COVER STORY: Editorials: Edition: November 2018 / January 2019


Sense in the slow bleed

Ramaphosa has embarked on a clever strategy to work through the limitations imposed on power by politics. Exhortations to rush him are pointless and likely to backfire.

Enough already with the whining and whinging. Given the horrible hand he was dealt on accession to the presidencies of the ANC and SA, worsened by the subsequent crisis in emerging-market currencies and the onset of domestic recession, the biggest disappointment of Cyril Ramaphosa’s still-brief tenure in the highest offices is the realisation that he’s incapable of overnight miracles.

Far too much has been expected of him over far too short a period. Just as there was investor elation on his cramped victory at last December’s ANC elective conference, so is there a marked swing in the opposite direction that his delivery on promises comforting to economic growth has been muddled.

The former mood wasn’t justified then. The latter isn’t justified now. The man is running a country and not a company where the flexibilities to slash costs, especially on personnel, differ markedly. He’s also heading a political party, factious within itself and confronted by populist agitators devoid of responsibility for consequences, about to face a general election.


Cut him some slack. He’s the best for whom SA could reasonably have hoped. An alternative from within ANC ranks, similarly attuned to market sensitivities from boardroom exposures and co-authorship of the National Development Plan, is unimaginable.

Have a little faith that the pendulum moving in the extremes between anticipation and frustration will revert to a mean around realism; unlikely although this is until the forthcoming national, provincial and municipal elections are done and dusted.

Before then, expect the turmoil to exacerbate. After then, there’ll perhaps be no more than two make-or-break years for confidence to be redeemed or shattered.


If rating agency Moody’s can eschew panic and show patience, then so too can dissenting pundits infuse a dose of contrarianism into the oversupply of pessimism. Somebody will still have the last laugh on those who decide to go long on the rand.

Essentially, this is about timelines. In coming months, Ramaphosa will need simultaneously to look forward for the country and to watch his back for the presidency. In his favour is the compilation of party lists for the 2019 elections, to allow for a preponderance of his camp above the other, but possibly constrained by divisions within the ANC ‘top six’ and secretive deals that enabled his paper-thin triumph over the Zuma acolytes whose patronage is at risk.

In this vexed environment, Ramaphosa emerges as an astute strategist. His key appointments of Finance Minister (Tito Mboweni succeeding the unfortunate Nhlanhla Nene) and Public Enterprises Minister (Pravin Gordhan) have provided unmistakable signs of the direction intended; respectively for returns to fiscal prudence and reforms of governance.

Additionally, his launch of inquiries into state capture and the SA Revenue Service have offered the backdrop for wholesale clean-outs. Bring on an invigorated National Prosecuting Authority, a revived Asset Forfeiture Unit, an efficient Hawks and an honest SARS for the beneficiaries of corruption to quake in their boots, more so in the event of negotiations with Dubai for an extradition treaty being successfully concluded.

Similarly, he uses the slow-bleed tactic to address ‘expropriation without compensation’. The inquiry can de-fang the rallying cry of the Economic Freedom Fighters, with whom he might yet have to deal in coalition arrangements, by mutating slogans to policies.

It offers the pretext to take Ramaphosa at his word that there will be no land grabs and no disruption of food security, but instead (as he puts it) “certainty and clarity” to the constitutional provision that sweepingly allows for EWC – not only on conditions for land but also on other “property” that could even include the assets of pension funds (TT May-July).

Then come the investment and jobs summits. They’ve been tried variously through the decades, usually to little avail, but this time with the potential to be more than talk shops for two reasons. One is in the imperative to lift SA from its dire economic straits. The other, inextricably related, is the need to prompt a social compact that lies at the heart of the National Development Plan.

For all the groundwork being laid – the key ministerial appointments, the commissions of inquiry, the summits – there are elephants in the room.

Both reasons require that the long-sought consensus between organised labour, business and government be evaded no longer. The urgency is in the recession. The opportunity is in the shift from Zuma to Ramaphosa.

Not since the 1994 dispensation have the stakes been higher: obviously, for the stability of SA as a whole; specifically, for the stimulation of investment and accumulation of savings on which the economy relies.

For all the groundwork being laid – the key ministerial appointments, the commissions of inquiry, the summits – there are elephants in the room:

Few predicted the sapping of growth prospects to the extent now evident.

First is the onset of recession. Few predicted the sapping of growth prospects to the extent now evident. It will inevitably worsen the already-disastrous unemployment ratios, shrink profit performances and (at time of writing) threaten downgrades to junk status of government and government-backed bonds with concomitant diversions from infrastructure and social spending to debt servicing.

There’ll also be adverse impacts on financial institutions by the withdrawal of individuals’ savings to support their higher costs of living. For members of pension funds, there’d be a sliver of consolation in portfolio weightings that favour rand-hedge stocks. But by the same token, the more capital that’s allocated to equity investments in companies whose earnings are derived from offshore activities the less remains for investment in asset classes that stimulate expansion and job creation domestically.

Moreover, to the extent that the profitability of financial institutions is hurt by consumers’ reduced propensity to save, the less money will be available for implementation of social and empowerment objectives enshrined in the Financial Sector Code.

Second is joblessness. Critics of government have berated it for not chopping the public-sector wage bill and not proceeding with privatisations that similarly would result in retrenchments. With a general election looming, fat chance. Without economic growth to offer employment alternatives and mitigate the toll in family hardships, no chance. Ditto for extensions to social grants when tax revenues fall in tandem with company profits.

Third is the heated controversy around expropriation without compensation. It might turn out to be not nearly as bad as it’s been made to look, and possibly a good deal better (TT Aug-Oct), but there are short-term pressures in the unavoidable austerity. The role of the banks is critical.

The four largest banks have a combined exposure of some R133bn to farmland. Because of uncertainty over how EWC will play out, assume that they’ll make impairment provisions for 10% of it. This means that R13bn will be lost from retained profits. Since banks gear their capital (which includes retained profits) around 15 times on average, roughly R200bn will be wiped from their capacity to lend.

Think through the repercussions of a freeze on the security of farmers. Put differently, it implies a suspension of loans for the financing of crops. This can immediately constrain the production of staple maize, as an example, which bodes ill for avoiding disruption along food’s value chain.

Fourth is the fate of state-owned enterprises, particularly at beleaguered Eskom. There can be no greater priority than its uninterrupted operation. Stuck for finance, Minister Nene will be unable to pull a rabbit from the hat unless a formula is found for the SA’s private-sector institutions to extend their support as in the mooted infrastructure fund.

Once the formula is found, as it must be, it won’t be born only from the exigencies of emergency. It could be the most tangible signal of public-private good faith on its way to repair. This alone will distinguish the new government from the old.