The new president of South Africa faces two primary challenges. In his five-year term, Cyril Ramaphosa must attract badly-needed outside capital but in order to do that, the president must convince wary foreign investors that he is deadly serious about cracking down on the rampant corruption that has bedeviled his country for years and caused the economy to sink. This is no easy task, even for a government led by a man who – as some would have it – is already so wealthy that he is beyond corruption. The solution that he and his yet-to-be-announced new cabinet come up with may well be to look away from traditional sources of investment in the West and turn their eyes eastwards to the Arabian peninsula and further to Asia.
The economic slump in the first quarter of 2019 has led companies involved in construction and financial services to cut their workforces, causing unemployment to soar to a staggering 27.6 percent. But this is just the latest episode in a series of economic disasters. The jobless rate in post-apartheid South Africa has never once fallen below 20 percent since 2000. Eight years of corruption-riddled rule by the former president, Jacob Zuma, have stripped bare the country’s state apparatus. State funds allocated for upgrading the electricity infrastructure were siphoned away by corrupt officials appointed by Zuma, leaving the national provider, Eskom, so mired in debt that power cuts have become a semi-regular occurrence.
Two factors make Ramaphosa’s task all the harder. Firstly, it was his party, the African National Congress and its elaborate and finely-tuned system of patronage, that allowed mismanagement to run wild during the Zuma years. It is imperative that he sets to work breaking up these corrupt networks, appointing new officials to run vital state enterprises and raising new capital for upgrading as expediently as possible.
This leads us to the second factor. For the first time ever since coming to power in 1994, the ANC won less than 60 percent of the vote in this election and it now has a credible challenger in the form of the Economic Freedom Fighters, a hard left, black nationalist party led by a populist firebrand named Julius Malema who also happens to be a former ANC youth leader. The EFF’s campaign message was that apartheid has never really ended in South Africa but has merely morphed from a racial, social and political separation into an economic one but with the same result. The black majority with few economic prospects live much as they did under white minority rule. It is a message that secured 10 percent of the vote for the EFF and suggests that South Africans are no longer in thrall to the ANC.
For economists and international investors hoping to use the post-election period to mend Africa’s most industrialised economy, this raises a few concerns.
Despite the ANC’s lackluster election performance, many both inside and outside South Africa believe Ramaphosa is the right man to assuage those fears. A popular trade unionist during the struggle against apartheid, Ramaphosa entered the private sector in the late 1990s and became one of the country’s richest businessmen. Many South Africans believe that his business experience and connections give him the right credentials for the presidency, while others reason that, having made his fortune already, he cannot be “bought” (although given the links between corruption and mega-rich politicians in other countries, that argument hardly holds water).
The general consensus before the election was that the bigger the mandate he received, the easier it would be for Ramaphosa to raise foreign capital. With a smallest-ever mandate for the ANC, the foreign investors South Africa relies on to keep the economy functioning are well aware of the uphill battle he now faces and their reaction to the ANC victory was lukewarm. The general sentiment, at least among Western investors, is that President Ramaphosa and the ANC have to show the world they are serious about economic reforms and crackdown on corruption.
Absurdly, after 25 years in power, the party’s campaign theme during the last months was: give us time to win the election and enact reforms. The reality is that many of South Africa’s economic woes are self-inflicted through the catastrophic mismanagement of government resources, a scenario played out across the continent, most recently in neighboring Zimbabwe.
Plans on the table so far include a restructuring of Eskom and clarity on issues such as land reform which was a major campaign rallying point for the EFF. But this election result, with the new cabinet still not announced, has not answered questions over whether the ANC leadership can return South Africa to the path of prosperity. And if the new government is serious, it will need to look for alternative sources of foreign investment, which is where non-Western investors enter the picture.
Chinese companies have been quietly supplying South Africa with a cash lifeline for several months but that relationship has not been without its problems. After a Chinese loan to Eskom fell through in April, the government had to authorize an emergency bailout or risk a default that could ripple across the entire country. The episode highlighted both South Africa’s delicate relationship with Chinese investors and how essential the inflow of foreign capital is to the function of its government.
A few months after taking over the party leadership in December 2017, Ramaphosa went to Saudi Arabia and the UAE looking for economic partners. Given the historically close links between the region and Africa (particularly East Africa), a deeper partnership between the continent’s most industrialised country and the Gulf nations makes sound sense for both sides. By working together, they can build knowledge-based economies and share technology to combat common challenges such as water management – a necessity highlighted by last year’s drought in Cape Town.
It is only by building those types of bridges that South Africa will start to pick itself up.
Joseph Dana, based between South Africa and the Middle East, is editor-in-chief of emerge85, a lab that explores change in emerging markets and its global impact.