South Africa’s new Finance Minister Tito Mboweni said on Thursday that struggling state-run South African Airways (SAA) should be closed down, adding that decisions over the future of the state carrier were not under his remit.
SAA, which has not generated a profit since 2011, survives on state guarantees and is regularly cited by credit ratings agencies as a drain on the government purse.
“It’s loss-making, we are unlikely to sort out the situation, so my view would be close it down,” Mboweni told an investor conference in New York televised live on South African public broadcaster SABC.
“Why I say close it down is because it’s unlikely that you are going to find any private sector equity partner who will come join this asset,” Mboweni added.
In August, President Cyril Ramaphosa transferred oversight of SAA to the public enterprises ministry which is led by Pravin Gordhan from the finance ministry. Ramaphosa has pledged to revive struggling state firms, including SAA.
SAA CEO Vuyani Jarana has said he is mapping out a punishing austerity plan to turn the flag carrier around. He has said layoffs and other cuts were unavoidable.
In a dramatic fall from grace over the past decade, SAA has lost its place as Africa’s biggest airline and a symbol of patriotic pride to become a source of frustration for taxpayers who have forked out more than 30 billion rand ($2 billion) since 2012 to keep it in the air.
To some observers, South Africa’s recent investment summit led by the president Cyril Ramaphosa, seemed like much ado about nothing. Several of the projects announced had been incorporated into companies’ plans for some time. And, combined with the fact that the summit had a showbiz style about it, it’s tempting to see the event as little more than smoke and mirrors.
But the summit could be more than the sum of its parts. It could be an important step forward to reviving economic growth in South Africa.
One notable outcome was that, in one crucial respect, Ramaphosa nailed his colours firmly to the mast. After the confused and confusing sophistry of the era under Jacob Zuma’s presidency, Ramaphosa committed his government to a market economy, where obstacles to private investment would be removed, where possible.
This moment is reminiscent of 1980 in India. That year, Indira Gandhi committed the Indian Congress Party to business-friendly policies. Reforms were slow, picking up a little under Rajiv Gandhi a few years later. And the major structural economic reforms only took place in 1991 under India’s new Prime Minister P. V. Narasimha Rao and the new Finance Minister Manmohan Singh.
Yet, India’s growth spurt clearly began after Indira Gandhi’s signalling and Rajiv’s initial tinkering. It didn’t wait for Rao and Singh’s dramatic reforms a decade later.
This is consistent with contemporary analysis of economic growth. Recent thinking by renowned Harvard-based economist Ricardo Hausmann and colleagues suggests that what stimulates significant growth acceleration is often not major structural changes – it can be significant incremental shifts.
The economists found that major structural reforms seldom preceded significant growth accelerations. As his colleague Dani Rodrik put it recently:
in economies that suffer from multiple distortions, small changes can make big differences.
The small change made in India was a clear shift by the dominant political party towards business-friendly policies.
Could the same be true for South Africa? Has South Africa reached it’s own Indira Gandhi moment?
Signals at the summit
Amid a great deal of fanfare, an audience of 1300 business and government leaders, and one of the globe’s most successful entrepreneurs Chinese internet commerce magnate Jack Ma, Ramaphosa announced R209 billion worth of investment at the summit.
It was important for the president to meet expectations by announcing concrete outcomes. But what was possibly more important was that he used the opportunity to send out a number of signals.
To please his own constituencies in the African National Congress (ANC) and the unions, he referred to the end of the “investment strike”; some critics of business had said they were holding back their investments as a deliberate policy.
More significantly, most of his messaging was aimed at reassuring the business community. He talked about how their investments and property were safe and how their factories were protected from expropriation by an independent judiciary and the rule of law.
Land reform would continue, he said. But it would be “fair and equitable”. Transformation would continue:
while providing certainty to those who own land, those who need land, and to those who are considering investing in the economy.
Perhaps the most telling signal was the apparently off-the-cuff remark he made dismissing the concept of “white monopoly capital”. At the dinner which followed the conference he said:
We have become accustomed to … treating our entrepreneurs and business-people (badly) and called them all sorts of names. We’ve treated them like enemies and… (called them) white monopoly capital – that must end today.
The term “white monopoly capital” is an accurate approximation of the distribution of economic power under apartheid, and much of the imbalance in economic power remains. In the Zuma era, the term was popularised by the now defunct public relations firm Bell Pottinger under contract to the Gupta family and was used by some as a cover for looting government and its agencies.
Ramaphosa, who became a successful capitalist after he left Parliament in the mid-1990s, has now signalled that he wants to build trust between government and white owned businesses. This won’t be easy. There are still elements in the ANC that reject capitalism while others want to continue using the term “white monopoly capitalism” as a battering ram.
South Africa’s disadvantage is that the country’s credibility has been damaged. After 15 years of transparent social democratic policies – from 1994 to 2009 – the country lurched into confusion under Zuma’s presidency. The ANC government became opaque, volatile and unpredictable.
The consequence was a loss of credibility in the Zuma era. Ramaphosa’s biggest challenge therefore is to recover credibility.
Ramaphosa and his advisors will be asking what can we do to rebuild credibility fast?
The answer seems simple: those involved in state capture must go, looters must be punished, and constructive policies must be carefully prepared and implemented with authority and urgency. These include fixing the state owned enterprises as Finance Minister Tito Mboweni repeatedly pointed out in his recent budget speech , better regulation for the network industries (energy, telecommunications, water) and sorting out public transport systems. In addition, honest leaders need to be appointed to the criminal justice institutions.
These all have been promised since Ramaphosa’s first State of the Nation Address in February.
The trickier, and implicit question that investment decision-makers will be asking is, is Ramaphosa’s sway over government as strong as that of Indira Gandhi’s in India in 1980? Or is the president yet to demonstrate complete control over the ANC?
The answer, unfortunately, is probably that an election has to be reasonably convincingly won before he can win the credibility he so badly needs.
South African President Cyril Ramaphosa declared himself in economic ‘repair mode’ at a major investment conference as the country raised a total of $55 billion from investors to help haul itself out of recession.
The former union leader, who inherited a mismanaged economy from the scandal-plagued Jacob Zuma earlier this year, wants $100 billion of new investments over the next five years, Reuters wrote.
Investment commitments of almost 290 billion rand ($20 billion) were made at the conference, Ramaphosa said.
He had already secured pledges for some $35 billion, mainly from China, Saudi Arabia and the United Arab Emirates. Ramaphosa has made reviving the economy a top priority since assuming power in February, but has been hampered by fiscal constraints and infighting in the ruling African National Congress.
“We are in repair mode,” Ramaphosa said in his opening speech at the conference, which looked at opportunities in sectors including agriculture, manufacturing and energy.
Ramaphosa said the promised investments would give the country a lift.
“We have witnessed today the beginning of a new narrative about investing in South Africa,” he said in his closing remarks. “Today I can say the investment strike is over.”
Analysts have said investors held back during Zuma’s rule.
Property rights commitment
Several companies across various sectors made the pledges, including Anglo American (AAL.L), one of the world’s largest commodities miners, which said it would spend 71.5 billion rand ($5 billion) in the country over the next five years.
South Africa’s association of car makers, which includes Nissan, Volkswagen and Isuzu, said its members would invest more than 40 billion rand over the next five years, while Telecoms firm Vodacom pledged to invest 50 billion rand over the same period.
Investors welcomed Ramaphosa’s rise to the presidency partly due to his strong ties to the business community. Since then, however, the economy has sunk into recession and faced a series of downbeat data.
South Africa will ease some immigration rules, including agreeing visa waiver agreements with more countries, in an effort to boost investment and tourism, Home Affairs Minister Malusi Gigaba said on Tuesday.
The changes are part of a broader economic turnaround programme announced by President Cyril Ramaphosa last week as his team seeks to drag Africa's most developed economy out of recession.
"We play a critical economic role in admitting over 10 million international visitors to South Africa annually, which includes tourists, business travellers, investors and neighbours," Gigaba told reporters.
"Millions of jobs are sustained by the economic activity generated by these travellers."
Gigaba said negotiations were also being finalised to conclude visa waiver agreements with more than a dozen countries across Africa, the Middle East and eastern Europe, including Saudi Arabia, Iran, Egypt, Qatar and the UAE.
Much-criticized rules on travelling minors will be simplified, he said.
In June 2015 new rules were implemented requiring parents to carry an unabridged birth certificate for accompanying children and consent letters from parents who were not travelling.
The tourism industry said the regulations, which came into effect during Gigaba's previous tenure as home affairs minister, were hurting business.
Tourism contributes more than 400 billion rand ($28 billion) to South Africa's economy, or around 8 percent of GDP.
This is more so because it is clear that deposed former President Jacob Zuma, who is at the core of the allegations, has launched a fightback campaign that can undermine President Cyril Ramaphosa’s efforts to clean up government.
The remit of the commission, which is headed by Constitutional Court Deputy Chief Justice Raymond Zondo, is to establish the extent of what’s become known as “state capture” by rogue elements in government. Its findings will reveal how the country’s democracy was so imperilled within two decades of its founding election in 1994. It’ll also help ensure that the necessary remedial action is taken to prevent a repeat.
South Africa needs to find out how Zuma and his cronies, the Gupta family, were able to exploit weaknesses in the country’s governance system.
To perform its role effectively, a judicial commission must act as an inquisitorial inquiry whose job is to find out what happened and why. This requires it to refrain from acting like a normal (adversarial) court of law. The commission isn’t a substitute for criminal prosecution or, for that matter, civil litigation.
A great deal flows from this foundational point.
Zondo’s job isn’t to “follow the money” as some have suggested. Important features of the corporate labyrinth built by the Guptas and their allies and accomplices has already been uncovered, for example the property holdings of the Gupta family, or examined in court proceedings.
The commission’s job isn’t to track the flow of funds or any money-laundering machines. That will be the job of the criminal courts, as and when they get the chance.
Instead, Zondo should grapple with the politics of state capture. He needs to get under the skin of the politics of state capture; to get on record why and what happened; and to make clear findings of political accountability. Speed is of the essence. He needs to move fast enough that the commission maintains momentum and does not allow Zuma and other implicated parties to get out ahead of it, or to seek to tilt public opinion in their favour.
The urgency is underscored by reports that Zuma is plotting with others against Ramaphosa.
Process and powers
To evaluate the commission’s progress, it is important to keep in mind its terms of reference and its powers. What can Zondo investigate and what can the commission do about whatever it uncovers?
Firstly, its terms of reference are deep, but narrow. Seven of the nine elements of the terms of reference refer directly to the Guptas’ or Zuma’s interference with government decision-making and procurement. Tthe remaining two invite a broader inquiry into state procurement.
So the terms of reference are essentially confined to the Gupta family and its relationship with the democratic state – from the presidency and the cabinet, down through state agencies and state-owned enterprises, and down deep into the executive arm of government.
In digging for the truth, those responsible for what happened will – or should – be identified by the commission so that they can be held to account.
But what powers does the commission have to take remedial action to address any wrongdoings it uncovers?
Very little. Certainly, far less than people seem to think. The commission’s task is to investigate and report back to Ramaphosa, which may include recommendations.
These recommendations are not, per se, binding. The commission is essentially a fact-finding mission and does not have the power to make orders.
So the report could say, for example, that criminal activity has been committed, and the commission may refer the matter for prosecution or further investigation.
But, the prosecutorial authorities don’t have to wait for the conclusion of the commission process. Indeed, they should be following the proceedings closely and initiating action wherever it suggests that criminality may have occurred.
Uncertainty about this point has led to some procedural confusion during the opening fortnight, particularly around whether those implicated would have an opportunity to cross-examine.
Unfortunately, Zondo let the matter fester unnecessarily before finally ruling on September 11. He had little difficulty dismissing the application of the Gupta brothers on the basis that they are, in essence, fugitives from justice who are unwilling to come back to South Africa to give evidence to the commission. In the case of Zuma’s son, Duduzane Zuma, he granted the application to cross-examine.
This may be justified. But it may also be a red herring. The best commissions of inquiry are those with strong “counsel for the inquiry” who don’t just lead evidence of one side of a story, but who test the evidence as they go along, adding to its weight and credibility, in pursuit of a robust version of the truth.
There are anxieties about Zondo’s pace. It is worth remembering that this commission derives from the report on state capture by former public protector Thuli Madonsela. Because she had had neither sufficient time nor resources to complete her work, appointing a judicial commission of inquiry was the remedial action that had to be taken.
Madonsela wanted the commission to complete its work in six months. It was a rather optimistic target. But it wasn’t entirely unreasonable provided that the commission focused on the narrow scope set by the terms of reference, and organised its procedure in a lean and equally focused manner.
Zondo has asked for an additional two years. It very far from clear why he needs so long and has led the lobby group, the Council for the South African Constitution, to join the court proceedings to object to any extension.
Regardless, the commission needs to act as swiftly as it can. South Africans are being reminded daily that Zuma may have left office, but that he still is capable of muddying the waters. If it focuses efficiently on its core task, and evidence of the political conspiracy that underpinned the state capture project is adduced and tested, the proceedings of the commission may serve to keep a lid on Zuma’s fightback campaign.
The stakes are very high for all concerned – for Ramaphosa’s political future, and for the country he leads.