President Cyril Ramaphosa delivers his State of the Nation address. (Dwayne Senior/Bloomberg via Getty Images)
President Cyril Ramaphosa delivers his State of the Nation address this week — his last before the elections, thought of as the biggest test of the ANC’s grip on power since 1994.
Each year at the Mail & Guardian we have to think carefully about how we cover the address, always delivered hours after our print deadline, as if the president himself was conspiring against us.
In recent years, we’ve used it as an opportunity to reflect on the year prior, what promises were made and how much has actually been achieved. It’s a worthwhile exercise but often with predictable results.
This year, Ramaphosa’s speech is somewhat more important — at least for the ANC, which will use the president’s face to entice voters, many of whom probably feel worse off than they did six years ago.
I’ve written more than a few articles about the president’s failure to deliver on his economic promises. The Ramaphoria of 2018 — which many had hoped would bring a wave of investment, finally coaxing our laggard economy to grow — has well and truly run out.
That said, I think it is possible that Ramaphosa’s presidency has brought a fair amount of change to South Africa’s economy, at least insofar as how we think about growth and how it comes about.
Last week, I spent some time thinking and writing about the prospect of another Donald Trump presidency and how, in the four short years he spent in the White House, he ended up altering the trajectory of the US as well as the global economy. Beyond Trump’s effect on world trade, the Republican hopeful has inspired certain copycat presidents who have themselves influenced the political economies of their countries for years to come.
Although Ramaphosa’s presidency might be characterised by its impotence, marked by a glaring failure to root out corruption and bring about growth, it has brought some powerful changes to the economy — many of which we should be worried about.
After all, despite constant complaints that change hasn’t come quickly enough, these past six years have seen a distinct hastening of structural reforms, viewed as a means of improving the supply side of the economy by removing institutional and regulatory brakes on markets. Eskom and Transnet are well on their way to being unbundled, for example.
Turkish economist Dani Rodrik explains structural reforms as measures “to make it easier for firms to fire unwanted employees, to break business and union monopoly power, to privatise state assets, to reduce regulation and red tape, to remove licensing fees and other costs that deter market entry, to improve the efficiency of the courts, to enforce property rights, to enhance contract enforcement and so on”.
Rodrik also explains that there are two basic approaches to implementing structural reforms.
One is to make as many changes as possible in as short a time as is feasible. According to Rodrik, this approach typically exploits a window of opportunity created by an economic crisis. The costs of this approach, which include higher unemployment and slower recovery, are tolerated in the hope of realising its benefits down the line.
The other approach relies on targeting binding constraints on economic growth. This partial approach can have early payoffs, but “there is always the risk that such reforms will get stuck midway and the early growth benefits will dissipate”, Rodrik notes.
Neither approach guarantees sustainable growth in the long run and the short-term consequences can be harmful.
The pandemic-induced crisis created the right conditions for Ramaphosa’s structural reform agenda, which promised to deliver much-needed economic recovery. But he has always emphasised that the reforms would take a long time to bear fruit.
Last year, in one of his weekly letters, the president noted that structural reforms are often indirect.
“As a 2004 paper from the International Monetary Fund rightly notes, they are hard to sell: ‘The gains from reform are never as clear to the wider public as they are to economists.’ Reforms are nonetheless critical if we are to achieve the scale of economic growth that is needed by our country at this difficult time,” he wrote.
The fact that reforms have not created any growth — and that many South Africans feel as if the economy is moving backwards — has made them politically perilous.
Still, there is a tendency not to lay all the blame for our economic predicament on Ramaphosa. After all, his administration could not have foreseen the blistering effect of the pandemic on the economy. Nor could it have predicted the eventual effect of Russia’s war on financial conditions and the country’s fiscal dilemma.
But it is fair to say that Ramaphosa’s solution to the country’s existing economic crisis would have been the same in the absence of these global shocks, although the approach might have been different. In this alternative scenario, there is a chance these remedies would have been more effective and less painful in the short term.
In any case, we are far from grappling with the true effects of Ramaphosa’s chosen reforms. These will have a ripple effect that extends far into the future. And, again, the likelihood that legacy will be positive is pretty slim.
So, although there might be an inclination now to talk about Ramaphosa’s shortcomings, where he has succeeded could end up hurting a lot more than where he has failed.