South Africa election: What big business wants for the future

South Africa election: What big business wants for the future

Image source, Getty Images

  • Author, Jonathan Josephs
  • Role, Business reporter, BBC News

A leading figure in South Africa’s second biggest political party has warned that a failure to fix the economy “might end up with violence that nobody wants”.

In the aftermath of the elections Dion George, who oversees economic policy for the Democratic Alliance (DA), has told the BBC that political parties need to “set aside our deeply entrenched ideological perspectives” to get the economy growing again.

The African National Congress (ANC), the party that ended white-minority rule in 1994, came first in last week’s polls, but did not win an outright majority and is trying to put together a government of national unity.

South Africa’s President, the ANC’s Cyril Ramaphosa, has said the concerns of citizens must be the priority.

“These issues include job creation and the growth of our economy that will be inclusive, the high cost of living, service delivery, crime and corruption,” he said recently.

Nearly eight million people are unemployed across the country, meaning the jobless rate is 32.9%.

It is one of the highest in the world and has been called a “ticking time bomb” in a UN report.

Amid ongoing power cuts that make it difficult for businesses to function, this week the statistics agency said the economy shrank in the first three months of this year – with manufacturing, mining and construction suffering in particular.

Last year South Africa’s economy grew just 0.6%.

“A whole lot of small businesses have actually shut down” because of widespread problems with energy supplies as well as the state run transport and water networks, says Busisiwe Mavuso, the chief executive of the influential lobby group Business Leadership South Africa.

Its members include local names such as the Bidvest conglomerate and Absa bank as well as international firms such as Amazon, Volkswagen and Nestle.

Ms Muvaso says the “trading environment is not conducive” and that her members’ “plea is for the government to really fix the basics”.

The central bank says foreign investment fell by a third last year, given the difficulties of trading in a country that the International Monetary Fund (IMF) forecasts will nonetheless return to being Africa’s biggest by the end of this year.

French bank BNP Paribas and UK oil giant Shell are amongst the big, foreign names pulling out of South Africa.

In a recent aborted takeover bid for the mining firm Anglo-American, Australia’s BHP made it clear it did not want the company’s South African assets.

Despite having a presence in South Africa for more than 120 years Shell says its exit is part of a broader review of its business.

The competition for investment is fierce and Ms Mavuso says “we’ve really made it difficult for capital to land here”.

“East Africa is eating South Africa’s breakfast,” she jests, while remaining hopeful that the size of the domestic market and the rule of law will ensure the return of investment once the economy is back in better shape.

Image caption, Lobbyist Busisiwe Mavuso says some investors are eyeing East Africa instead

For both foreign and domestic companies, Ms Muvaso says, the government has to “create an environment that is conducive for investment” – and that will bring the jobs South Africa so badly needs.

With so many people out of work there is widespread inequality, and she warns that means “you’re never going to be able to attain social stability. So we are definitely at risk of the erosion of social cohesion”.

Amongst 15 to 34-year-olds the unemployment rate is 45.5% and the frustration caused by a lack of jobs is easy to find amongst young people in Johannesburg.

“Business opportunities for young people” must be the new government’s priority, says unemployed 23-year-old Tebogo Mokobane. “I’ve been looking for a job for two years as an animator and I couldn’t find anything so far.”

Siphiwe Masila, a 24-year-old financial analyst, agrees: “More opportunities and work for the youth” are paramount and should be “more accessible”.

Constant power cuts concern her and 24-year-old student Philasande Mnguni, who says his “greatest frustration is just service delivery” at a time that is tough for “a lot of South Africans”.

South Africa has been described as the most unequal country in the world, and there is a critique from the left that the economy simply does not work for the majority of the population.

The Economic Freedom Fighters (EFF) – the fourth largest party – has called for greater nationalisation and the expropriation of land so that the wealth of the country can be more evenly shared.

The party says that some of the more business-friendly policies of the ANC and its broad-based black economic empowerment legislation have not tackled the underlying problems the country has, which are the legacy of the racist apartheid system that ended 30 years ago.

Image caption, Siphiwe Masila, 24, says good work prospects are out of reach for too many

The difficulties many are facing in making ends meet in a stagnant economy led the government to increase a range of welfare payments in February’s budget.

More than 24.5 million people, or 39% of the population, receive some form of financial help from the government. It is one reason why government debt has increased to 74% of the country’s annual income and that the IMF warned in April that “decisive efforts are needed to cut spending”.

South Africa’s own treasury has warned that “debt-service costs are choking the economy and the public finances”. They now account for 20% of all government spending, more than basic education, social protection or health.

Looking at the electricity problem, the DA’s Dion George says that it is “probably” important for the government to borrow money to fix the country’s crippled energy network, railways and ports. But he admits that will be difficult to afford.

Another option he says is to “change the model, inject the private sector into it”, which would lessen the strain on government finances.

With centre-right DA getting 22% of the vote, it may have some influence on future policy and also wants labour laws such as minimum wage rules relaxed to boost employment.

“It’s priced workers out of the market, employers are not willing to employ people at the rate of the minimum wage,” says Dr George. His white-led party proposes an exemption for 18 to 35-year-olds who have been unemployed for two years.

Image caption, Dion George is part of the DA party which wants to rein in the strength of trade unions

But it is the sort of policy which puts the DA at odds with South Africa’s trade unions, an important ally of the ANC.

The unions have warned the ANC against forming any agreement with the DA.

“We reject any coalition with the DA,” Solly Phetoe, general secretary of South Africa’s power trades union federation Cosatu, said earlier this week.

“This is one political party that called for scrapping of the minimum wage, NHI and saying workers have too many rights.”

NHI refers to National Health Insurance Bill, which promises universal healthcare for all, and was signed into law by President Ramaphosa just before the election.

Mr Phetoe’s comments shows the real fears from the ANC’s support base that the DA will not support their social welfare programme.

The DA, for example, opposes both the NHI and the ANC’s black empowerment policies.

Dr George counters that “we need to rein back the strength of the trade unions in our economy”.

He says that while the ANC’s Finance Minister, Enoch Godongwana, agrees with him that South Africa has a growth problem, they disagree on whether the ANC has a spending problem.

“Choices need to be made” to get the economy to grow again, “because if we don’t do that… we’d end up with a bailout, we’ll end up with an economy that doesn’t grow. And of course, heaven forbid, we might end up with violence that nobody wants.”

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