‘Why is the investment still not coming?” This question was put to me in London recently; and it was a good one. But its source was curious because it came from an investment fund manager. So I began my reply: “Well, I was going to ask you. What’s holding you back?”
Of course, he and the others gathered there wanted me to unpick the possible reasons for why increased investment — both international and domestic — has not yet followed in the wake of the Ramaphoric shift in mood and sentiment triggered by South Africa’s leadership transition.
It is not only a good question, but also an essential one because President Cyril Ramaphosa has placed attracting new investment, and especially foreign direct investment, at the centre of his strategy for inclusive economic growth.
Indeed, until a new “social compact” emerges from the jobs and investment summits to be held later this year, his is pretty much a one-trick hand. Hence the appointment of the four investment envoys — Trevor Manuel, Mcebisi Jonas, Phumzile Langeni and Jacko Maree — to tour the world to persuade capital that South Africa is now a worthy destination.
The fab four have “a good story to tell” — to borrow one of Jacob Zuma’s better lines. To a point. They can boast justifiably about how South Africa’s democracy has proved its resilience; about how the rule of law and many significant institutions have passed the wind-tunnel test posed by the state capture project; and about how the shadow state has been replaced by a serious, sincere government led by an extraordinarily gifted political leader.
They can even attest to an almost faultless first 100 days of the Ramaphosa presidency in which a fast-moving clean-up operation executed by minister-on-a-mission Pravin Gordhan is driving state capture scoundrels from the rent-seeking nooks and crannies of the democratic state.
It is a tough, room-by-room clearance operation, but it is happening and happening as fast if not faster than anyone can reasonably have expected — though it is sobering to see Gordhan’s reaction, having stuck his head into the toilet of state capture and discovered how much shit lurks in the bowls of the likes of Eskom, SAA and Denel.
They can even adduce evidence from surveys such as the South African Citizens’ Survey, which shows that, across age and race groups and provinces, Ramaphosa’s approval ratings are high. Applying, should they wish, social media parlance, they can tell global markets: “We are led.”
But those global markets are not yet especially impressed. Of course, they are a tough crowd: although they often react based on sentiment and “feel” — especially the forex guys — those concerned with equities and bonds trade on what it may surprise you to know is a fairly deep and well-informed analytical assessment of the potential risks and rewards.
And herein lies the rub: there is still plenty of risk in South Africa and the off-setting rewards are not yet clear enough because there are understandable questions about where real value is to be found in the South African economy.
Consumer demand is still so weak, and the structural changes — that investors want either to see to unlock potential growth or open up space for private participation in the economy — are not yet apparent.
And emerging market economies are not exactly flavour of the month and so, apparently, what enthusiasm there might be for taking a punt on the “new” new South Africa is chilled by external factors far from the reach of the Union Buildings.
South Africa’s is (now, again) a good story, but it is not yet good enough.
I understand that there are plenty of progressive-minded people whose response to all this would be to say: to hell with global markets and the absurd system of international finance that has been created. Why should we kowtow to the “masters of the universe’” sitting behind their trading desks in London, Frankfurt, Hong Kong and New York?
But, with domestic savings so perennially modest, where else is the investment to drive growth to come from? So, if only for the sake of argument, put aside your discomfiture about global capitalism for one moment, and play along: what are the issues that matter most to investors and that the Ramaphosa administration needs to answer if substantial new investment is to come, and what are the signs that it is going to address them satisfactorily?
First, because mining continues to be the prism through which many investors view South Africa, the mining charter matters — and not just because they want to see whether Ramaphosa can put his money where his mouth is on his State of the Nation address statement that mining is a sunrise not a sunset industry, but because it will give important clues as to whether he “gets” what the investment community needs to see.
The draft charter has now been published, on schedule. The minerals minister, Gwede Mantashe, has responded to the main concerns of the industry, especially on the “once empowered, always empowered” principle that was causing such consternation.
Having spent the past few weeks listening to communities, Mantashe has proposed an increase in the level at which mining houses will have to give shares to both communities and workers, and there are some unanswered questions about the practical details of this.
But, overall, even though “the markets” are unlikely to agree readily with Mantashe’s statement on Twitter earlier this week that “the industry cannot remain the same. Black South Africans cannot be spectators, they must benefit and accumulate wealth”, they should be reasonably happy — certainly those who are willing to recognise that, although economic growth and transformation may not mean the same thing, the two should be sufficiently balanced to deliver social stability as well as “value”.
Similar considerations apply on the land reform question. Market analysts are — gradually — coming round to understanding the wider historical, political and socioeconomic contextual considerations. They are less freaked out than they were, but they will need the ANC’s proposed experiment in proving that expropriation without compensation can occur “safely” under the current legal framework to succeed.
They need to be reassured that Ramaphosa will not permit a land-grabbing neo-Zimbabwean scenario to unfold under his watch. They want to be convinced that his game plan with the Economic Freedom Fighters is going to work, and that he will manage them, and the issue, until such time as he can secure a fresh mandate for his leadership at a national election.
The “markets” are also concerned about runaway public expenditure, especially the public sector wage bill. No progressive person would want to see workers suffer because of the excesses and corruption of their bosses, as in the case of the wage dispute at Eskom. But Ramaphosa’s unpleasant fiscal inheritance — what one might call the Zupta deficit — means that fiscal stability is an essential “stress test” of Ramaphosa’s ability to hold the line.
Although it means that R38-billion must be found to fund the pay rise, the 7% deal that was struck with a majority of public-sector unions means that the government has passed the test.
So, too, with the electricity tariff. Nersa’s decision needs to stand, in the interests of consumers and industry, as much as investors. And, importantly, the government needs to show convincingly that it is firmly in control.
Then, the even bigger structural question: Is Ramaphosa able to deliver the reforms that are necessary to create real new value for investors? Interestingly, no one seems very clear about what, precisely, these reforms should be. Yet, the question is still put to me: Why has he not offered at least one or two game-changing reforms in his first 100 days?
The answer is that it is not Ramaphosa’s way. He is not a quick-fix merchant. He plays the long game. And his answer to problem-solving is to put in place processes that will deliver solid, resilient agreements between all the economic and political actors.
The planning is well under way. Committees and subcommittees are being formed; dialogues are being designed. But unless they are up and running by spring, and delivering tangible outcomes by summer, then Ramaphosa may not make it through to next winter.
Thus, a new low-road political risk scenario emerges: the summits prove to be just talk shops; Ramaphosa missteps on land or some other hot- potato issue; and, crucially, he fails to solve his “KwaZulu-Natal problem”, as a result of which, come the election, Zuma’s home province fails to pour the usual millions of votes into the ANC’s national electoral bucket, partly because the former president has decided to disrupt his own party’s and successor’s prospects.
If the ANC vote falls beneath 60% and the economy remains stuck, with little or no new investment and working people’s lives unaffected by the change at the top, then his leadership may be challenged and the Ramaphosa era may prove to be a short one.
Whereupon the window of opportunity — for investors, and for us all — will slam shut.
Richard Calland, a partner at the Paternoster Group, a political risk consultancy, is working on a new book: Cyril’s World: The Politics and Ideology of the New South African President