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South Africa

President Ramaphosa shifts back to market economics despite heavy political risks

ANC leaders push bold new plan to boost business role in state firms, energy transition and big infrastructure projects

Ahead of the African National Congress's policy conference slated for the middle of this year, its leaders are backing a radically pro-business plan to redraw the role of the state-owned enterprises such as Eskom, the power utility, and Transnet, its counterpart in transport.

It would offer private companies sweeping incentives to invest in job-creating projects in return for a far bigger role in the national economy, including those areas that have previously been under the full control of the state sector (AC Vol 63 No 8, State relaxes grip on national freight).

Budgetary pressures, spelt out by the Treasury after two years of pandemic economics and a decade of state capture, are said to be the main driving force for the shift (AC Vol 63 No 7, Economic swings and roundabouts).

The plan, which has been leaked to several media organisations, amounts to a repudiation of the state-backed developmental strategy as the driving force for economic growth.

It's a bold rewriting of the ANC's policy dictums ahead of the party's leadership conference. In December, President Cyril Ramaphosa is likely to face a challenge from a populist candidate accusing him and his colleagues of kowtowing to big business and foreign capital.

Although the ANC plan doesn't characterise the strategy as privatisation, it raises the prospect of private businesses investing in or taking over many of the country's state firms. That shift is informed by the reality that the Treasury can no longer afford the massive subventions the firms require.

With state spending just over 40% of gross domestic product in South Africa, the highest proportion on the continent, Ramaphosa's government faces tough decisions on the composition of that spending.

Already under heavy pressure over unemployment – joblessness in the country is running at over 35% – the government wants to prioritise social payments, retraining schemes and viable new enterprises rather than continuing to subsidise the state firms inherited in 1994.

But Ramaphosa and his colleagues will struggle to get that message across to his primary constituency: trade unions and the SA Communist Party. His strategy seems to be to persuade labour and capital of a quid pro quo.

In the short-term key areas for private capital would be power generation, road and rail services – all of which are heavily indebted and unviable commercially. The current dysfunction in the power and transport sectors is holding back wider economic growth.

The ANC plan would mean businesses coming into state firms under guarantees of jobs and wage rates – in return for secure public sector contracts. Earlier variations of such schemes, involving contracting out and commercial companies leasing state-owned infrastructure, have foundered on mass opposition by trade unions.

To make it work this time, the investing companies would have to make some heavy concessions on wages and job security. One idea that could prove popular is that business pays into a national fund to reform the land tenure system and modernise farm production.

The idea is for the fund to back job opportunities in production and the service sector in the rural areas, as well as to address the calls for black economic empowerment.

Fully aware of the risks with this new plan, the leaked policy draft states: 'The ANC needs to propose solutions that are large and disruptive enough to reshape the economy but that are also economically and socially sustainable.'



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