ANC ineptness forced its economic policy U-turn

A lot has been said about the ANC’s apparent economic policy U-turn outlined in a leaked policy document set to be tabled at its policy conference in July this year.

It proposes that private sector companies acquire (invest?) stakes in state-owned enterprises (SOEs) and build the infrastructure necessary for these entities to function properly.

The document was received with surprise draped in heaps of scepticism. It appears to be a crack in the ANC’s historical belief that South Africa’s economic future is cemented in a developmental state model.

It seems as if there is an acceptance that this model has failed.

In a developmental state government takes control of the economy. The ideal is a state that plays a dominant role in the economy through strong intervention and extensive regulations and by building and running efficient state-owned enterprises (SOEs) thanks to which the private sector can ‘thrive’.

For example, an efficient Transnet could have exponentially increased the country’s exports of coal and iron ore industries, but alas…

The model is similar to China’s and Beijing proved that the developmental state can bear fruit. Its success is however squarely based on the running of profitable, well-managed SOEs that actively contribute to economic development.

Unfortunately, as successful as China has proven the model to be, the failure of virtually all of South Africa’s SOEs has had the opposite effect. If nothing else, the ANC has proven over the past decade that it cannot even run a bath.

The numbers speak for themselves.

The numbers do the talking

The 2022 National Budget shows the return on equity of SOEs tanked to -14.6% in the government’s 2021 financial year.

The SOEs’ total debt amounted to R850 billion, and operational cash flows fell from R56 billion in 2020 to R30 billion in 2021. This resulted in infrastructure spending plummeting from R86 billion in 2017 to R44 billion last year.

Government does not have the skills nor the money to turn these entities around.

Therefore, it should not come as a surprise that the ANC is turning to the private sector for help – despite portraying the latter as an enemy for being “greedy and exploitative” for many years.

Several interventions

Another reason that the leaked policy document should not come as a surprise is that over the past year or so, government announced several structural reforms to allow the private sector to assist SOEs in becoming more productive. This includes allowing private companies to generate up to 100MW of electricity without a licence, allowing private-sector rail operators to use Transnet’s rail infrastructure, and using private sector entities to make its ports more productive.

The current electricity crisis may also accelerate the licencing of private power producers.

The partial privatisation of South African Airways (SAA) is another example.

Although South Africa does not need a state-owned airline, introducing a private sector equity partner was the last resort to keep it in the air. (It was actually partial privatisation, but that word seemingly remains a swear word for ANC ears)

President Cyril Ramaphosa also alluded to it in his State of the Nation Address earlier this year when he said that businesses create jobs, not government.

The question, therefore, is whether the ANC will accept this document at its policy conference and if it does, whether it will be implemented before it is too late.

I still remember former president Jacob Zuma brandishing the National Development Plan (NDP) in the air at the 2008 Mangaung conference, proudly proclaiming that this document is the ANC’s plan to create a flourishing economy, create jobs, and reduce poverty and inequality. It was a great plan, and if implemented, South Africa would have looked very different today.

Some delegates openly jeered at the time, and others shook their heads. Look what happened.

I don’t think this is a radical U-turn based on renewed thinking within the ruling party. The ANC has forced its own hand.

Good proposals mean very little as long as they are only on paper and the latest proposal still needs to be accepted as policy at the ANC’s conference at the end of the year.

And after that, it needs to be implemented. The NDP is still gathering dust in file 13 and the same might very well happen with this document.