Independent political analyst, JP Landman says that some of the major concerns facing South African investors have shifted in recent years as clear reforms have begun to take place.
In an interview with Nedbank Private Wealth, Landman pointed to the issue of prescribed assets, and the perception that government intends to raid pension assets to fund defunct state-owned institutions.
He said that this issue is now little more than noise, after at one point being a serious concern for investors.
“There have been clear signals that government has moved away from this approach, and now plans on partnering with the private sector to leverage the country’s savings via the capital markets, for the shared benefit of all,” he said.
He cited the recent announcement that Transnet plans on undertaking three large projects with the help of private-sector capital as a prime example of this change of heart.
Landman also has a relatively positive view of the long-term potential of the country’s power crisis. He said that he country’s power industry is being transformed, albeit gradually.
“The recent forward momentum achieved with the separation of the transmission company from the other Eskom businesses is evidence of this positive change, and as the main objections to the strategy fall away – as they are doing – we are moving closer to the vision of an energy reality where consumers can choose where they want to purchase their electricity.”
He said that these energy decisions represent the most significant achievement of the Ramaphosa government to date, and, more importantly, are helping to put the country on a higher and sustainable growth path.
“The route government is taking towards the achievement of lasting economic recovery is a positive, but a challenging one characterised by real structural reform to improve productivity and thereby drive sustainable growth,” he said.
Landman warned that there are still three key elements that need to be in place today to underpin the country’s long-term economic success.
He said that the first issue is that the country needs to have economic growth that is higher than population growth.
“Unfortunately, South Africa has failed to achieve this over the past six years. Covid-19 exacerbated this challenge, and by the end of 2020, South Africans were an average of 11% poorer than they were in 2014,” he said.
Landman said this is compounded by the increasing government debt burden that is now fast approaching unsustainable debt-to-GDP levels.
“Slow growth and high debt are key reasons why South Africa is now ranked below-investment-grade status.
“It is a slippery slope that we need to avoid at all costs – and there seems to be the political willpower to do so. Fortunately, we have some favourable tailwinds assisting, most notably the strong growth in the two largest economies in the world: the US and China.
“This has helped buoy demand for key commodities, which has benefited South Africa with stronger exports.”
South Africa’s growth decline, he said, has been caused mainly by structural challenges, and the only way to arrest the decline is through structural reform – which he believes is beginning to take place.
“Both the president and minister of finance appreciate this necessity, as demonstrated by policy positions,’ he says. ‘And the once-lambasted 2018 treasury document that called for many such structural reforms has now become central to government policy.
“There is even a dedicated implementation agency for it, that reports directly to the president on progress.”
Landman said that increasing political support for structural reform is most evident in the areas of energy, infrastructure and spectrum.
He said that the positive impact is starting to show, as shown by economic growth projections for 2021 of around 4%, while population growth is predicted to be 1.6% for the same period.
“This could well be the first in six years that this vital balance is restored. And the obvious question then is can this be sustained in the coming years?”
Landman is confident that, if the government’s commitment to structural reforms continues, we can be fairly optimistic that this will be the case for the years to come.
The second aspect of a successful South African growth trajectory is retaining an open society that can adjust and correct itself.
It is clear that these social dynamics had a large part to play in the removal of Jacob Zuma from office and turning the tide on corruption, Landman said.
Landman’s final requirement for sustainable economic success is that the population, and its leaders, must demonstrate a continued ability to ‘unlearn and relearn’.
“Over the past three years, there has been a fundamental shift in our body politic,” he said. “In general, voters have had enough of corruption, and they expect the government to address it. This is a clear expression of the ability of South Africans to unlearn and relearn.”