Post-election economic prospects

Most South Africans probably sighed with relief after the conclusion of the municipal elections.

During the campaigning for votes by the most prominent political parties, many of the fault lines of South African society were laid bare, especially the inability of the governing party to live up to the promises of good governance.

Now that the dust has settled and a measure of calm has returned, it is useful to reflect on the likely impact of the election results on the economy. Beyond the rhetoric of comment and analysis of the election results lies a simple and overriding fact, namely that the ANC’s smaller majority was caused mainly by the lowest voter turnout since the advent of democracy. The split of around 50:20:10 between the three largest political parties, with the remaining 20% made up by several smaller parties, was always on the cards.

It is rather disingenuous to suggest that the ANC suffered a hammer blow in elections, a view that has made the headlines but one that ignores a well-established trend, namely for the ANC to lose around three million votes during local government elections, but then to bounce back with the next round of national elections.

It nevertheless seems apparent that some voters either changed their allegiance to the ANC or did not vote out of frustration with the prevailing economic conditions, especially high unemployment and the sad state of the country’s infrastructure. It should also be borne in mind that the ANC is a divided party, with the faction supporting Ace Magashule and Jacob Zuma still clinging to a call for radical economic transformation (RET).

In order to reflect objectively over the trends that have emerged from the election results and also the likely impact on the economy, it is important to assess the standing of Pres Cyril Ramaphosa’s real power base, namely the ANC’s National Executive Committee, where his support has grown from barely above 50% in December 2017 to an estimated 75% currently.

State capture hangover

Informed observers will be fully aware of the fact that much of South Africa’s socio-economic woes, including an inadequate supply of electricity, was caused by a decade of decaying governance under the Zuma administration.

Mr Jacob Zuma was the architect of state capture and a systematic erosion of business confidence became evident during the second half of his presidency, fuelled by corrupt relationships with prominent Indian businessmen and the appointment of political allies to senior positions in state-owned enterprises and the cabinet.

Under the guise of cadre deployment and RET, the prevalence of incompetence and corruption in the public sector wreaked havoc with the state of the country’s infrastructure. Mr Zuma also engineered appointments at the National Prosecuting Agency, designed to have corruption charges against him dropped.

Pres. Ramaphosa inherited the resulting decline in the standards and extent of service delivery, especially in the areas of roads, energy security and water provision. It has been four years since he narrowly won the leadership race of the ANC on a ticket to stamp out corruption. Despite being hamstrung by the effects of the Covid pandemic, there has certainly been progress in bringing the perpetrators to task.

Looking ahead to post-election economic prospects, the course of reforms that Pres. Ranaphosa has embarked upon will remain intact. In fact, one aspect of the new approach towards socio-economic policy is to infuse the ANC municipalities with people that have higher and more appropriate skills levels. If government lives up to this promise (made during the elections), improved service delivery en route to the 2024 elections may ultimately strengthen Pres. Ramaphosa’s hand.

Cooperation with the private sector

A second element of the paradigm shift in government’s fundamental policy approach since 2018 is a much closer relationship with the private sector. Pres. Ramaphosa and his key policy-makers are smart enough to realise that only the private sector has the ability to create jobs at scale that add significant value to the economy. The establishment of several so-called “Master Plans” for different sectors of the economy bear testimony to this strategy, a process that will continue.

A government’s choice of policies aimed at enhancing the welfare of society, in general, is of overriding importance, as confirmed by dozens of case studies during the post-World War II era. The differences in living standards and socio-political stability between Venezuela and Chile, between North and South Korea, between Zimbabwe and South Africa and between the erstwhile East and West Germany are striking examples.

Venezuela and Zimbabwe did not become failed states, with literally millions of their citizens fleeing out of economic desperation, because of a lack of the necessary resources required to grow and develop and economy. Their dismal failure was due to the wrong policies, especially nationalisation, which effectively removed the incentive for entrepreneurship to perform its critically important catalytic role in the classical production function.

Today, winning nations and flourishing economies are driven not by the abundance of natural resources, but by human creativity, fostered by an emphasis on appropriate skills development and other policies designed to stimulate entrepreneurship and business formation.

Impressive growth drivers

The choice of economic policies can make or break a country. Pres. Ramaphosa is committed to reversing the decade-long decay of state capture and public sector incompetence. Together with the new infrastructure drive, valued at more than R500-billion and closer cooperation with the private sector in the removal of obstacles to growth, the post-election scenario may eventually witness a return to higher and sustained economic growth over the next couple of years.

Other growth drivers include the lowest interest rate in 50 years, the gradual transition to greener energy and relatively high levels of business confidence, as reflected in the upward trend for the country’s composite purchasing managers’ index (PMI), the recent record high for the leading business cycle indicator and record exports, resulting in the highest trade surplus in history.

On top of this, the imminent recovery of the tourism and hospitality sectors points to the current 5% GDP growth momentum being carried forward into 2022.