The winds of change are slowly blowing

South Africa is entering a very interesting period. This is being driven by the fact that the economy is gaining momentum following the election of Cyril Ramaphosa as the leader of the African National Congress (ANC) and then later as the State President.

Further, because of the National Elections in 2019, the ANC is pushing ahead with popular political reforms which it hopes will win over the public vote come election time. 

But is this a case of joy for some and pain for all? Economists from the Old Mutual Investment Group believe that policy certainty will benefit the country in the long run. 

Beating the investment drum

South Africa recently hosted the BRICS Summit where the political leaders of Brazil, Russia, India and China met with Ramaphosa to discuss the state of the association. 

A lot of deals were concluded behind the scenes with Ramaphosa securing major funding from China. 

Khaya Gobodo, MD of the Old Mutual Investment Group, said that it was important that Ramaphosa beat the investment drum at the event. 

“Ramaphosa needed to show the rest of the world that South Africa is open for business and that we need foreign direct investment (FDI). The President’s investment drive will take gross fixed capital formation (GFCF) to 25% of the country’s gross domestic product (GDP),” said Gobodo. 

The issue of land

One of the key pieces of legislation that the ANC is working towards implementing is the expropriation of land without compensation. 

After several rounds of public consultations on the matter, the ANC put forward an urgent interdict on 31 July to amend the constitution to accelerate the implementation of expropriation of land without compensation. 

While there were some worries about this, Gobodo said that it is possibly a good thing that the ANC is doing this because it will then establish its own stance on the issue and the country will know the rules and regulations that will govern this. 

The issue of land expropriation is an emotive one and has serious implications for the financial services industry as contracts will need to be renegotiated. 

“The expropriation of land without compensation will not mean that large scale farmers will lose their land. Half of the stake in these farms belong to the banks as farmers have not been able to fully pay off their loans. This means that the issue of land is closely intertwined with the country’s financial system. Ramaphosa is very cognisant that pulling one errant string will unravel the whole system. This will put us back into the stone ages, and we cannot afford that,” said Johann Els, Head of Economic Research at the Old Mutual Investment Group. 

Urban changes

What will the expropriation of land without compensation mean if it will not involve large farms? 

“There is a lot of disused land within urban and rural centres that can be expropriated. If we look at the centre of Johannesburg, there are many vacant buildings that are owned by government that has fallen prey to urban decay. These disused pieces of land will be the first to be used as a test case to see whether the expropriation of land without compensation can work,” said Gobodo. 

However, it is all very well to hand over these pieces of land to the public without compensation. But there is still the issue of renovating and maintaining these pieces of land. 

“This is where the financial services sector (and other private sector companies) have a role to play. Private equity that has been set aside for corporate social development can go a long way to redressing this urban decay,” said Gobodo. 

This also means that government will be looking at disused agricultural land. Both owned by private farmers and by government. “As with the mining sector, there will be a policy of use the land or lose it,” said Gobodo. 

Don’t forget the SOEs

No conversation regarding the need for policy certainty can go without a discussion surrounding government’s stance on the underperformance of State Owned Enterprises (SOEs). 

When Ramaphosa became the State President, he reappointed Pravin Gordhan as a Minister and gave him the portfolio of Public Enterprises. When this occurred, everyone assumed that Gordhan would come in with a new broom and sweep out underperforming CEOs of these organisations. 

He has not, and Eskom’s current challenges is glaring evidence of this. 

“The fact that Gordhan hasn’t swept out underperforming CEOs does not mean that he does not intend to do so. There is however a process that needs to be followed. You can fire a Minister overnight, but you cannot fire a CEO in the same manner. The prolonged case between the Presidency and Tom Moyane is evidence of this,” said Els. However, he did point out that within the next 12 to 18 months, we will see a lot of high level changes in the leaderships of SOEs. 

Editor’s Thoughts:
It will take some time for South Africa to address the challenges that it faces. But, and this is a big but, at least there is positivity about our future. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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