Cyril Ramaphosa - South Africa's first business-friendly leader?

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Cyril Ramaphosa - South Africa's first business-friendly leader?

South Africa's governing African National Congress (ANC) on Monday capped months of intrigue and speculation by electing Cyril Ramaphosa as the party's new leader, a position that sets him up as the frontrunner to be the country's president after elections in 2019.

Ramaphosa is an iconic figure in South African politics, and much ink has already been expended on his prospects for revitalising a flagging ANC, fighting the growing scourge of corruption, and generally reviving South Africa’s international standing. All will be difficult challenges. However, I think Ramaphosa could prove most influential for the future of South Africa in that he could prove to be the first truly pro-business leader in South Africa’s modern history.

First, let’s define pro-business; South Africa is hardly a socialist state. But it’s never been a state with a level playing field for investors, either domestic or international. The dominant narrative from the 1912 establishment of the republic until the 1994 democratic transition was the government’s facilitation and sustenance of Afrikaner crony capitalism, a system that far exceeded modern-day Broad-Based Black Economic Empowerment (BBBEE) initiatives in its artificial creation of an ethnically- and racially-based entrepreneurial class. This is the root of modern-day ANC critiques of ‘white monopoly capital’.

The post-transition period has seen more nuance interjected into economic policy and the role of business. But old habits die hard. Nelson Mandela’s consultative style extended to both South African and international business leaders, but he was largely disengaged from day-to-day policy making around the economy. His successor (and de facto prime minister) Thabo Mbeki facilitated a macroeconomic environment largely conducive to international investment, but he was, at heart, inherently distrustful of overtures from ‘big’ business, both foreign and domestic. Mbeki was also a champion of BBBEE policies that aimed to boost black participation in the economy.

BBBEE policies have boosted participation in the country’s broader economy by the black majority. But they have also created a black plutocracy (of which Ramaphosa is certainly a member) that is largely disconnected from the plight of most South Africans, who struggle with a formal unemployment rate of nearly 30 percent and stagnant wage growth for those with jobs. As for Jacob Zuma, one can argue that the ‘broad based’ was dropped from the equation, with ethnic and racial crony capitalism ramped up to the standard of the 1950s and 1960s.

So now Cyril Ramaphosa inhabits the ANC leadership with a unique skillset and background which has touched on nearly all segments of the South African economy. In 1982 he founded the National Union of Mineworkers – one of South Africa’s most influential unions – and the Congress of South African Trade Unions (Cosatu) in 1985. Then, following his ANC ‘deployment’ to the private sector in the mid-1990s, he founded a conglomerate, Shanduka, that has interests in a variety of sectors and made him a very rich man. Until his 2014 election as South Africa’s deputy president, he sat on the boards of several local and international companies.

Ramaphosa’s pedigree is not uncontroversial within the ANC; his board seat at Lonmin was of particular concern following the 2012 ‘Marikana massacre’ in which police killed at least 34 striking miners. But overall, his diverse roles provide him with excellent insights into the operations of the ANC, business, and organised labour. These could prove transformational for the party, and the South African government.

Does Ramaphosa want to be the ‘pro-business’ president of South Africa? While there will be elements on the ‘left’ of the ANC  opposed to monopoly capital – largely union and rural voices in the party – South Africa is at a crucial juncture whereby such a choice is subject to much debate. To survive in office beyond 2024, the ANC must create jobs. Under Zuma, the country’s already egregious unemployment numbers worsened. But South Africa cannot create jobs unless it creates an investor-friendly environment that can absorb what is, in reality, a substandard human capital base for a country fully integrated into the global economy.

Many in the ANC would say that such a characterisation reeks of neo-colonialism or Western imperialism. It doesn’t; it’s reality. South Africa is a relatively poor country with low educational achievement levels that is geographically in the middle of nowhere. To compete for capital inflows, South Africa must compete against a multitude of similar middle-income middle powers around the globe. Not competing is not an option if South Africa wishes to remain a prosperous nation.

If one accepts this hypothesis, what must Ramaphosa do to retain and attract investment to South Africa? I have four ideas:

  • Make policy consistent and transparent: The biggest complaint about South Africa I hear from potential investors is the uncertainty around the long-term policy environment. The Mining Charter is a great example; the government set down a 26 percent ownership stake in mining ventures, but then the ANC mooted changing it to 30 percent, plus a penalty for the sale of black-owned shares. The actual change, while a disincentive to mining companies, is not the problem. It’s the fact that they were not consulted or informed in advance. Investors need certainty and consistency.
  • Listen:  Another complaint I have heard through the years is that both local and international businesses think that the government does not take them seriously. They go to one minister with an issue, they are ‘fobbed off’ to a civil servant, who in turn sends them to another civil servant; this cycle continues until the issue simply dies out. Ramaphosa does not need to create a new bureaucracy, but he needs to ensure that all of his ministers (and some function of the ANC) are attuned to investor concerns and know how to respond to them.
  • Figure out the SOEs: Much has been made of the corruption issues related to the Guptas at Eskom and other South African state-owned enterprises (SOEs). The bigger question is how a guaranteed money-maker like Eskom has run into such challenging financial straits. There is no one-size-fits-all answer to SOEs: Eskom and Transnet may not be great privatisation candidates, while there is a case for South African Airways to be liquidated altogether. But there must be some discussion of what to do about them, as even without the corruption issues, the situation is untenable.
  • Build the human capital base: South Africa must turn out more skilled graduates to survive as an economically productive state. The skills shortage has bedevilled the government for decades, but it now poses the biggest threat to growth the country faces going forward. To this end, Ramaphosa must consider critical interventions in the education sector – which is consistently ranked by the World Economic Forum as one of the worst in the world despite consistently high spending on it. These should include action against the long-powerful teachers’ union to ensure accountability in results. This is a big issue. Much has been written about the corruption rot under Zuma, but its economic impact pales against the weakness of South Africa’s human capital.

None of this will be easy. Ramaphosa will have to build up his position within an already divided ANC to create consensus on policy moving forward. This is not a party that is united in its aims; the Mbeki-ite consensus to be all things to all people is rapidly breaking down. But Ramaphosa can bridge divides that no other ANC leader in the party’s history has been able to do. And he understands the country’s economy like no one else. And at the end of the day, he does understand that the private sector – and not just ‘crony capitalists’ – must be brought into any policy discussions about South Africa’s future, particularly those that include tackling unemployment and broader inequality. It is going to be a long road, but in the end, few individuals are better suited to bring about change than Ramaphosa. Here’s hoping he has the energy and will to follow through.

Risk Advisory's Business Intelligence Africa team has over 20 years of experience helping clients conduct due diligence and strategic investigations, across industries.

Author: John Siko, Head of Business Intelligence, Africa
Published: 20th December 2017