South Africa: Ramaphosa bets on private sector to reboot economy

By Xolisa Phillip, in Johannesburg
Posted on Wednesday, 16 February 2022 13:30

South Africa's Ramaphosa delivers state of the nation address, in Cape Town
South Africa's president Cyril Ramaphosa delivers the State of the Nation Address (SONA) to a joint sitting of the National Assembly and the National Council of Provinces in Cape Town, South Africa, February 10, 2022. Nic Bothma/Pool via REUTERS

President Cyril Ramaphosa hopes that the business sector will dig the country out of its current stagnation, sentiments that have been praised and criticised in equal measure. His plans to further invest in the private sector by rolling out a major infrastructure project comes in the wake of South Africa's unemployment crisis – the worst since 2008 - alongside an extended period of low growth.

Ramaphosa’s detractors will most likely reduce his latest state of the nation address to “another repeat of promises he’s made before”, says Lucio Trentini, CEO of the Steel and Engineering Industries Federation of Southern Africa (SEIFSA), but “we don’t agree with that”.

“We support what he [Ramaphosa] said. […] A lot [of] commitments were made. A lot of deadlines were set. We will hold the president to those commitments. We hope that the time has come now to move ahead. We have little time to waste,” Trentini says.

Trentini has been with SEIFSA for three decades. He has witnessed the ebbs and flows of the sector from its glory days, when it employed 450,000 people, to its current state, which is underscored by a drastic drop in its employee numbers – just more than 200,000 – and a steep decline in demand.

For such an organisation whose members in the metals and engineering sector are in dire need of major projects to boost demand, Ramaphosa’s emphasis on the rollout of big infrastructure comes is welcome news, Trentini tells The Africa Report.

“We need massive projects to stimulate this economy … [and] this sector, and to create the sort of growth the president envisages,” he says.

Deep-rooted problems

However, political analyst Daniel Silke is not convinced. According to him, the overtures that the president made to the business community in his speech were “somewhat … uncertain”. The political analyst also cites the internal divisions within the governing African National Congress (ANC) as a stumbling block in formulating a cohesive economic plan for the country.

I think it lacked practical steps on issues relating to bureaucracy, trade policies, export-processing zones or tax breaks…

In his speech, that was delivered at Cape Town City Hall instead of parliament – since it was damaged following a massive fire earlier this year – Ramaphosa conceded that “we are engaged in a battle for the soul of this country. … The problems in the South African economy are deep and … structural.”

The president put forward “a massive rollout of infrastructure, a substantial increase in local production, an employment stimulus and the rapid expansion of energy generation capacity” as the main keys his administration would use to unlock economic growth for South Africa.

“We have given ourselves 100 days to finalise a comprehensive social compact to grow our economy, create jobs and combat hunger,” said Ramaphosa, adding that “… the state must create an environment in which the private sector can invest”.

Period of low economic growth

The South African economy has been characterised by an extended period of low economic growth accompanied by record high unemployment, rising poverty and inequality, as well as low levels of private sector investment.

Decreasing levels of private sector investment prompted South Africa to set up the investment conference. Although the initiative has taken a back seat due to Covid-19, the president used his speech to announce that the fourth edition of the event will be held on 24 March.

Furthermore, Statistics South Africa (Stats SA) figures show that government spending on infrastructure has dropped by R82bn ($5.5bn) since 2016. That represents a 26% decline, according to Stats SA’s Capital expenditure by public sector report published in late 2021.

Masterplan in hand

Seifsa is particularly pleased that the government has identified infrastructure spend as a priority, alongside commitments to localisation and designation. “We agree that infrastructure spend[ing] … is central to our economic recovery,” Trentini tells The Africa Report.

He also makes reference to the steel masterplan mentioned in the president’s speech saying it is “probably the biggest and most ambitious intervention in our sector thus far – certainly under [Ramaphosa’s] administration”.

This industry is suffering from a lack of demand. If we have the sorts of projects envisaged, this industry will leap forward…

“[The] … steel masterplan offers a once-in-a-lifetime opportunity for business, labour, government and community to play an important part in designing and, I hope, implementing policy interventions on a strategic part of this economy,” Trentini says.

The metals and engineering sector sits at the intersection of key industries, including mining, auto and construction, as both a customer and a supplier. When it sneezes, some of these industries catch a cold. This was the case in 2021 for the auto industry, which suffered from production delays because of a three-week strike in the metals and engineering sector.

The successful conclusion of a wage deal, however, “has locked in two-and-a-half years of industrial peace”, says Trentini, enabling the sector to capitalise on the government’s planned infrastructure rollout without experiencing industrial action.

“This industry is suffering from a lack of demand. If we have the sorts of projects envisaged, this industry will leap forward. We will be able to meet the demands placed upon us. The capacity is there. The know-how is there. The engineering skills and business acumen are ready to support the infrastructure projects,” says Trentini.

Complications of party politics

Silke is not so optimistic in his assessment of Ramaphosa’s speech. “I think it lacked practical steps on issues relating to bureaucracy, trade policies, export-processing zones or tax breaks, but we did see the introduction from Ramaphosa to his own party [the idea] that the state is largely incapable, in its current form, of creating jobs.”

“[…] the party must consider a closer relationship with the business community,” says Silke. “[…] it seemed more like it was his speech rather than his party’s speech. It’s all well the president saying this, but what do his alliance partners think? What does the national executive committee [NEC] think? Can there be meaningful policy change to follow the rhetoric of the president? […] the jury is out on all of that.”

If he [Ramaphosa] can retain power at the ANC’s elective conference, then […] there may be a view that some stability [will be] returned to South Africa.

The NEC is the ruling party’s highest decision-making structure between elective conferences. “Until the ANC finds its own identity from a policy point of view it is going to be difficult for it to make coherent economic policy. We’ll see piecemeal approaches on policy. We’ve seen some of that [in] the electricity generation story,” Silke tells The Africa Report.

Silke predicts that the upcoming ANC elective congress in December could add further complications to the policy outlook, which might prompt investors to adopt a wait-and-see approach until the outcome of the conference.

The forum will determine the future direction of the country’s economic policy and whether there will be continuity in leadership. “If he [Ramaphosa] can retain power at the ANC’s elective conference, then […] there may be a view that some stability [will be] returned to South Africa,” says Silke.

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