Earlier this year, appearing at a tech conference in Salt Lake City, former US president Barack Obama spoke about leadership and how to take difficult decisions. Sitting on stage the affable and self-deprecating Obama told the audience that when problems reached him in the Oval Office, they were generally considered “unsolvable”.
He told his audience he was more often than not forced to choose between two bad options. “By definition, if it was an easily solvable problem, it would not reach me, because, by definition, somebody else would have solved it. So, the only decisions that came were the ones that were horrible and that didn’t have a good solution. They said, ‘Let’s send this to Obama, I don’t know what to do.’”
President Cyril Ramaphosa’s South Africa is in a precarious state, and he seems unable to make the decisions needed if the country is to extricate itself from the morass of poor governance, weak growth and declining economic returns in which it is sinking into. Since February 2018, when he ousted Jacob Zuma as head of state, there have been numerous markers which signalled the need for urgent interventions. But Ramaphosa has seemingly all but ignored them.
Whether it’s a function of the weak state he inherited from Zuma or as a result of his deference to the interests of the governing ANC, Ramaphosa has not been able to make the bold and incisive decisions for which great leaders are known. He has allowed the country, already significantly weakened by years of ANC mismanagement and criminality, to stumble closer to a point of no return.
Shortly after he took office there was understandable optimism about a new era under Ramaphosa – he campaigned on issues of government and party reform and promised to repair the damage wrought by state capture. His advisers – when they were still willing to engage – spoke of the new team at the Union Buildings using the year ahead of the 2019 general election to assess the damage and plot a way forward. The expectation was created that once he receives a mandate at the election, he will move rapidly and assuredly to enact the necessary reforms.
And there’s no doubt that some of the interventions launched were crucially important, most notably in the installation of new leadership at the National Prosecuting Authority (NPA) and the SA Revenue Service (Sars), two contested terrains during the years of strife and plunder under Zuma. Various commissions of inquiry, including one led by the deputy chief justice into state capture, has also helped to expose the cynicism, depravity and criminality of the Zuma years.
But South Africa remains a country in deep trouble. And Ramaphosa does not seem to have the fortitude to solve what Obama called “unsolvable” problems. Of the myriad of those economic reform is by the far the most important and most urgent.
Looking for a sign… any sign
On Monday a captain of industry – someone who has built, bought and bulldozed half a dozen JSE listed companies – explained why he believes in Ramaphosa. Sitting in Rosebank, Johannesburg, and lamenting the state of the economy, he said, “Because if Ramaphosa goes then we’re really fucked.”
There is real belief that Ramaphosa is the last hope to right the listing ship of state.
He explained that big business, and foreign investors, are just looking for a sign – anything really – that shows Ramaphosa to be serious about reform. “If he can give us that, then you’ll see the piles of cash some companies are sitting on being released and factories and stuff being built,” he added.
But there is nary a flare ahead on the road to Damascus.
The situation Ramaphosa finds himself in is grim. The economy is growing more anaemic every quarter, the deterioration of government’s fiscal position is gathering pace while the inefficiency of the state is becoming increasingly acute.
Ramaphosa has had ample guidance and clear warnings from a range of sources on what needs to be done. Besides National Treasury’s regular shot across the collective bow of government, international ratings agencies have also been explicit in their analyses of where South Africa falls short, in addition to regular reports from bodies like the International Monetary Fund, the World Bank and local institutions like the auditor-general, SA Reserve Bank (SARB) and think-tanks like the Centre for Development and Enterprise. There is no shortage of sage advice and mapped-out plans.
In October National Treasury warned that the biggest risk to the fiscus is the stability of Eskom and other state companies (like SAA) and the pressure loans and guarantees (with the commensurate improvement in performance) puts on the government purse. The second biggest threat is the unsustainable and high public sector wage bill, which sees R46 of every R100 of tax revenue being spent on the salaries of civil servants.
Treasury’s Budget Review document is dotted with a regular admonishment to government: “Difficult decisions are required.”
But what to do? Treasury wants government to cut the public sector wage bill, sell “non-core” state assets and look at private sector participation in state-owned enterprises. But all of these options, politically, have been non-starters in the governing alliance and the reason why Ramaphosa, while he might be manipulating machinations in the background, has not moved. It’s too risky.
“The consequences of not taking action, however, would be profound for South Africa,” Treasury warns.
“Over time, the country would likely face mounting debt-service costs and escalating interest rates that raise the cost of borrowing and squeeze out government’s ability to provide services. Flagging confidence would translate into lower investment and still weaker economic growth, worsening the employment crisis, reducing tax revenue and causing government debt to balloon.”
But analysts and ratings agencies like Moody’s and Standard and Poor are not banking on any decisive action, citing a lack of strong reform measures as the major reason for their outlook. Many fund managers and investors have already priced in a possible downgrade by Moody’s early next year, arguing that there isn’t enough time before the tabling of the budget for government to make big enough changes. Nobody is expecting Ramaphosa and his government to make the difficult decisions Treasury wants it to and Obama had to.
It’s becoming increasingly tough for Ramaphosa.
Stats SA earlier this week announced that the economy has shrunk for the second quarter this year, contracting by 0,6% in the third quarter after the first two cancelled each other out.
The auditor-general has found that national and provincial finances are in a severe state of disrepair and chaos. Basic accounting principles are implemented slowly or simply ignored, internal controls and procurement policies in many cases are non-existent and billions and billions or rand are being lost, wasted and stolen.
Releasing its Fiscal Stability Review last week, the SARB warned about the fragility of government finances and published a matrix of risks. It doesn’t make for pretty reading. It flags the country’s deteriorating debt situation, weak growth, the position of state companies and an escalating public sector wage bill as high risk and its impact as similarly “high”. This will lead to higher taxes, lower investments, credit rating downgrades, negative sentiment, increased finance costs, low growth and less profits in the private sector.
To quote Treasury, again: “There is no status quo option: difficult decisions must be taken.”
No runway left, and an opportunity to break with ANC dogma
On Wednesday a letter from the Presidency to members of Cabinet was leaked in which it was announced that SAA will go into voluntary business rescue. It is the culmination of years of mismanagement and losses (the last two years amounting to more than R10bn) at the state-owned company which have put enormous strain on the country’s fiscus.
The decision to put the airline into bankruptcy protection and a straitjacket of tight management and governance however wasn’t the result of the president taking the bit between his teeth and leading from the front. It came about because of the gradual deterioration of the airline’s position and an obdarate Tito Mboweni, who has flatly refused to extend guarantees or grant loans. Simply put, there were no options left.
SAA is a test for Ramaphosa’s resolve. He knows perfectly well that there will be significant opposition to the restructuring plans in the ANC and broader alliance, and he knows he can be accused of not yielding to resolutions taking at the party’s last elective conference.
But this also presents him with an opportunity to aggressively drive change. The ANC – and Ramaphosa has been in government since 2014 – has doggedly stuck to its policies of cadre deployment, patronage, corruption and rent-seeking for years. It hasn’t delivered any economic growth of note.
A determined and drastic change of direction is needed. There is no more runway left. And it gives Ramaphosa the opportunity to decisively break with ANC dogma and solve the unsolvable.