Azar Jammine: Ramaphosa fails to eliminate land uncertainty, deal with unemployment

JOHANNESBURG — In reaction to President Cyril Ramaphosa’s late-night statement on land and a planned economic stimulus on Tuesday evening, respected economist Azar Jammine has written a sharp and scathing analysis of South Africa’s current woes. At the centre of South Africa’s burning issues (including land) is the country’s inability to grapple with its ever-growing unemployment problem. This unemployment will only get worse in the Fourth Industrial Revolution as most South Africans don’t have even the most basic skills to cope in a world in which automation and AI will take root. South Africa can solve these problems if it improves its education system. But with a lack of political will and outdated thinking, the prospects don’t look good for Ramaphosa. – Gareth van Zyl 

President of South Africa Cyril Ramaphosa.
President of South Africa Cyril Ramaphosa.

By Azar Jammine*

Key Points
  • President Cyril Ramaphosa issued a statement following a two-day ANC National Executive Committee (NEC) conference in which he tried to clarify the ANC’s stance on land expropriation without compensation (LEWC) and inspire confidence in government’s ability to seriously address the scourge of unemployment so vividly portrayed in yesterday’s Quarterly Labour Force Survey (QLFS) data.
  • Unfortunately, he failed on both counts. In respect of land expropriation without compensation, notwithstanding his acclamation of the multitude of contributions on this subject presented by several individuals and interest groups in public hearings on the subject, he still appears to have concluded that the Constitution will need to be amended to facilitate this. This is precisely what international investors will not have wanted to hear as they see it as compromising what had been considered to be one of the fairest and most powerful constitutions of any country in the world. It will also be seen to raise the spectre of interference with property rights which is regarded as sacrosanct by the investor community.
  • Insofar as the seriousness of the unemployment problem is concerned, Ramaphosa tried to reassure the public that the government was taking it seriously and was going to embark upon a stimulus package to create jobs. He emphasised the fact that such a package would include large-scale public investment in infrastructure, support for small business and youth employment as well as training. Simultaneously, he suggested that such a stimulus package would not jeopardise fiscal responsibility. It is difficult to see how such a goal can be achieved without cutbacks in other areas of state spending and setting aside initiatives such as the introduction of a National Health Insurance (NHI) scheme that would be extremely expensive. More importantly, pledges such as these have been made frequently by the ANC, but have yet to see the light. The organisation fails to acknowledge the fundamental impediments to job creation such as the poor quality of education and the adversarial labour relations environment.
  • One is concerned that Ramaphosa’s statement is going to be seen to be sufficiently vague as to fail to generate greater certainty regarding land expropriation without compensation and government’s ability to address unemployment. In so doing, the statement might even elicit an outflow of foreign capital and an associated negative reaction in the currency market.
Post-NEC statement likely to sustain investor unease about LEWC
Azar Jammine
Dr Azar Jammine

Following a two-day Lekgotla of the ANC’s NEC, President Cyril Ramaphosa delivered a statement aiming to address two principal issues, viz LEWC and unemployment. Unfortunately, he seems to have failed to inspire confidence in respect of both these issues. There can be no doubt that the debate surrounding LEWC has been one of the biggest impediments to increased investment in the economy following the huge improvement in business confidence following the election of Ramaphosa as president of the ANC and subsequently as president of the country. In particular, investors have seen the concept of LEWC as alternatively jeopardising food security or interfering with property rights. They have been especially uneasy about the implications of tampering with the Constitution in order to effect LEWC.

Ramaphosa lauded the many individuals and organisations that had contributed with inputs into public hearings on the subject. Although he acknowledged the need to enhance food security in the conduct of LEWC and also the fact that many suggested that LEWC can be put into effect without amending the Constitution, he concluded that the “people” (presumably the members of the NEC) wanted the Constitution to be more explicit about LEWC. Accordingly, Parliament will set about finalising a proposed amendment to the Constitution to outline more clearly the conditions under which LEWC can be affected. Although this is meant to generate greater certainty regarding the implementation of the concept, tampering with the Constitution is considered, albeit possibly superficially by the investment community, to be interfering with the sanctity of property rights. Accordingly, Ramaphosa’s statement is likely to perpetuate the resistance towards increased investment into the economy.

Theoretically, as we outlined in our Ecobulletin on the land issue a month ago, there are ways and means of transforming the LEWC issue to advantage in the country. Specifically, if government were to grant title deeds to millions of Blacks who effectively rent their land from tribal chiefs or from government itself in the case of RDP housing, this could unleash trillions of Rands of wealth in the economy and rapidly enhance the possibility of increased economic activity and growth. However, no reference to this possibility is alluded to in the NEC statement. Cynics will argue that this is because NEC members would stand to lose preferential opportunities created in the allocation of land by government.

Little to encourage confidence about reducing unemployment

The second leg of the post-NEC statement is aimed at trying to assure investors that the government is serious about tackling high unemployment. This part of the statement was clearly inspired by the release in yesterday’s QLFS of the loss of -90,000 jobs in the 2nd qtr and the associated surge in the official unemployment rate to 27.2% and in the expanded definition unemployment rate, to 37.2%. It is a well-known fact that South Africa suffers the highest unemployment rate of any country in the world which provides such data.

Ramaphosa tried to reassure the investor community that government will institute a stimulus programme that incorporates increased public infrastructural investment, increased assistance for small business and youth employment and training programs to enhance employability, as well as initiatives aimed at improving the spatial configuration of employment opportunities as a means of mitigating the effects of the rising cost of living. The initiative will also incorporate trade support measures for sectors negatively affected by rising imports, as well as ensuring that procurement focuses on local rather than imported goods and services The aim of the programme is to unlock economic growth by “enabling the productive participation of millions more South Africans in the economy”.

We have three reservations about this initiative.

Firstly, pledges to work towards increasing employment in the manner indicated above have been put forward frequently in the past, including in the New Deal put forward by Ramaphosa in his election manifesto ahead of the ANC presidential election and yet little success has been attained in the implementation of such measures.

Secondly, one questions how such a stimulus package can be afforded within the current fiscally tight framework without jeopardising and reducing expenditure in other critical areas of need.

Thirdly, it fails to address the more fundamental impediments to employment creation which the ANC and many of the general population failed to acknowledge as being vital for this purpose. Included in this category are the poor quality of education which is preventing so many people from having the capacity to add value in such a way as to become more employable.

Also serving to impair job creation is the adversarial nature of labour relations which is encouraging employers to embark upon more capital-intensive techniques in an environment in which there is an abundance of unemployed and unskilled labour. The initiative also fails to address the issue of overcoming the impediment to job creation implicit in the development of advanced technologies, frequently known as the fourth industrial revolution.

Source of unemployment and inequality is a complex weave of interactions

One should not be surprised to see unemployment continuing to increase in the current environment. Firstly, economic growth of 1.5% is now lower than the 1.55% population growth rate. Accordingly, with growth of just 1.5%, living standards are standing still. However, the employment situation is exacerbated by the fact that the growth in the number of school leavers and entrants into the labour market is much higher still than the growth in the population. This arises from the changing demographics of the country wherein such a high proportion of the population is young. In addition, government has been successful in increasing school enrolment over the years.

Unfortunately, the employability of the youth, whose unemployment rate is close to 50%, is exacerbated by two important factors. Firstly, the quality of education at school level leaves much to be desired. Especially in an environment in which technological advances are taking place at a more rapid pace than ever before, proficiency in numeracy, maths and science, are imperative.

Despite this, no more than one out of every 35 students entering the school system manages to do sufficiently well at the end of their schooling in these subjects (in the form of achieving a minimum of 60% pass rate in maths) to be able to add value in their professions. There are of course professions and careers which do not require a high level of proficiency in maths, but these are not the careers in great demand in an increasingly technological intensive society.

Failure to acknowledge the destructive contribution of trade unions

Much of the source of the failure to create expertise in high-technology areas is the poor quality of teaching. The latter factor also impinges upon issues such as literacy and basic education overall. In turn, much of the blame for the poor quality of teaching can be ascribed to the fact that government did away with teachers’ training colleges after taking power in 1994 and is also unwilling to act against teacher unions which are impeding most attempts at making meaningful inroads into improving the quality of education.

The specific problem which Ramaphosa faces at present is that such unions were at the heart of the support given to him in his attempts to become president of the ANC and the country. These unions are now demanding a payback for their support both in terms of aggressive wage demands and in terms of resistance to change that can improve the quality of teaching. Ramaphosa is unable to act against such interest groups so soon after the successful nature of their support in his presidential ambitions. The problem is that failure to generate appropriate and sufficient skills for school leavers to become more employable means that such persons fail to increase their employability.

The data produced by the QLFS show aptly how the probability of being unemployed increases the lesser the educational level attained. Conversely, the probability of remaining without a job diminishes quite dramatically with tertiary education and especially with education in fields that employ maths and science. Inequality is exacerbated by the fact that the poor level of education in areas of skill create a skills shortage which results in those with the requisite skills being able to command earnings way in excess of those without appropriate skills. In turn, this helps generate more acrimony towards employers by the worker sector of society, many of whom belong to trade unions.

Unemployment is further exacerbated by the impediments put in place by trade unions towards the employment of the youth for fear of trade unionists forfeiting their jobs to younger workers through such initiatives that might be put into place by government. As a result, the kind of initiative alluded to in Ramaphosa’s statement regarding enhancement of youth employment, has been singularly conspicuous by its failure in the past. Furthermore, the destructive input into labour relations resulting from the power of the trade union movement in South Africa encourages employers to refrain from taking on workers on a full-time basis and instead contributes towards the adoption of more capital intensive processes. This is an irony in the context of an economy with a record level of unemployment.

To add to the impediments brought to bear on employment creation by the unions is their implicit resentment and opposition to initiatives aimed at generating an increasing number of small business opportunities. Unions find it difficult to increase membership amongst small businesses and therefore prefer to thrive in an environment of a high concentration of power in big business. Until such time as the government and ruling party acknowledge the interference of organised labour in job creation, one is unlikely to see any major dent being made in job creation.

Will disillusionment with Ramaphosa’s statement affect the Rand negatively?

In conclusion, analysts will be left dissatisfied with the contents of the post-NEC statement of Ramaphosa. Clearly the country’s leader is attempting to walk on eggshells within his own party in trying to appease all the various interest groups and especially trying to sustain unity within the two broad factions of the party. One has to acknowledge that there is a huge ideological divide that permeates the ANC between those seeking market-oriented solutions to the country’s problems and those seeking more government intervention.

In his post-NEC statement, Ramaphosa has clearly tried to appease the various factions, but in the process will be seen to have failed to eliminate much of the uncertainty and dissatisfaction with the government’s ability to address the land issue and the unemployment scourge. Accordingly, one should not be unduly surprised if the post-NEC statement elicits some negative response on currency and bond markets. Besides other factors, markets are likely to be bemused by a purported attempt at encouraging a stimulus programme without impairing the fiscal straitjacket in which the government finds itself. Furthermore, insofar as public infrastructural investment is concerned, recent evidence has been of a singular failure to implement such projects.

No fewer than 155 out of 244 municipalities last year failed to spend even 85% of their capital budgets. Only 25 out of all the municipalities managed to spend their full capital budgets. This is a function of incompetence, lack of appropriate engineering and technical skills and the interference of corrupt practices which result in unauthorised and irregular expenditure. It is no wonder that scepticism is likely to prevail in terms of Ramaphosa’s ability to implement what he pronounced in his statement, let alone his ability to eliminate some of the uncertainty surrounding government’s land policy.

  • Azar Jammine is the Chief Economist at Econometrix.