LONDON — The lyrics of the Time Warp from the Rocky Horror Picture Show comes to mind when the announcements of President Cyril Ramaphosa over the last year are analysed. “It’s just a step to the left and then a jump to the right.” When he addressed investors at Davos it is all about open policies for business, his anti-corruption drive and a New Dawn. However, when he speaks to ANC and its alliance supporters, the more left-wing former trade union leader surfaces and a populist agenda including the nationalisation of the Reserve Bank and land restitution features prominently. On the eve of Moody’s next look at South Africa, the authors from Signal Risk warn that this meando-nomics as they call it, is causing a slump in investor confidence. Ramaphosa may be making gains on the electoral front, but he has to be careful that the madness of the election where he tries to balance the demands from the Zupta-faction with the demands of the investor community, does not take its toll. – Linda van Tilburg
By Ronak Gopaldas and Menzi Ndhlovu*
When the word ‘meandos’ entered into the South African lexicon in 2017 after Jacob Zuma’s clumsy attempt to use the word ‘innuendo’ in a parliamentary question and answer session, it sparked an intense bout of confusion, widespread hilarity, and a wave of extreme banter across South Africa.
Now, almost two years later, the word ‘meandos’ has rooted itself in South Africa’s lexicon – and has colloquially come to describe the art of mixed messaging and double speak.
Why, you may ask, is this relevant to an article on business and policy in South Africa in 2019? Well, in trying to decode the ambiguous messaging and positions of Ramaphosa and the ANC around key policy issues, one can only conclude from the lack of clarity that the president and his party are speaking in ‘meandos’.
Indeed, the term “meando-nomics” best describes the ideologically unclear, haphazard and clumsy communication strategy which has characterised the Ramaphosa era thus far. In signalling right and keeping left, the President and his ANC continue to score own goals, stoking anxiety amongst businesses and damaging already fragile investor confidence.
Upon his ascent, Ramaphosa was hailed as a reformer who would prioritise pragmatism over populism. Despite an initial honeymoon period, investors and critics are growing increasingly concerned that the rhetoric does not match the reality.
From a lack of clarity on contentious land reform, to plans to nationalise the central bank, financial markets and businesses are running out of patience. Business confidence slumped to a two-year low in the first quarter of 2019, hitting Zuma-era levels, with ratings agency Fitch recently warning about currency volatility amid high inflation and low growth. Meanwhile the World Bank has cut its growth forecast for the country, citing policy uncertainty as a contributing factor, with the economy growing at an anaemic 0.8% in 2018. This comes ahead of a possible downgrade by Moody’s – which could trigger portfolio outflows of between $8-10bn.
Further, ‘meando-nomics’ seemingly tells everyone what they want to hear. Indeed, the Ramaphosa PR machine went into overdrive upon his initial visit to Davos in 2018, proclaiming that South Africa was open for business and a new dawn was imminent. This charm offensive extended to other areas such as the SA Investment Conference in November 2018 and the explicit articulation in Davos this year that the mandate of the reserve bank would remain sacrosanct while land reform would be done under constitutional means. Yet, on the campaign trail, Ramaphosa has adopted a different demeanor as he attempts to appeal to the electorate and shore up the ANC’s share of votes with more populist policy inclinations.
State owned enterprises
One ‘meando’ that has left investors in the dark in recent months is that on state owned enterprises, particularly Eskom.
In 2018 Ramaphosa didn’t mince his words regarding the state of SOEs, noting that governance at SOEs was “trashed and ignored.” These were the words of a president who was seemingly primed to act decisively on enterprises flagged as being among the biggest risks to the fragile economy. He also alluded to the idea of privatisation, which was sacrilegious in years gone by.
In the months that followed, reasonable first steps were taken in the form of management changes and the establishment of multiple commissions of enquiry. But they are hardly the kind of overhaul that is required to transform SOEs from their trashed state.
In classic meando-nomics style, the President has been vague regarding the proposed unbundling of Eskom. And only in March was it revealed by Pravin Gordhan that the government had no coherent idea of the extent of the problems besieging the utility. During this period, Ramaphosa’s embrace of the populist imperative has also become more apparent. First in his administration’s agreement to a 7% pay rise for the next two years for Eskom workers, despite clear fiscal constraints. Second, in his flip flopping on unbundling and Eskom’s bloated labour force, amid pressure from unions.
While politically expedient given the sheer numbers that unions account for, ‘meando-ing’ over the issue of SOEs will hardly relieve investors and businesses who are fast reaching panic mode.
Land
The issue of land reform is also one that the Ramaphosa administration has ‘meandoed’ about. After initially endorsing a procedural process on expropriation without compensation, Ramaphosa jumped the gun in July 2018. In a late-night broadcast that was reminiscent of the Zuma-era, the incumbent announced that the ANC will propose constitutional amendments on expropriation without compensation.
In one way this offered certainty regarding the party’s plans regarding land reform. However, the abrupt nature of the announcement pre-empted the outcome of an ongoing parliamentary process whilst speaking to deeper internal cleavages over land reform between Ramaphosa and a Zuma-wing of the party seeking to push the measure further towards the left.
In December, a draft expropriation bill was eventually released for public commentary. Yet, the administration has failed to effectively communicate the piece of legislation, its alignment with the constitution, and it’s espousing of just and sensible reform. Not only has this ill-timed silence exacerbated doubt among investors but it has also given room to populist elements such as the EFF to regain some ground on the narrative.
SARB
Thirdly – and perhaps most reflective of the ideological split between within the ruling party and Ramaphosa’s “meando-ing” – is the issue of the nationalisation of the South African Reserve Bank (SARB).
Since taking power, Ramaphosa has been fairly considered on the nationalisation of SARB. This was clear in his remarks at Davos, where he noted that SARB “is independent and that there is no intention whatsoever to tamper with its independence.”
This is in contrast to the likes of ANC Secretary General, Ace Magashule, who has been unequivocal on his stance on the nationalisation of the central bank, in what appears a move to force the president into the corner.
But in another clear instance of meandonomics, Ramaphosa suddenly changed tune in March, announcing that “the government will proceed with its goal to nationalise SARB.” And while nationalisation itself is not the greatest concern, it is the potential skewing of its mandate and its politicisation that has sent investors into panic mode.
As relayed by Ramaphosa, the move is necessitated by a requirement to focus on job creation – a deviation from the bank’s current focus on price stability. Moreover, it is politically expedient given the resonance of the job creation narrative and the notion that SARB is an impediment to the ANC’s developmentalist agenda.
This change in tune on SARB is indicative of Ramaphosa’s willingness to temporarily forgo prudence for populism for the sake of political gain. But the question is whether the political gains outweigh the economic costs when the dust settles?
Optimists argue that Ramaphosa is simply playing the long game and that the flip flopping is needed so that Ramaphosa can consolidate his position both within and outside the party until he is strong enough to act with more conviction. Pessimists argue that he is weak and indecisive.
But the current situation is hardly surprising. The 2017 elective conference result meant that both the worst-case and best-case scenario were avoided – but this kept the ANC in limbo from a policy perspective. Rather than moving in a clear direction with high conviction, the ANC leadership structures ended up with a de facto coalition which needed to appease various competing interests and lobby groups within the party. The lack of ideological coherence means that the party remains hamstrung by infighting and afflicted by inertia. This is less than ideal at a time when the country desperately needs policy coherence, clear and unambiguous reform, and decisive leadership.
As it stands, meando-nomics will continue at least until the 08 May general elections, with Ramaphosa signalling right and staying left. In fact, his signals may tilt further left on issues such as SOE reform and the nationalisation of SARB, as the election draws near.
The calculus is a tricky one. Having only claimed the party presidency by a slim margin, Ramaphosa needs to be dexterous in order to garner a decisive electoral victory and popular mandate. This is necessary to strengthen his hand in the event that a more prudent post-electoral agenda conflicts with that of the party. For that, he must appeal to both the soul of the ANC and that of the country, where populism is increasingly finding resonance.
This is a high stakes strategy, and the payoffs either way could be game changing. South Africa will be waiting with bated breath.
- Ronak Gopaldas is a Director at Signal Risk and Menzi Ndhlovu is an analyst at Signal Risk.
