/ 19 February 2020

Ramaphosa bets big on infrastructure to boost economy

Ramaphosa Sona
President Cyril Ramphosa. (David Harrison/M&G)

Any politician who wins office gains a great deal of political capital. Leading and governing after winning is the act of spending that cache. You had better use it wisely. It is hard to restore once it is completely depleted. 

It is, of course, possible to make deposits as well as withdrawals into this store of capital, but deposits are harder than withdrawals. They require concrete and constant political victories, the kind that change the game and shift the ground beneath your opponents. In other words, the kind of spectacular victories (or diversions, in the absence of actual wins) that are not easy to come by in public office. 

President Cyril Ramaphosa, who came to office exactly two years ago, is lucky to still have a great deal of political capital to spend. We may quibble about how wisely he is using it, but not about the relative richness of his bank. A recent poll gave him a 62% approval rating. That is far higher than any other individual politician in South Africa. It is higher than the ANC’s electoral mandate in 2019, and exceeds the approval ratings of Parliament, the executive and other institutions of government. 

But even this generous store of political goodwill will run low eventually, particularly if Ramaphosa cannot manage to shift a significant number of the multiple crises he faces. The ANC is wrecked by factionalism and infighting, and there are many in the party who plot day and night to undermine his authority and loosen his grip. 

The president is doubling down on his gamble that large-scale infrastructure build programmes will be the main fillip for sustained economic growth. Some of the promises in this regard were pragmatic and even unspectacular, but potentially very significant. 

The economy is in the doldrums, and nothing he has tried so far appears to be on the verge of working. Public finances are in a critical state, and the ravages of state capture and corruption will continue to be felt for a while. Therefore, when Ramaphosa stood up in Parliament on 13 February to deliver his State of the Nation Address, he had a big and unenviable job to assure his country that he knows what he’s doing, and things will improve. But there was also no one else best suited to be standing where he was, since no one else has anywhere near as much capital to spend as he does. 

What he produced under the circumstances can best be described as a mixed bag. Response from key quarters has been muted, or at best cautiously positive. Moody’s has lowered growth expectations for South Africa for the current year, but that is in line with most other analyses of our current state. You will struggle to find a bullish appraisal of this economy, even from our own Reserve Bank or treasury. This is because all the bottlenecks in the way of greater economic growth — even modest economic growth — cannot really be cleared in any short space of time. Economically, the year 2020 is all but a write-off, and that is extremely bad news for Ramaphosa and the ANC, who will need positives to point to when they try to persuade South Africa’s restless cities to come back to the fold next year. 

The energy crisis 

Ramaphosa was blunt in his assertion that load-shedding is expected to be a reality for the foreseeable future. However, the president revealed concrete steps that his administration is currently or planning on taking to alleviate the crisis. 

He confirmed the government would be issuing a sector 34 determination, in terms of the Electricity Regulation Act, to begin the implementation of the Integrated Resource Plan, particularly the sourcing of distributed energy. Essentially, the government is taking steps to diversify energy supply including sourcing more electricity from independent power producers (IPPs). 

The government will also push ahead with plans to permit major electricity-consuming industries to produce their own power and that permission to produce power of more than 1MW will be processed by the regulators within shorter time periods. If implemented as promised, this will lead to a small boom in generation in the private sector as major power consumers opt to fully or partially supply their own needs. Municipalities in good financial standing will also be permitted to source their own electricity from IPPs. But all this will take a while. The economy will continue to be constrained by the power crisis for at least 18 months, and probably longer. 

SOEs and long-term economic growth 

The president is doubling down on his gamble that large-scale infrastructure build programmes will be the main fillip for sustained economic growth. Some of the promises in this regard were pragmatic and even unspectacular, but potentially very significant. 

Among these pledges are the ongoing upgrades to the rail network of the Passenger Rail Agency of South Africa (Prasa). The upgrades are noteworthy as they are necessary, achievable and, if concluded on time, can be used by the ANC as a campaign tool ahead of 2021 local government elections. It is also unfortunately, like Ramaphosa’s pledges on energy, threatened by the existence of a large, dysfunctional and chronically mismanaged state-owned company. And Prasa may be smaller, but it is less easy to shift than Eskom. There is little possibility of supplanting its role with private-sector involvement. No one is going to build their own rail network. There are no viable or desirable privatisation solutions for passenger rail. When it comes to rail transport, which is as critical a lifeblood as energy, we are stuck with Prasa. 

Ramaphosa reported that SAA’s business-rescue practitioners were expected to unveil their plan in the coming weeks, suggesting the practitioners would focus on restructuring the airline rather than liquidating it. 

The infrastructure fund implementation team in the president’s office has identified a list of “shovel-ready” projects and begun sourcing private-sector investments. These projects should be easy wins for the president and enable him to cite successes in next year’s Sona. Ramaphosa and the party need some concrete achievements in this sector, as the “potential investments of more than R700-billion over the next 10 years” and “committed investments” need to be seen to translate into reality ahead of the municipal polls.

Fiscal crunch 

All of this happens in the background of a constrained budget. Finance Minister Tito Mboweni should not unveil what’s being called an “austerity budget” next week, but chances are he will. 

Ramaphosa and Mboweni are seemingly gambling that they can squeeze taxpayers and the state’s millions of dependents for now, in expectation of a revenue windfall around the corner from auctioning spectrum and licencing exploration of natural gas off the southern coast of South Africa, both of which are expected to happen in the next year or two. Ramaphosa announced the imminent establishment of a state-owned bank and a sovereign wealth fund, and Mboweni is likely to give the details in the budget or more likely the medium-term budget policy statement later in the year. 

And that, ultimately, is the nub of the Ramaphosa-Mboweni gamble on the economy. There is not a lot of money to go around, and they must claw it from constituencies the president cannot afford to lose, such as the urban working class, the state-dependant poor and investors. They will do that starting this month, with Mboweni’s expected spending cuts and tax hikes. They expect — are praying for —– an improved revenue picture in two years, from auctioning off national resources and reducing wasteful expenditure. It’s a huge gamble, one whose failure could destroy Ramaphosa’s political capital for good. 

Lima is a historian and political analyst based in the Eastern Cape.