by Mzukisi Qobo | Jun 14, 2019 | Blog
Dr Mzukusis Qobo and Matlala Setlhalogile
Since his ascent to power in Nasrec in December 2017 as ANC leader, and his assumption of office as country’s president in February 2018, Cyril Ramaphosa has been seen as an oasis of hope for a country that for nearly a decade was starved of leadership. Soon after he took office, Ramaphosa staked his leadership on party renewal, economic reforms, and institutional change. There was much expectation that he will quickly turn around the country away from the doldrum years of President Jacob Zuma’s leadership.
Such hopes may prove forlorn. Leading institutional and economic reforms is a tough act and one that requires to be carried out with great urgency in a country like South Africa, which confronts mounting social and economic challenges. Public trust in politics has been battered in the last decade as a result of corruption, government inefficiencies, lack of delivery of public services, institutional weaknesses in key state-owned enterprises, and an under-performing economy. Ramaphosa was always seen as a symbol of reforms, and it was expected that his ascendance will signal bold change. This has not happened, and may unlikely be given the internal turmoil, and debilitating tensions over economic policy direction, within the governing party.
While the last 10 years represented a lost decade in South Africa, the next five years could be trapped in limbo between a nightmare and an elusive ideal. The outcomes on the economic front could turn out the same. This is not inevitable. There is a need to urgently drive change. Ramaphosa has the capability to preside over a functional state. His dithering could be his undoing. For some time now he has been playing a role of a mediator of factions and contending schools of thought, a luxury only fit for a functioning economy, rather than project himself as a decisive leader in whose hands the hopes of the country are placed.
Any leader who presides over reforms will inevitably court unpopularity from his own party, the other interest groups, and those who are likely to be adversely affected by reform measures, especially when there is no societal consensus and sufficient levels of trust in the political leadership. Economic reforms and institution-building require technical capabilities to run. It is not enough that Ramaphosa is well-meaning, it is important that his team is capable and puts its shoulders to the wheel. For the next five years, there should be no time to rest, to do long reflections, and to consult endlessly. It should be a five year of decisive action. The train of economic reform and service delivery should crush anyone who stands on its path. Apart from the imperative of developing a roadmap for economic reforms, speed and purposeful action will be required to drive the process of institutional reforms.
Institutional Reconfiguration
Institutional restructuring of the state has been one of President Cyril Ramaphosa’s signature reform programmes for over a year now. The guiding strategy and the plan for such reorganisation is yet to be announced to the public. As a technocratic exercise, it could free up resources and ensure the proper allocation of human capital in government. There was an expectation that Ramaphosa will reduce the size of the cabinet. While some cuts were effected from 74 to 68, this is marginal. The cabinet is still bigger under Ramaphosa than the years when Thabo Mbeki was president, and whose cabinet was less than 40 including both ministers and deputy ministers. There was an expectation from the public that the size of the cabinet should be reduced to curtail wastage, and to overcome much duplication that is as a result of the existence of departments that are doing similar work.
A reform thrust seems to have been a secondary priority in the assembling of the cabinet. The cabinet reflects representations from the various provinces, different leagues of the ANC, the opposing factions within the party and ANC alliance partners together with an appealing gender balance. These are all clear signs of outcomes of a complex bargaining process, which could generate the least common denominator outcomes rather than bold actions.
The economic cluster could turn out to be a theatre of ideological battles. One of Ramaphosa’s trusted hands in addressing institutional challenges in the SOEs, Pravin Gordhan, is an experienced hand and could be counted as one of the reformists. And so is the finance minister, Tito Mboweni, who has an ear of the markets and understands the depth of South Africa’s economic challenges. The Department of Trade and Industry is now led by Ebrahim Patel who has a strong backing of the unions. His deputy in the department is also a union leader. There will be a strong drive to implement industrial policy measures that will, no doubt, require fiscal support especially for expanding incentives package for various sectors of the economy. The economy broadly, and the fiscal position of the government, in particular, requires measures that balance both public finance consolidation and smart investments in infrastructure that reflect shared value with the private sector.
Economic Woes
The end of the effervescent in May brought with it a curtain of gloom on the economic front. Just as the new cabinet was settling, the International Monetary Fund concluded its visit to South Africa as part of its annual Article IV process, which is essentially an examination of the health of the economy that the IMF is required to undertake every year on its member countries.
The IMF report observed that there is cautious optimism on the prospects of the South African economy. It stressed the need for structural and institutional reforms including bold action on Eskom and called for decisiveness on the part of the political leadership. What was clear in the wake of this assessment was that a new dawn on the economy will require extraordinary steps from government and that it would need to speak and act with a shared sense of purpose. A day after the IMF visit, cracks were revealed in the economy. Statistics South Africa released its GDP data showing that year-on-year growth is flat at 0{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}, and quarter-on-quarter growth has contracted by 3.2{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}, offering signs of a looming recession. Business confidence is down across various sectors of the economy, including manufacturing, mining, construction, and agriculture. Uncertainty over the future of Eskom and electricity supply does not bode well for investor confidence.
The threat of recession follows on the tracks of a recently released General Household Survey by Statistics South Africa at the end of May. It noted that South African households are growing fast, something that is not in track with employment growth of supply of infrastructure and public services. In the first quarter, unemployment levels reached a new high at 27.6{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}. Youth unemployment is over 50{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}. The alarming state of unemployment is nothing new.
Looking Ahead
The government needs to grapple more decisively with the deep-seated challenges in the economy. If they fail in this task, we will not be a resilient society. The goal should be to accelerate institutional and structural reforms, including taking quick actions on the ailing state-owned enterprises. We also need to build for the long-term by shoring up critical building blocks of society, of which human capital is the cornerstone and support the entrepreneurship ecosystem as this could be the spark generates dynamism in the economy.
by Mzukisi Qobo | Jan 23, 2019 | Blog
As global leaders meet for the World Economic Forum’s annual event at Davos this week, there are five major global challenges that they will need to respond to. These include strains occasioned by global power shifts, turbulence in major emerging economies, growing geopolitical and trade tensions between great powers, Africa’s weak integration in new forms of global production, and a host of systemic risks that are related to the environment, cyber-security, and potential for another global recession.
The global leadership redistribution underway is marked by the tussle for global pre-eminence between China and the US, with the interests of the two countries seemingly overriding the imperative to strengthen global cooperation and the multilateral order. It is a battle that goes beyond just differences over accounting for two-way trade flows, signals an attempt by the US to contain China’s rise and undercut its global significance. Given the political and economic weight of these two countries, any unresolved tensions between them could undermine the goodwill needed for global cooperation. Menacingly, this could damage confidence in multilateral institutions.
The second risk relates to the outlook for emerging economies. Weak growth, institutional decay, lack of competitiveness, and corruption undermine long-term growth prospects and steady recovery of some of the major emerging economies. Apart from Argentina and Turkey, which in recent times have faced rising debt, mounting inflation, and currency crisis, the BRICS countries are not looking that great either.
China faces its own difficulties at home as it rebalances its growth model from export-orientation to domestic consumption while slugging it out with the US over trade, intellectual property, and a race to dominate the Artificial Intelligence-based micro-chips. China’s growth slowed down from 6.8{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} in 2017 to 6.6{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} in 2018 and is forecasted by the IMF to decelerate further to 6.2{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} in 2019 and lastly at 5.8{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} by 2022. This is the worst performance in nearly three decades. Fiscal and stimulus measures in the second half of 2018 have not registered much impact. Other BRICS countries such as Brazil, presided over by the right-wing extremist Jair Bolsonaro, are in the grip of populism, and their place on the global stage look uncertain.
South Africa continues to face deep-seated economic challenges and is battling to shake off institutional erosion, inefficient state-owned enterprises, and the corruption of the past decade. It has long lost its significance on the global stage, and will still need to work hard to reclaim this while stemming the economic pressures that confront it. It is possible that the country’s future is populist in character, especially if corruption is not nipped in the bud and the socio-economic conditions of its black majority remain unchanged.
Despite the fact that Russia has weathered Western sanctions and slump in oil price in 2014, and emerged with an economy that is stable, its growth remains anaemic, and is forecasted to expand 1.7{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} in 2018 and 1.8{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} in 2019. This is a far cry from 7 percent average growth rates it achieved in the early 2000s. The country still faces structural challenges in its aging and shrinking workforce and is characterised by a lack of competitiveness and corruption.
Only India in the BRICS group of countries shows impressive economic growth at roughly 7.5{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}, reflecting a buoyant economic activity domestically and a steady political hand that guides the ship.
A third source of anxiety for the global economy is the future of trade wars between China and the US. These tensions have ratcheted up towards the close of 2018 when the US threatened another round of import tariffs on Chinese products for what the US considered to be unfair trade practices and intellectual property theft on the part of China. The discussion between the two leaders, the US Donald Trump and China’s Xi Jinping on the sidelines of the G20 in December 2018 and shuttle diplomacy between their officials have temporarily cooled off the tensions. However, hostilities promise to make a come back as the US has rejected an offer by the Chinese to send its envoys to the US for preparatory talks.
There is a broader narrative to these tensions, which is about what Graham Allison in his book, Destined for War, characterises as the structural stress that is induced by a rising power on the global system in ways that upset the current superpower whose political and normative heft is waning.
Since the end of the Cold War, the US has never had any serious power that challenges its global supremacy, at least economically; and this is changing with the rise of China that is investing its energies in developing domestic technological capabilities, including bolstering the artificial intelligence start-up ecosystem, and spawning large-scale infrastructure programme that links Asia, Europe, and Africa through land and maritime networks. China’s rise rattles the US, which in the past expected others to just follow its orders. This rivalry could potentially weaken trust and bridges of cooperation in the global system.
Fourth, Sub-Saharan Africa faces its own unique challenges, aggravated by the shaky institutional base and generally weak socio-economic resilience. As noted by the IMF World Economic Outlook at the end of 2018, commodity-dependent economies may face difficult adjustment to structurally lower revenues than in the past, with many countries in Africa countenancing a gloomy unemployment outlook. Comparative advantage in low-wage labour may no longer be a saving grace in the future.
Until recently there has been a widespread view that countries such as China will migrate their labor-intensive processes en masse to the African continent, as their own cost advantages diminish with rising productivity, to take advantage of cheap labor in Africa.
The changing character of globalization, especially the emergence of service-oriented and knowledge-intensive global value chains, may not be kinder to the African continent. According to a recent report by Global Mckinsey Institute that maps the new trends of globalisation, low skill labor is becoming less important as a factor of production; and the shift to services-orientation in economic output is partly responsible for the declining importance of low skill labour in production.
The growing trend towards the use of robotics in routine manufacturing processes both in advanced industrial economies and in countries like China will likely shatter the illusion of the low-cost advantage of African countries. What this means is that if African countries are looking at building labour-intensive export platforms, their labour will be in an impossible competition with automation in the advanced industrial North and in other emerging economies that are on a technological catch-up. Production trends in in other countries will, over time, shift away from labour-intensive manufacturing towards capital-intensive production. These challenges have implications for the future of young people in Sub-Saharan Africa, many of whom are unskilled, and may never enter the labour market in their lifetime. This will inevitably place to the center debates on basic income guarantee, and in the long-term force cultural and mindset shift in patterns of consumption and production.
Finally, these challenges will be compounded by the build-up of major systemic risks. Ahead of the Davos meeting, the World Economic Forum released its Global Risks Report 2019, which expressed anxieties about systemic risks that are on the horizon. These include environmental risks, and associated pressures of climate change, water crises, and involuntary migration; cybersecurity and data fraud; and asset bubbles in a major economy.
If global leaders are not imaginative enough and allow themselves to be paralysed by inaction, deep-seated inequalities will persist, tensions between major powers will overshadow the need for concerted efforts to tackle serious challenges facing humanity, and populist nationalism will take the center-stage within countries.
Both government and business leaders have a stake in a stable global system that is marked by shared prosperity across different regions of the world.
Mzukisi Qobo is Director at Tutwa Consulting and Associate Professor: International Business and Strategy at the Wits Business School
by Mzukisi Qobo | Oct 30, 2018 | Blog
There is much to be excited about in Cyril Ramaphosa’s pragmatic push for new investments in South Africa while also being determined to tackle socio-economic challenges that require redistributive policy approaches.
More than 1,000 delegates attended the investment conference held in Sandton last week. The conference was initially announced during President Cyril Ramaphosa’s maiden State of the Nation Address in February 2018, where he identified measures to be undertaken to boost the economy. These included the Jobs Summit, which took place in September, the establishment of the Digital Industrial Revolution Commission, and the establishment of the Youth Employment Services, among others. The economy was to be the centerpiece of his presidency, with partnership and collaboration between government and the private sector as the driving force of economic change.
During the investment conference, Ramaphosa reinforced the theme of partnership to achieve a social compact that will help address South Africa’s economic challenges.
The conference was marked by a positive mood and enthusiasm. It felt that South Africa was reconnecting once again with its potential. References to the 2010 World Cup by Ramaphosa in relation to the Infrastructure Fund that is in the offing sought to relive a nostalgic era when South Africa was a highly promising country.
There were various moments of gooseumps as investment pledges were announced in multiples of billions of rand. Animated discussions were on the roll at various sectoral breakaways about South Africa’s potential. Government ministers and business leaders were transformed into evangelists of hope. Mining was sold as a sunrise sector, especially now that the Mining Charter has been signed and the controversial amendments to the Minerals and Petroleum Resources Development Act (MPRDA) are withdrawn. The sins of the past were forgotten and forgiven. Various opportunities in agro-processing, infrastructure, and venture capital were promoted.
There is indeed much to be excited about Ramaphosa’s pragmatic push for new investments in South Africa while also being determined to tackle socio-economic challenges that require redistributive policy approaches. The road ahead, however, is long and arduous; and success hinges on concrete actions, beyond the boardrooms and conferences, that government takes to create a sense of certainty about the direction of change. Real change is what South Africans are hoping for, which explains much of the impatience and cynicism, especially with the proliferation of commissions of inquiry and summits.
Ramaphosa is walking a tightrope in making a strong pitch for investment and also pushing for the need to take socio-economic inequalities head-on, especially around the vexed land issue, which he underlined during his opening address at the conference.
Commendably, unlike the first two presidents (Nelson Mandela and Thabo Mbeki), Ramaphosa has avoided for now having different messages to different constituencies – international and domestic – and keeps it consistent. He has been consistent about the need to overcome patterns of asset inequality and to redistribute land for the benefit of historically marginalised black South Africans.
Previous leaders, especially in the early years of South Africa’s democracy, feared threats of disinvestment if the country was seen to be veering towards redistributive policies. Abroad, they would amplify neoliberal positions, and at home they would talk a more Leftist language, and the results at times would yield policy confusion. It is important to stress that redistributive policies are an integral part of economic reforms; and one of the tasks of the leaders is to be imaginative about how to balance competing interests and priorities, and how they deploy resources at the disposal of the state to deliver economic and social value. There is a sense that Ramaphosa grasps the long-term costs of not addressing socio-economic inequalities today, and postponing the sensitive issue of land reform.
At the conference, Ramaphosa called upon the private sector and the investor community to be part of the solution. The earlier policies that emphasised trickle-down economics, according to which the markets will produce desired economic outcomes, left the socio-economic legacy of apartheid and its spatial arrangements intact. They also did not achieve the desired levels of capital formation, and broad spread of economic gains to black South Africans. The structural inequalities, poverty, and joblessness among black youth remained unaddressed. Ramaphosa cannot lean on the same policy approaches that were sub-optimal and leave socio-economic challenges and patterns of exclusion in asset ownership to be solved by future generations.
At the investment conference, Ramaphosa called the South African private sector to lead the charge in investing in the country. Indeed, many South African companies pledged a new injection of capital into the South African economy. Some cynics have argued that these pledges, which were to the tune of R130-billion, were already in the pipeline. Even so, the fact that they were in the pipeline demonstrates a rising confidence and appetite to invest in South Africa. Companies that pledged include the mining giant Anglo American and the rising star Bushveld Minerals; the tech start-up Rain; auto companies Nissan, Volkswagen, and Mercedes Benz; and telecoms company Vodacom.
Government will need to work a lot more with the South African business community to build bridges and overcome the trust deficit. Importantly, such a partnership should produce a sound and credible road map that will fix the economy and tackle the country’s growing socio-economic strain and levels of inequality.
The investment conference should not be seen as a once-off event, a magic wand that will open the floodgates of investment, but as the first step in a series of bold moves that government needs to take to drive long-term social and economic change in the economy.
Government needs to keep the momentum by demonstrating more decisiveness in reforming the economy, in eliminating wastage in government, in cutting red tape, and in rebuilding institutions that are damaged.
Photo credit: GovernmentZA on Visualhunt /CC BY-ND
by Mzukisi Qobo | Aug 29, 2018 | Blog
A cold realism has followed the initial euphoria that accompanied the ascendance of President Cyril Ramaphosa to the highest seat as president of his party and the country. Absence of clarity in what Ramaphosa really believes and stands for, and lack of steadiness behind the wheel, is worrying. His reliance on commissions of inquiry and review panels does not inspire confidence that he has a plan to heal a broken country, and turn around its institutions and economy.
The departure of President Jacob Zuma generated high expectations of what Cyril Ramaphosa’s ‘New Dawn’ would produce. There was an expectation, at least, that he would be decisive in dismantling Zuma’s terrible institutional legacy, and that he would make it clear where he stands on the major questions confronting the country today. The road to rebuilding institutions, sound governance, and injecting dynamism in the economy, is foggy. We are still peeling through the frightening legacy of Zuma’s reign that is played out in various commissions of inquiry and review panels.
While these commissions are useful in unearthing the depth of institutional decay, they should not be the default governing strategy for Ramaphosa. As Abraham Maslow said in the late 1960s:
“I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”
Ramaphosa needs to act decisively in reforming the public service, in reconfiguring battered institutions, and in putting in place measures to turn around the economy, rather than relying on the only tool he is comfortable with – commissions and review panels – especially since he does not have the luxury of time.
Although Ramaphosa’s rise was accompanied by goodwill, there is little patience for elaborate processes of governing through commissions. Such elaborate processes hardly reach crystal-clear decisions, especially because those who preside over them have no weight of responsibility for running the country and arriving at a decision point quicker. Instead, they have a perverse incentive for self-preservation, to keep it moving.
No doubt there is a place for commissions of inquiry to solve mysteries, but they are a wrong instrument for leading change. Leaders need to be conscious of the urgency of the task at hand and take responsibility. It is hard to know what Ramaphosa thinks on any important matter that affects the country, be it the structure and character of the country’s institutions, the future shape of the public service, the direction of change in the economy, or the vexed issue of land reform. He has projected himself as a blank slate onto which commissions and panels should inscribe their ideas. At times he seems overwhelmed, at other moments he comes across as a leader who wants to please just about everyone.
In frustration, some suggest that in times like these we need a benevolent dictator who will, in the mould of Lee Kuan Yew in Singapore or Paul Kagame in Rwanda, get things moving, make the right decisions, and get us to solve the various challenges that we face today. The idea of a benevolent dictator is deceptively simple and seductive, especially when a leader at the helm is dithering, half-hearted, and lacking the will to lead. While the desire for a benevolent dictator is understandable, it is misguided. Leaders are fallible. We would rather have leaders that we can remove from office when we deem it necessary to do so. It is hard to remove a dictator, however benevolent – try that on Kagame. What we need, instead, are leaders who are able to use the available levers of decision-making within the confines of what is possible under democracy, and get things done.
Since his confirmation as president four months ago, Ramaphosa has established four commissions or panels. These include those looking into tax administration under Tom Moyane, a high-level review panel into the State Security Agency, a review process that is tasked with looking into the configuration of the public sector, and a commission of inquiry into alleged improprieties at the Public Investment Corporation, the state-owned fund manager. It would seem as if Ramaphosa has a target of one commission or review panel for every month he is in office. Hopefully he does not subject the National Health Insurance into another review panel, since he has assumed responsibility for this aspect of policy.
What is certain is that we are going to have more review panels or commissions of inquiry. What is less certain is whether Ramaphosa will ever get to the bottom of the challenges plaguing the country’s institutions, governance and the economy by the time he faces another elective conference of the ruling party in December 2022.
Democracy, even without the gridlock of the commissions or panels, is generally an inefficient system for decision-making. Effective leaders that manoeuvre well under democracy are those that have a good grasp of statecraft, something that is clearly not Ramaphosa’s strength. Statecraft is the art of governing effectively, of skillfully managing state affairs, and of delivering results where it maters the most within the constraints of democratic governance. This is not the same thing as achieving perfection or outcomes that please everyone. Nor is it managing state affairs through commissions and review panels.
Leaders that have an opportunity to govern their countries should always be aware of the limits imposed upon them by democratic institutions, and seek to exploit every gap that exists to drive change. The terms of office of such leaders are consequential. In the modern era in democratic countries, leaders who have been adept at practising statecraft with great effect include Thabo Mbeki in South Africa, Margaret Thatcher in Britain, Hernando Cardoso in Brazil, and Ronald Reagan and Bill Clinton in the US.
Statecraft is less about the ideological inclination of leaders, but more about how leaders get things done under severe constraints. Such leaders develop a clear vision of what change should look like, and pursue it vigorously, even using henchmen if they must. Some of the notable traits that such leaders possess include strategic acumen, ability to work with limited resources or deploy new resources to achieve noble goals, and skillful adaptation of tactics under pressure. They are aware that in the ultimate end, the buck stops with them.
It is not too late for Ramaphosa to wiggle out of lethargy and stamp his authority in government. He needs to be aware that he is the captain of a ship that is sailing through turbulent waters. More is demanded of his mettle. As Rahm Emmanuel, Obama’s former strategist, once counselled: “You never let a serious crisis go to waste.”
What he meant was that leaders need to use crisis moments to do things they thought could never be done before. Commissions of inquiry and panels are not the best way to create a lasting change, especially in the middle of a storm. They are forms of deflection if not abdication of leadership responsibility. Ramaphosa has an opportunity to do things differently and to make his own positive mark on the country’s institutions and economy. To do so, he will need to speak with clarity and be more decisive than he is.
This article was first published on the Daily Maverick, 28 August 2018
Photo credit: GovernmentZA on Visualhunt.com / CC BY-ND
by Mzukisi Qobo | Aug 29, 2018 | Blog
Authors: Mzukisi Qobo and Matlala Setlhalogile
Parliament looks at amending the PIC Act
A week after President Ramaphosa announced a commission of inquiry to probe allegations of poor governance into the PIC board, it has emerged that parliament is forging ahead with assessing the need to reconfigure the PIC Act. The aim of the PIC Act assessment is to establish whether or not greater accountability can be enforced at the state-owned fund manager. Furthermore, the need to ensure enhanced transparency at PIC is sought. It is important to note that accountability and transparency are the norms in leading pension funds internationally, especially those that are government-owned.
Currently, Parliament’s Standing Committee on Finance is sitting with two bills regarding the PIC. The one bill is a committee bill and the other is a private member’s bill from the Democratic Alliance (DA). Despite one of the announced commission’s task being to assess the possibility of amending PIC’s founding legislation, parliament is insistent on continuing with its task as there is a possibility that the announced commission might take years to finalise it work. Yet cleaning up governance at the PIC is critical to restore confidence.
Governance at PIC needs urgent attention. Commissions can take more than a year to conclude their work and if parliament’s Standing Committee on Finance does not advance its task, it could lead to the continuation of poor governance at the PIC. Chief among the proposed changes is the inclusion of labour representation on the board of the entity. This proposal has been advanced strongly by the PSA. Having public sector unions at the Board of the PIC is important given that the bulk of the assets under management are made up of public sector pensions. It is estimated that about 88{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} of the assets managed by the PIC are from the Government Employees Pension Fund (GEPF)
Transnet reports its best financial result ever
Despite allegations of irregular expenditure of R800 million, Transnet has reported the best financial results ever in its history. The state-owned entity reported an increase of 75{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} in its net profit, from R2.8 billion to R4.9 billion. The increase is largely credited to the uptick in the volume of railed export coal, automotive volumes and port containers.
The drastically improved finances at Transnet belie allegations of poor governance at the entity and the mooted suspension of its key executives: Siyabonga Gama, the CEO, Thamsanqa Jiyane, the Chief Procurement Officer, and Lindiwe Mdletshe, the Supply Chain Manager. At the announcement of Transnet’s financials, Gama admitted that the organisation has been tainted by a number of challenges in the recent past, particularly procurement-related governance challenges. These challenges have dented Transnet’s reputation. It would be harder for the company to attract investment in the face of serious allegations of corruption. The National Treasury’s forensic report has indicated that Transnet paid R509m more for 100 locomotives after switching a supply contract to a Chinese rail company from Mitsui of Japan, alleging wrong-doing. As much as Transnet’s 2017/2018 financials indicate an improved performance, greater scrutiny of the entity is still required as improved efficiency could have led to better use of public funds. Additionally, measures need to be taken to ensure enhanced accountability and an improvement at the entity.
Eskom fails to inspire confidence in parliament
Eskom executives appeared at Parliament’s Standing Committee on Public Accounts (Scopa) on Wednesday, 22 August 2018. Eskom was expected to account for deviations and expansions on the fourth quarter of 2017/18. Eskom failed to provide comprehensive answers based on the presentation it gave at Scopa.
Another issue that came up in parliament regarding Eskom was the signing of agreements with IPPs and the cost at which electricity is produced by these IPPs. The issue was raised by Julius Malema during the president’s scheduled question and answer session at the National Assembly on Wednesday, 22 August 2018. Eskom is currently sitting with surplus generation. The cost of procuring electricity from the IPPs is much high than what Eskom uses to produce its own, at about 45 cents. It has been reported that IPPs sell a unit of electricity to Eskom at 222 cents (R2.22) while it on-sells this to the consumer at a loss at 85 cents. This would lead to a financial strain on Eskom, more so when Eskom is expected not make requests for tariff hikes.
Adding to Eskom woes is imminent job cuts at the public utility, with indications that about 7000 employees could be affected. The announcement was made by Marion Hughes, General Manager for Customer Service Operations at Eskom, who pointed out that the public utility intends to reduce the headcount from 48678 to 41613 by 2023 across all levels through normal attrition. This could also be tied to the entity’s review of its business model.
The reality is that Eskom is in financial trouble and has been flagged as the single biggest risk to the country’s economy by Goldman Sachs in 2017. Colin Coleman, head of Goldman Sachs in sub-Saharan Africa, had indicated at the time that Eskom’s debt was equivalent to 8{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} of the country’s GDP and that the governance challenges at the entity would make it hard for it to manage its debt. As such, Eskom needs to improve its financial performance. However, looking at the amount at which Eskom purchases electricity from IPPs, it seems the SOE will find itself in more challenging territory in years to come.
Mantashe shelves the Minerals and Petroleum Resources Act Amendment Bill
In tackling deficit in stakeholder engagement together and overcoming policy uncertainty, the Department of Mineral Resources has decided to shelve the Mineral and Petroleum Resources
Development Act (MPRDA) Amendment Bill that was tabled in March 2014. This move is in addition to the scrapping of the Mining Charter which was drafted by the ministry under the leadership of Mosebenzi Zwane. Minister of Mineral Resources, Gwede Mantashe has argued that the amendment bill does not bring anything new and that the current Act serves its purpose.
The move has been welcomed and calls have been made that the reconfiguration of petroleum resources legislation should be done separately. The Minerals Council (formerly Chamber of Mines) has commended Mantashe’s decision and referred to his actions as ‘sensible’. It however remains wary of the possibility of an introduction of a new amendment bill. This move is likely to face criticism from other sectors of society, particularly those in the ANC that are seen as not entirely in support of Ramaphosa’s presidency.
Conclusion
It is clear that the challenge of reconfiguration key institutions in society is a tough one for the administration of President Cyril Ramaphosa. There are deep pockets of inefficiencies in various state-owned enterprises that have been paralysed by years of state capture under President Jacob Zuma between 2009 and 2017. Getting these institutions back to their feet will not be easy. Institutional reform is likely to be the key battle front that will keep Ramaphosa and his cabinet, especially the National Treasury and the Department of Public Enterprise, busy for the rest of his term in office. We will continue to monitor the substance and shape of institutional reconfiguration and reflect on the implications on both politics and the economy.
