Cyril’s ‘Oh hell’ moment
This was Ramaphosa’s reaction to the SA GDP growth rate.
Spend shows personal safety of its leaders is more important to government than land reform.
Ibet President Cyril Ramaphosa said “Oh hell” when he saw the Statistics SA GDP memo last week. The restated -2.6% GDP growth rate in the first quarter (Q1) and 0.7% retreat in Q2 should have come as a shock.
He knows the real impact of the GDP number will be exposed next month when Minister of Finance Nhlanhla Nene announces the mini-budget.
He’ll reveal that SA’s fiscal position has deteriorated sharply since February due to the weaker GDP and the resultant tax revenue decline.
Nene will most likely reveal that government debt now exceeds 55% of GDP and the budget deficit will spike to about 5%. This weakening and depressed economic growth may induce Moody’s to follow S&P and Fitch and cut SA’s credit rating to sub-investment grade.
What now?
Ramaphosa will also appreciate the status quo cannot continue; the fall into recession must trigger some response. This will require unpopular decisions few politicians would take months before an election, including the removal of policy uncertainty, especially around changing section 25 of the constitution to allow for expropriation without compensation.
Ramaphosa is in a precarious position; any unpopular decision to stimulate the economy could lead to the ANC losing the election. Therefore I won’t hold my breath for any announcement on cutting the public wage bill, privatising Eskom and SAA, or relaxing labour legislation. A good start would be to rebuild trust between government and the private sector, and to acknowledge that the latter is committed to a prosperous SA. The current lack of investment is due not to antipatriotism, but the weak economic environment created by the state.
His first agenda item should be to remove uncertainty from the aggressive land reform proposals. The problem can be solved much faster by improving administrative efficiencies. SA can’t afford the policy’s massive economic opportunity cost.
Land transfer fell from 500 000 hectares in 2007-08 under former president Thabo Mbeki to only 150 000 hectares in 2015-16 and virtually nothing in 2016-17. In 2008-09 the land reform budget was 0.45% of the national budget, dwindling to 0.2% in 2015-16.
This suggests expropriation is nothing more than a populist policy battle between the ANC and the EFF. Government prioritises many things over land reform.
The 2018 national budget reveals SA will pay R2.9 billion to protect VIPs in 2019-20 – R218 million more than its land reform spend. Government “found” R500 million (18% of 2018’s land reform budget) to cap September’s fuel price hike. Treasury settled the Eskom/trade union wage negotiations, despite it adding R1 billion to a virtually bankrupt Eskom’s expenses – nearly 40% of the land reform budget.
Following the same approach with land reform would be much more effective than changing the constitution. Adopt the Namibian model: give government pre-emptive rights to buy a property at the same price of a commercial property transaction. Or budget to buy property on the open market after independent valuations. The economic fallout will be much less severe.