Our Opinion: 2023
The failing state of South Africa
I have thoroughly enjoyed visiting South Africa this week, meeting by son after he spent five months volunteering in Johannesburg, before travelling around a bit of the country. My last visit was 21 years ago. Back then, despite the obvious problems and challenges facing a nation emerging from the apartheid years, there was also a feeling of optimism and excitement in the air. South Africa truly is a beautiful country blessed with an abundance of natural resources.
However, the country seems to have taken a significant step backwards since my last visit. The social inequality is harrowing to see. Today’s South Africa seems to have all the features of a failed state.
Five years ago, Cyril Ramaphosa became South Africa’s President. Business leaders celebrated, thinking this business-friendly tycoon would fix the incompetence of the Jacob Zuma era.
Yet, electricity blackouts this year have already surpassed those of 2022 – previously the worst year on record. Businesses are planning for the total collapse of the grid. In February, retail bosses wrote to the President saying, “if this crisis continues, the country will not be able to guarantee stable supplies of food, medicines and other essential goods.” Morale dipped further in May, when the Rand hit a record low after America’s ambassador accused South Africa of covertly sending arms to Russia.
Business leaders have all but given up on Mr Ramaphosa fixing the problem himself. Instead, they are sending their own staff to help run government departments, including his office: a very South African solution.
Those with money find alternatives to the failing public sector, paying for private health care, schools and security, and installing solar panels to power their homes.
Links between big business and the government began before 1994, when Nelson Mandela and his African National Congress (ANC) came to power. As international firms and capital left South Africa in the 1980s, the domestic groups that dominated South African business got bigger. By the end of the decade, three companies controlled brands which accounted for for 75% of the market value of the Johannesburg Stock Exchange. Whilst time may have seemed good, some tycoons saw that white rule was unsustainable. So, in 1985, defying the wishes of the apartheid regime, the Chair of Anglo-American took a group to meet exiled leaders of the ANC. One delegate, upon meeting Thabo Mbeki, joked to the future president: “Welcome to the capitalist class!”
Those talks led to an unwritten deal. The ANC would drop its pledge to nationalise big companies. Business would embrace affirmative action and enrich a black elite, including Mr Ramaphosa. In other respects, the basic structure of the South African economy changed little.
Problems have been thrashed out in private. In 2015, Mr Zuma tanked the Rand by replacing a respected finance minister, who had helped block a multi-billion dollar nuclear-power deal with Russia, with an obscure MP. Captains of industry called a meeting with ANC leaders, including Mr Ramaphosa, who by then had amassed a fortune and returned to politics. Mr Zuma changed tack.
Today’s crises cannot be solved with a quiet word. Bosses typically cite three issues: power, logistics and crime. Last year power cuts may have reduced GDP by 7-8%; 2023 could be even darker. The blackouts caused South Africa to go from being the most reliable among 19 African networks at the start of 2022 to possibly the worst a year later. The largest supermarket chain says spending on diesel for generators cut profits by 7% in 2022.
Transnet, the state-owned firm that operates freight rail has, like Eskom – the electricity company – been battered by allegations of corruption and mismanagement. Last year miners lost out on 300bn Rand ($16bn) worth of exports, roughly a third of what they managed to sell abroad, because they could not get their goods out of the country.
Crime makes everything worse. In 2019 at least 183 infrastructure projects were disrupted by a mafia, demanding jobs and bribes. The theft of cables from Eskom, Transnet and passenger railways cost South Africa an estimated 50bn Rand in 2022, roughly akin to the economic contribution of the wine industry.
Andre de Ruyter, the former Head of Eskom who was specifically brought in to reform the electricity business, was nearly fatally poisoned in December. (Do not use a personalised coffee mug, he said, when asked if he has advice for his successor.) In February, the Financial Action Task Force, a global watchdog, put the country on its “grey list”, citing South Africa as a centre of financial crime and money laundering. This means that South Africa’s banks and authorities will come under greater scrutiny. Mr Ramaphosa has repeatedly pledged to get a grip. He has failed.
South Africa is on the edge so business has stepped up to fill the void. During the Covid pandemic, business groups stepped in where the state was failing. They procured protective gear and vaccines during the pandemic, formalising a role that had previously been only an ad hoc effort to assist the government. For several years, firms had sent staff to help run government departments, paying their wages.
Last year a new unit, based in the President’s office, was set up to reform the electricity industry. In March Mr Ramaphosa said that the private sector would pay into the Resource Mobilisation Fund (RMF), a whip-round designed to hire outside consultants. The RMF may well pay for a private team to try to reform logistics, too. The aim is to create a parallel system of institutions to make things work, where the state is failing. Business groups say that their efforts are transparent, and the approach offers a better chance of success than relying on cabinet ministers – who are instinctively sceptical of the free market.
But critics still worry about how business is behaving, believing it is covering up up for a failing President. It may be better if business leaders explained to the public the true extent of South Africa’s crisis. South Africans might listen. As part of a global poll published earlier this year South Africans said they trusted business more than government by an extraordinary 42% (62% v 20%).
Ultimately, it needs to now be recognised that the ANC is unfixable. Yet, it is the government today and will still be the largest party after next year’s election. The ruling party is fundamentally statist. The situation is so dire that society could explode at any minute. Until you change the politics, you’re not going to solve the problems.
Firms are already wooing Paul Mashatile, who became Mr Ramaphosa’s deputy in March and is his most likely successor. A leading CEO said “He seems like a man we can do business with. He omitted to mention that the same was said of Mr Ramaphosa.
Mr de Ruyter argues that business is still too timid when it comes to calling out corruption. He was “disappointed” by the reaction of other business leaders to his poisoning. Many sent private messages but stayed quiet in public.
South Africa is likely to continue its sad downward trajectory. The wealthy can put solar panels on their roofs, live in gated estates, have private security to keep them safe, and relax in their luxurious holiday home or hotels. But if 90% of the population are suffering, that is neither right nor sustainable for long.
7th July 2023
