3 November 2023

South Africa is in trouble. The economy is stagnating as a result of crumbling infrastructure and governance that is both inept and corrupt.

Wherever one looks, one sees already deep problems becoming deeper. And there is little apparent reason to hope for better: not only is the government not providing clear leadership, even if it tried to, no one would have any confidence in its ability to deliver.

Given the breadth of the challenges and the different ways these affect different sectors of the economy and different communities across the country, it is tempting to propose responses that include reforms and initiatives that promise a response to each manifestation of the country's polycrisis.

This is a mistake. What South Africa needs is to focus. There are too many problems for each to be solved on its own. Besides, the most urgent challenge is to arrest the accelerating decline of our country, not to develop bespoke solutions to each problem we face. That is a luxury we simply cannot afford.

Three priorities

So what should we be focusing on?

There are three core priorities that should define the government's agenda and the president's diary for the foreseeable future: addressing the ongoing deterioration of the rule of law and the rise of corruption, solving the energy and logistics challenges, and getting public finances onto a sustainable footing.

In implementing these priorities, the government (and everyone else) should stop fantasising about a capacitated state emerging soon and recognise that pro-market policies will work far better than policies that weaken markets.

South Africa's already bad security situation is deteriorating, with organised crime becoming more and more entrenched, emboldened and brazen. There are few sectors of the economy in which organised crime is not a significant commercial reality with which businesses must contend.

Nor is organised crime a threat solely to business: increasingly, the state is the primary target of criminality, with many of these criminals appearing to have links to (and maybe led by) politically connected individuals. Certainly, much of the criminality directed at the state – and there is a lot of it – has the feel of an "inside job".

Rolling back the tide of criminality is critical for making social and economic progress. The government's first order of business should be focused on protecting itself much better. This means recognising that the biggest threats to the state come from criminal actors who are members of social, economic and political elites.

Violent politics and active sabotage

It is fair to say that this is not something that SA's law enforcement agencies are particularly good at, even the exceptionally well-documented crimes committed under the Zuma administration have gone almost entirely unpunished. Indeed, some of it appears to have metastasised into forms of violent politics and active sabotage that ought to be treated as such.

Attacking organised crime and politically motivated violence, no matter how entrenched, is not beyond the capabilities of the South African state. Nor does it need significant new resources. Precisely because of the brazenness with which those involved conduct themselves, it should not be impossible to identify them and to bring them to justice. What it needs is political will and law enforcement agencies with the courage to do their moral and statutory duty. At the moment, there is little sign of this. Nor is there much conviction in the "leadership" being offered by Cabinet and the president.

The second core priority that needs to be addressed relates to the most critical systems for any modern economy: energy and logistics.

Poor governance and bad policy have allowed these systems to deteriorate to the point of collapse and, while massive investment by firms and households in their own generating capacity has helped alleviate some of the pressure on Eskom, the negative economic effects of failing railways and ports are only worsening.

In the short term, there is no way to address these two crises without getting serious about improving the quality of management in Eskom and Transnet, both of which have been hobbled by the effects of cadre deployment strategies and procurement policies that focused on suppliers' interests and not on the commercial and operational interests of the entities themselves. That these two policies have been thoroughly corrupted may not have been inevitable, but nor is it entirely surprising. Both need to go.

Fixing Eskom and Transnet is not the only priority: if the energy and logistics sectors are not thoroughly liberalised so that the forces of competition discipline providers, then neither sector will produce services of the right quality and at reasonable prices. Unless that is fixed, both will continue to hobble SA's economy and its global competitiveness, with enormous implications for long-term economic prospects.

It is, therefore, not enough to 'fix' Eskom and Transnet, in other words, we need to ensure that those fixes also help promote more competitive, liberalised markets for electricity and logistics and as quickly as possible.

The final priority is one that CDE has been writing about for many years: fiscal policy remains utterly unsustainable and, until this is addressed, we will never see sustained growth because it is implausible that investment rates will rise in an economy in which the risk of fiscal crisis is high and rising.

Reduce spending

By this point, it is quite clear that our fiscal woes can't be fixed by raising taxes, which will slow economic activity further, so the only plausible way to close the gap between revenue and expenditure is by reducing spending.

No one thinks that doing this is either easy or painless, and it is inevitable that the cuts that have to be made will be painful. The key, of course, is to minimise the effect of those cuts on infrastructure investment and on service delivery to poor households. (And simultaneously and urgently fix the government's public-private partnership regulations to encourage private-sector investment in infrastructure).

Nevertheless, cuts will have to be made. This should be done where public spending offers the lowest returns, whether because it contributes little to growth or to the reduction of poverty and inequality. Some examples would include the subsidies provided to favoured sectors and businesses through the DTIC.

Cuts should also focus on public sector employment in non-essential areas such as head office and support functions. Some whole departments could be cut, including the Departments of Planning, Monitoring and Evaluation, Public Enterprises, Small Business Development, the Sector Education and Training Authorities, and significant parts of the Departments of Employment and Labour, Sports, Arts and Culture, and Cooperative Governance and Traditional Affairs.

Atrocious governance over the past 15 years has left South Africa in a deep, deep hole. If we are to get out of it, the first task is to stop digging. There is, sadly, little sign that the present government understands this or has the capacity and political will to act in the country's best interests.

If it did, the three priorities articulated here – protecting the country and the state from organised criminality, addressing the crises in energy and logistics, and putting the public finances on a sustainable footing – would be the government's only priorities.

A serious president would have nothing else in his diary. Until such a president is in office, we are likely to continue to fall.

Ann Bernstein is head of the Centre for Development and Enterprise (CDE). This article is based on a new CDE research report, 'A country in crisis: First steps towards a growth strategy'.

This article first appeared on News24.