The New New Dawn

South African investors finally have something to cheer about, and local assets rallied strongly last week. The newly inaugurated Government of National Unity under President Cyril Ramaphosa is not going to solve all or even most of the country’s problems, but it can address a handful of big blockages that hinder economic growth.

It has also placed adherence to the Constitution at the centre of its agreement, as well as professionalising the public service. Can it boost that intangible ingredient of economic activity that John Maynard Keynes, the great British economist, called “animal spirits”? In other words, the willingness of investors and entrepreneurs to risk capital in search of better returns.

Chart 1: South African asset classes in rand over 12 months

Source: LSEG Datastream

We’ve already seen the positive impact of private sector participation on electricity supply, three months have passed without loadshedding. This doesn’t mean loadshedding is gone for good, but it is unlikely to return to anything near the dire levels we saw in 2022 and 2023. The fact that some parts of the country still experience outages is because of municipal problems, not a nationwide shortage of electricity. There is progress at Transnet too, and encouragingly, its current leadership is aligned with government policy to boost private sector participation. The penny seems to have dropped in the past two or three years that if government includes, rather than excludes, the private sector in infrastructure provision, there is both better infrastructure, and considerable investment spending.

False Dawns
Of course, there have been false dawns before. The period of “Ramaphoria” when Jacob Zuma was replaced as state president by Cyril Ramaphosa in 2018 did not last very long, despite Ramaphosa’s flowery rhetoric of a “New Dawn” and “Thuma Mina” (send me). This is partly because global market conditions turned unfavourable (by the end of 2018, markets everywhere were slumping) and partly because Ramaphosa struggled to get a grip on his divided party. After all, he won the ANC leadership race with a slim margin during the previous December.

But the biggest reason is probably because the depth of destruction during the Zuma era was much worse than most people initially realised, with key institutions from SARS to the NPA gutted while SOEs were saddled with unsustainable debt and riddled with corruption. Cleaning up this mess took time, and met considerable resistance, and unfortunately, there was collateral damage. For instance, the emphasis on improved maintenance at Eskom after 2018 meant that loadshedding was ironically worse under Ramaphosa than under Zuma, hobbling the economy. The Covid pandemic also set the country back many years. While one can argue whether it was handled well or not, it would have devastated the economy either way.

GNU Dawn
The 2024 New Dawn is different in that key reforms are already underway as noted earlier. The new government just needs to keep its foot on the accelerator, and not hit the brakes. But no one should be unrealistic. It everything was easy, it would have been done by now. And there will be disagreements along the way. Indeed, as of Monday morning, tough negotiations over Cabinet positions were still ongoing. It might be too much to expect the GNU to serve out a full five-year term, but a lot can be achieved in 24 months to cement key reforms.

The trickiest area will probably be fiscal consolidation. South Africa cannot afford not to stabilise a debt-to-GDP ratio that has almost doubled in the past decade and results in 20 cents of every rand collected by SARS going to interest payments.

It is relatively easy for the various coalition partners to agree on feel-good economic reforms that lead to private investment and photo opportunities for hard hat-wearing politicians. It is much more difficult to commit to being disciplined with state money when each party has its own spending priorities. As a start, the aspiration of a slimmed-down value-for-money cabinet will probably be shelved to accommodate ministers from several parties in sufficient numbers. For similar reasons, the bloated state bureaucracy might not shrink.

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