Economic matters

The Ramaphosa Presidency and the future of the South African Economy

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Back in December, confidence in the Ramaphosa presidency started off fairly strong. Many people were excited to see a change in the South African government, and looked forward to the possibilities that this change could bring – particularly in the promises made by Ramaphosa about the future of the country and his vision of improving it.

With his New Deal, the president had a clear plan to revitalize and bolster the South African economy. His plan is to focus on highlighting and improving specific sectors of the economy including manufacturing, tourism, and agriculture. The aim is to potentially create double the amount of jobs in the tourism sector alone, and even more in the others —and by creating more jobs, he hopes to address the issue of youth unemployment across the country. He has said that “young South Africans will be moved to the centre of our economic agenda” through paid internships across various sectors, alongside a focus on supporting black industrialists and developing small businesses. Previously, the government committed to setting aside 30% of public procurement for smaller enterprises, and the president intends to continue to do so, as well as creating a fund for start-ups of small businesses and innovation and a scheme by the Small Enterprise Finance Agency in order to fund entrepreneurs with disabilities.

Should Ramaphosa be able to make these changes, it would potentially create opportunities for work for many South Africans across the country. He has additionally stated that he is planning bring in an excess of $100 billion worth of investments both domestically and internationally, and is looking to both China and the West for foreign investments—a feat that, if successful, would provide enormous strides for the South African economy. While the president intends to allow for land expropriation without compensation, a hotly debated topic in recent months, he has stated that he is “not going to go for a smash-and-grab” and that it is necessary for the inclusive growth of the country—which, according to Ramaphosa, is imperative for creating “a very good, solid and durable environment for investment”. Whether or not this is the right move is still controversial among many people.

The reality since Ramaphosa’s election, however, has been rather different. Although he stated that he was aiming for a 3% GDP growth in 2018, according to StatsSA our GDP fell by 2.2% in the first quarter of 2018. Furthermore, while sectors such as finance and transport have grown by 1.1% and 0.9% respectively, many other sectors have shrunk. Manufacturing and agriculture in particular, which Ramaphosa had initially hoped to highlight and grow, fell by 6.4% and 24.2% respectively. Land prices have also dropped by 32% since the proposal of the land expropriation bill back in December, and the budget deficit in July was the biggest for South Africa since 2004. The budget gap was recorded at R95.98 billion with additional predictions from the Treasury that for the current fiscal year, we will see a 3.6% shortfall of GDP. This speaks to a level of shortcoming on Ramaphosa and his New Deal’s part, especially in the areas where he promised growth.

The Rand, additionally, has also seen better days, having steadily been weakening over the preceding year or so. It saw a brief lift to R13.95/$ in August following news of the Expropriation Bill’s withdrawal while lawmakers reviewed a section of the constitution, but it quickly dropped back to R14.12/$ that same day. This could potentially speak to both domestic and foreign views on the Expropriation Bill, as the Rand has not gone below R14/$ in some time, although the link is not clear. Then, as of the beginning of September, it fell to R15.34/$, reportedly leaving South Africa in a technical recession—although President Ramaphosa has made claims that this is not the case.

That isn’t to say, however, that Ramaphosa’s presidency is or necessarily will be a failure. Predictions at the start of his term saw both total prosperity or disaster sitting at a probability of only 5% each. According to PwC economists, the most likely scenario, sitting at a probability of about 50%, is a mixed bag – meaning that there is still hope for a positive advancement going forward. They predict that there will be progress and improvements in certain areas, such as with reforms and economic growth—foreseeing growth at 3% by 2022 – and a stronger average for the Rand thanks to better export performances and investments in South Africa. In this prediction they do not, however, foresee much growth in the education and manufacturing sectors—which were important in his New Deal. Despite these potential shortcomings, though, they predict an overall positive direction for the South African economy and political climate.

Reactions by foreign powers and investors have been relatively mixed, ranging from staunchly negative to a willingness to negotiate for investment and business deals. A notable negative reaction was Donald Trump’s recent tweet stating that he would “closely study the South Africa land and farm seizures and expropriations”— a reflection of the Trump administration’s apparently negative view of South Africa’s current state of affairs. This is not, however, the only international view on the Ramaphosa presidency, as illustrated by Ramaphosa’s recent dealings with British prime minister Theresa May. After Ramaphosa net her in the UK, Theresa May came to South Africa in a British leader’s first visit to the region since 2013 alongside 29 British delegates. Following Brexit, the UK is looking for new business dealings with countries outside the EU. Prior to the meeting, May’s office stated that they intended to “invest in and work alongside African nations, with mutual benefits”. Ramaphosa further managed to secure a deal with China worth $14.7 billion alongside $35 billion worth of other investments. Although the terms of the deal have not been released, China has expressed intent on investing in sectors such as infrastructure, the ocean economy, green economy, science and economy, agriculture, the environment, and finance. Additionally, he has secured minimum investment commitments of $10 billion from both Saudi Arabia and the United Arab Emirates respectively.

So while South Africa is currently declining in certain aspects, it is succeeding in others that promise a degree of hope for the future. Certain aspects of the economy are currently in decline, but there is the potential for that to change in the coming months and years. Especially with the foreign investments that Ramaphosa has been pulling in over the last year alone, he could very well turn around the decline and pull South Africa out of the technical recession by the end of his term. While he might not succeed in all of his goals—particularly in highlighting certain sectors such as manufacturing, as predicted by PwC economists—certain promises made by him could very well be kept to a degree.

South Africa’s viability as an investment destination is also effectively a grey area, as foreign opinion on South Africa is fairly disparate at this stage. While some foreign powers have been secured as investors, including China, Saudi Arabia, and the United Arab Emirates, others are either too uncertain or disapproving of South Africa to invest at this point in time. This does have the potential to change, especially in the wake of the investments that have already been acquired, however this is not necessarily a guarantee. It is just as likely that these other foreign powers, the US under the Trump administration in particular, could hold fast in their opinion of South Africa and refrain from making any investments for the foreseeable future, leaving the South African economy potentially lacking.

While both South Africa’s viability for investment and economic growth have been in decline since Ramaphosa’s appointment as president in December, this is not necessarily reflective of his ability as president of South Africa nor the actual direction that the country will take going forward. Many other factors are potentially in play at this point, including the state that Jacob Zuma left the country in as the country’s previous president as well as the general political climate within the ANC right now. These are both factors that could change at any point in Ramaphosa’s term as president—especially with the general elections coming up in 2019—for better or for worse. With a new National Assembly and new provincial legislatures, Ramaphosa may be able to gain more traction with his New Deal and other policies – which could open them up to more success than they are currently having, which would potentially allow the economy to grow and prosper to a greater degree. However, the opposite effect could also be had, as if Ramaphosa’s power and ability to run with his New Deal are restricted, the capacity of the economy could possibly become even more limited than it is now. Therefore, the full potential of the South African economy still remains to be seen until then, as the 2019 elections could have varying degrees of effect on it either way.

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