PETER ATTARD MONTALTO: What is the point of a profoundly broken reform machine?

Posted in: Economics, i-Blog, Politics on August 17, 2020


Cyril Ramaphosa’s legacy will be judged by his ability to make difficult and unpopular decisions.
This column was first published in Business Day. 

If you sit in the ANC’s hallowed upper circles in the national executive committee (NEC) or even at the apex in the government, what’s the point?

There seems to be increasing unrest in the party in the past month over this question, indeed in President Cyril Ramaphosa’s own “faction”. It’s a bit late, but better late than never. Why are they there? What influence or force for change can they have, except through the ANC and ultimately the president?

This existential crisis is likely to grow through the recovery phase. This mood has been generated by the president’s own perceived inaction. It parallels the despair and despondency in business and labour over the chances of reform to drag SA out of this pit of a permanent loss of output and employment through the government’s self-harm in its handling of the economic policy response to the crisis. It has been bemusing to see both entities in Nedlac expressing frustration and pessimism over the likelihood of reform.

Has the mood on both fronts gone too far? While many issues regarding the political economy of the president’s leadership that were obvious when he won in Nasrec are now more widely accepted, we should be careful of exaggeration.

There won’t be no reform — there will be too little to reach escape velocity.

The bar is now higher to make up lost ground in unemployment and restricted fiscal space. Output is likely to be about R350bn lower, permanently, than the previous trend. Similarly, employment levels are likely to be about 1-million lower. Population growth has not stalled and labour force and demographic bulge effects have not stopped — more reforms are needed, and faster, to rejoin and surpass the previous trend.

SA is in an economic recovery “arms race” with peers globally for capital, skills and export market share.

The government is a deeply broken reform machine that struggles to deal with having to implement from among a range of “same old” plans because there are (correctly) no magic new silver bullets. But it will still slowly be able to push forward step by step in certain areas. People such as those in the Treasury will lead the vanguard (though as a commentator said in the Financial Mail last week, its reach should not be overestimated).

There are pitfalls ahead.

Spectrum auctions seem to be moving towards year-end conclusion after much delay, yet vested interests are waiting to capture a piece of the pie through the distraction of a wholesale open access network (Woan).

Similarly, in energy policy, the Integrated Resource Plan (IRP) is clear about what is needed. Yet even now load-shedding does not generate any panic or action and even the emergency procurement rounds are bogged down by positioning of vested interests. A push to prioritise gas beyond what is in the IRP  and the bizarre call for the IRP to somehow magically be redone because it gave the wrong answer should be watched very closely and vested interests guarded against.

Oversimplified tagline

On this front too the government still doesn’t understand how reform credibility can be destroyed. Putting nuclear as a key point in the Nedlac government presentation on the recovery plan last Thursday serves only to blow up its credibility. It shows the government is not serious but easily distracted when it can mention green financing in such a plan but not even bring itself to mention by name Renewable Energy Independent Power Producer Procurement (REIPPP) or renewables.

What is the point? What will the legacy be of the president and those around him? He is a politician after all, and surely cares about how he will be seen. Indeed we can see how (sometimes wrongly, sometimes rightly) stereotypes have been built up around former presidents Jacob Zuma, Thabo Mbeki and even Nelson Mandela.

You are ultimately judged by an oversimplified tagline. Being the guy who was the best social compactor but failed to achieve any actual solid outcomes in growth and employment is not a great look. Going off on policy tangents to appease vested interests and allowing new sources of rent extraction to occur under your nose is also not a good look.

A legacy is ultimately judged positively in fighting for change, choosing sides, and making difficult and even unpopular decisions with a longer-term view that generate results. There are enough ideas on the table to define an agenda and a legacy.

A focus on a legacy also gives those who are increasingly despondent in the president’s own faction, the wider ANC, business and labour something to hold on to. This would not be a social compact or Kumbaya Thuma Mina but an agenda that carries others in its wake, thereby holding the party together, which the president prioritises so much.

 Attard Montalto is head of capital markets research at Intellidex.

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