PricewaterhouseCoopers (PwC) says President Cyril Ramaphosa has not fully lived up to expectations on any of the positive scenarios envisioned by the consultancy two years ago.
Instead, PwC’s “coming up short” scenario has played out, which is at least still better than the “mouldy mess” scenario that could have panned out.
In March 2018, in the wake of Ramaphosa’s appointment as the head of State, PwC South Africa published a report titled ‘Investment decisions: Why South Africa, and why now?’.
The consultancy’s research examined potential scenarios for the Ramaphosa Presidency between 2018 and 2022, and predicted five economic outcomes that could develop under the new President.
PwC said many had interpreted Ramaphosa’s appointment as the sun emerging from the dark clouds that troubled the Rainbow Nation’s economy and politics.
The leader of the African National Congress (ANC) campaigned for the party presidency in 2017 with an economic recovery plan based on his deep understanding of labour, business and politics. The #Ramaprogress movement was born and consumer confidence spiked to the highest level since the Bureau for Economic Research started its current confidence series in 1982.
PwC’s baseline (most probable) scenario for progress under the new administration was encouraging. The scenario envisioned that Ramaphosa’s ten-point action plan and New Deal agenda would be front-and-centre when it came to policymaking and communication with investors.
The ANC was expected to show a renewed vigour and focus on national issues instead of party politics. A focus on job creation, economic growth and investment was evident, as was the prioritisation of turning around financially troubled State-owned enterprises (SOEs).
“While the President would not make much progress by 2022 in the areas of education, many of his other aspirations were set in motion. For example, interaction between labour, business and government under the auspices of the National Economic Development and Labour Council grew from strength to strength. Social and labour unrest remained more subdued.
“In response, business and consumer confidence returned to positive territory and companies and households increased their consumption and investment expenditure. Foreign direct investment improved alongside this rising sentiment,” PwC explained.
As a result, economic growth would have recovered to 2% by 2020 and 3% by 2022 in the baseline scenario. A healthier pace of economic growth and improved administrative efficiency by the South African Revenue Service would have boosted tax revenues and helped stabilise the fiscus.
Indeed, in the two years since Ramaphosa’s emphatic statement that “the wheels are turning” for South Africa, during the World Economic Forum, in Davos, there has certainly been a lot of turning of the wheels of change, as envisioned by this baseline scenario, PwC noted.
These developments include finalisation of the new Mining Charter, resizing the Cabinet, launching the Youth Employment Service, two Presidential investment summits, South Africa’s signing of the African Continental Free Trade Agreement, and the removal of the birth certificate requirement for travel.
NOT UP TO EXPECTATION
However, failures and points of inaction have been all too numerous, said PwC.
These include deterioration in fiscal dynamics and sovereign ratings, an increase in economic, political and policy uncertainty, rising levels of gender-based violence, slow progress in resolving the land reform and expropriation issue, no high-level State capture prosecutions, worsening bilateral ties due to xenophobic violence, continued increase in irregular public-sector expenditure, and the deepening of financial and governance troubles at SOEs.
“Unsurprisingly, the public is not impressed. Consumer confidence in the outlook for the economy has fallen back into negative territory alongside elevated economic, political and policy uncertainty.
“The baseline scenario has clearly failed to materialise. Instead, our downside scenario, dubbed “coming up short”, is playing out. Economic growth has been disappointing and real gross domestic per capita growth declined for a fifth consecutive year in 2019,” PwC highlighted.
The consultancy elaborated, stating that business confidence had dropped to a 20-year low, unemployment had climbed to the highest level since 2003, and the economy stretched a downward business cycle to the longest since records started in 1945.
The downside scenario that PwC laid out in 2018 entailed that elements within his party and national government stifled Ramaphosa’s reform ambitions. The expected business-friendly Ramaphosa administration was not as favourable as suggested by the President’s New Deal promises and the private business sector did not react positively to this policy trajectory.
Business confidence remained pessimistic and economic growth remained significantly below potential. The country’s policy direction did not really address the triple challenges of poverty, inequality and unemployment, said PwC.
“A key issue here was the need for changes to the labour market/relations between the private sector and labour organisations in order to encourage job creation at a faster pace.
“South Africans grew tired of the situation. Because of this continued malaise, the ANC lost more support during the 2019 national elections but was able to retain a majority in the National Assembly. Nonetheless, weak economic growth (weighing on tax revenue) and pressure from labour unions (limiting expenditure cuts) resulted in further deterioration in fiscal dynamics,” the consultancy added.
According to PwC, Ramaphosa had to shelve many of his New Deal ideas and the grand strategy had joined the National Development Plan in being a "ghostly" plan for resurrecting the Rainbow Nation.
Continuing policy uncertainty in primary sectors hampered investment in these industries. Power and water utilities remained in the doldrums financially and managerially.
In March 2018, PwC assigned a 20% probability to the “coming up short” downside scenario being realised over the ensuing five years. This has now increased to 50% and is currently the most likely outcome.
On a positive note, South Africa has, so far, avoided a worst-case scenario, which PwC referred to as a “mouldy mess”.
In this scenario, economic growth potential is below 1%, multiple ratings downgrades follow, a messy coalition government would have taken control after the 2019 elections, and the rand deteriorates significantly.
Apart from the coalition government element, the other factors in this scenario remain real risks that need urgent action in 2020 if South Africa is to get anywhere near the #Ramaprogress trends that sounded so promising less than two years ago.Creamer Media Senior Deputy Editor Online