2018-09-27 08:32

Morné Mostert

President Cyril Ramaphosa has presented what the country and the world needed to hear: expenditure will be reprioritised.

If the previous priorities were built on radical economic transformation, the new priorities of health, education, tourism, reducing the cost of business, infrastructure (including energy, ports and rail transport), agriculture, townships and rural areas, appear to be moderate economic transposition.

In a sense one might argue that nothing has remained untouched as the plan is noteworthy for covering a wide range of challenges. Infrastructure calms down most of the business community in the short term, and this can be beneficial when the wolves of rating agencies are at the door.

In this sense, infrastructure appears to be a safe bet. But it leaves two significant considerations:

Are the plans based on the future?

Reprioritisation of resources must be future-based, rather than problem-based or (and this is tough in South Africa) past-oriented. This is because today’s problems expire and new problems emerge.

An appreciation of the longer-term and the cyclicality of investment is essential. Investment in poorly selected or politically driven infrastructure projects will create a false boom in the immediate term.

The potential for real growth, even on leveraged finance, is most likely to be in the medium-term, but there is also the distinct possibility of crushing debt in the longer term once the reality of the future economic ecology makes the white elephant infrastructure projects apparent.

Naturally, infrastructure investment is not inherently flawed as a strategy, but discernment about investment targets will be key. Olympic Games and Soccer World Cup-type investments globally are classic examples of such high risk investment patterns. When projected returns fail to come to fruition, government reporting then focuses on total spend, rather than sustainable jobs created.

Where will the new money come from?

Reprioritisation is often code for the absence of new ideas. Already hushed tones of “heard this before” are whispered in the corridors. Boosting investor confidence may be the expressed target, but investors are mainly curious about growth, not about expenditure. And over-promising the ROI on rural development will not attract the discerning investor.

Given the low rate of growth in South Africa, investors will also expect certainty on the accuracy of cost estimation for projects of scale – often anathema in infrastructure development finance. The long-term investor knows that, in the extended term, South Africa might well be financing poor short-term budgeting processes driven by the political rush for re-election.

If such projects are to be owned and managed by state-owned enterprises (SOEs) as the main vehicles of delivery, investors might be even more sceptical. Public-private-partnerships (PPPs) may be more attractive, but this, as always, will have to be balanced with the political optics.

What is urgently required is a systemic appreciation of most probable real return on investment in the longer term, not compared with the absence of any investment but with alternative investment vehicle choices which will stimulate new opportunity rather than move the furniture.

The Madrid Scenarios

In 2017 the Institute for Futures Research (IFR) published the Madrid Scenarios (so-called because it was first launched at the Office of International Education in Madrid). The dimensions of this set of alternative South African Futures introduced four key drivers of national success, which will need to be addressed by the new stimulus package.

The first is cohesion and collaboration over factionalism and self-interest. It may not be politically expedient for Ramaphosa before the 2019 election, but investors will be enamoured with a call for national unity, rather than a perpetuation of the Zuma-era insistence on defensive racial factionalism. The Zuma-style divide-and-conquer approach will have to give way to explicit welcoming of new ideas and radical innovation diversity. Ramaphosa is showing positive signs on this dimension with calls for increasing the ease of business and relaxing strangling visa requirements. 

The second dimension is what the scenarios called ‘Surfing the Fourth Industrial Revolution’ over exceptionalism. An exceptionalist mind-set, characterised by deeply dysfunctional state behaviour, such as market perturbing late night announcements and constitutional scepticism, must now give way to an internationalist perspective. 

This is already evident in Ramaphosa’s behaviour, most notably with his earlier influence at Davos and his address this week at the UN high-level debate.

The third dimension is a paradigmatic one: growth over redistribution. Here Ramaphosa is ambiguous. As ANC president redistribution looms large, but as statesman he recognises the need for rapid growth. Early signs are also evident of “redistributive growth”, a compromise which may offer a way to recovery.

The fourth elements is ROI (not spend) on education. It should be noted that the stimulus package commitments of investment in school infrastructure will not ensure high quality educational achievement. 

ANC alliance partner COSATU may have to be called upon to moderate the role of unions in the education sector to ensure a move beyond defensiveness towards educational performance – the true long-term investment for South Africa.

Against the most favourable of the Madrid Scenarios, known as Ecotopia, Ramaphosa is delivering encouraging signals. He has proven himself a master of the long game – a distinguishing quality of a true statesman. Mr President, send us for the long-term.

– Dr Morné Mostert is director of the Institute for Futures Research, a unit for strategic foresight at Stellenbosch University.

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