could be one of the big stories of next year as the government moves to try to curb the publicsector wage bill and restructure the electricity industry (and its aviation interests). As pertinent, however, is the extent of rent-seeking within the ANC itself, which creates a powerful lobby against reforms to the supply chains and staffing and management of the state-owned enterprises as well as within the state itself. It’s easy to blame it on state capture, and the damage wrought by a decade of state capture is clearly enormous. But rent-seeking predated state capture — and the vested interests are, not surprisingly, proving tough to tackle.
Cleaning up corruption and governance at state-owned enterprises and within the state more broadly has been a key pillar of the
Ramaphosa administration, and a crucial one, and the president has made some progress. But as FirstRand chair Roger Jardine argued recently, an anti-corruption strategy is not a growth strategy. Indeed, some of the experience at entities such as Eskom is that the cleanup campaign may even be undermining efforts to turn around ailing operations because of the paralysis caused by the fear of breaching tight procurement and hiring rules.
Nor is non-corrupt governance in itself a solution to the operational and financial woes of stateowned entities — as the Ramaphosa administration has surely discovered by now, given that some of the boards of directors appointed under his watch have failed to perform, as indeed have the executives.
A host of problems drove Eskom into load-shedding, but most could have been mitigated with better management and staff with skills. The power utility has lost layers and layers of skilled people over the past few years and reportedly continues to lose them. There is no substitute for experience and in-depth knowledge, and rebuilding that must be a priority for new CEO Andre de Ruyter, if his shareholder and board will let him. The failure to tackle the people problem has been one of the government’s key failures of the past year, one that has weighed on its ability to remove the big constraints to growth.
It has weighed too on its ability to tackle the myriad constraints to growth, from visas to water licences to independent power-producer contracts, that make SA a 1% economy. The president has been discovering this year just how dysfunctional the state is and how difficult that makes it to implement the reforms he promised.
He has started to hold ministers to account and to unblock reforms. But it will be slow and incremental. And when he delivers his next state of the nation address in February he will have to inject a note of reality — while setting out how he will deliver the growth reforms he has already promised.
2019 has driven home how stuck we are in the lowgrowth trap