CAPE TOWN - If the ANC elective conference proceeds successfully then soon South Africans and many global onlookers will know the identity of the next President of the African National Congress (ANC).
The election of the president of the ANC will decide not only the future of the ANC but of the country.
It is worth understanding how that future looks under Nkosazana Dlamini-Zuma or alternatively Cyril Ramaphosa.
It is tempting in the excitability of the moment to imagine that South Africa is poised at the edge of an ideological crossroads; one road towards a market-driven economy with less state intervention and another leading towards greater interventionist and redistributive policies.
The reality is that the traditional dichotomy between the market versus the state has become passé not only in the economic development literature but in the practical workings of the dominant political party.
The economic policy direction of the ANC is best analysed as a choice between a developmental state and the welfare state with developmental aspirations.
South Africa has experienced greater success as a welfare state- that is a country focused on service delivery (i.e, electricity provision, sanitation, housing, healthcare, education) and redistribution through a progressive tax system, land reform, and cash grants, then it has a developmental state focused on state-led growth, characterised by increasing productivity and competitiveness.
Whichever leader will emerge from the elective conference, the ANC policy framework is unlikely to shift drastically from this paradigm; the choice being the right balance between welfare and developmental objectives.
The developmental state
It is difficult to characterise South Africa as a developmental state, and when we examine the key features it will be evident why it is not.
But Ramaphosa more than Dlamini-Zuma is likely to want to set South Africa back on the path envisioned by the NDP in key aspects:
1. Focus on economic growth. Redistribution to take a back seat.
A key feature of the success of East Asian developmental state models has been the dogged pursuit of economic growth through industrialisation and human capital formation.
The developmental state model places far less emphasis on cash transfers and redistribution, relying instead on intensive investment in skills development and technological innovation to absorb a steady stream of people into a productive and competitive economy.
In the current growth environment Ramaphosa’s growth targets as outlined in his policy platform of a ‘New Deal’ are ambitious: 3 percent GDP growth in 2018, rising to 5 percent growth by 2023.
But high growth targets must be coupled with the policy mix most likely to achieve them. And it is here that ideals have often given way to reality.
2. Transformation through human capital formation, increased productivity and competitiveness
Ramaphosa’s New Deal is explicit about the fact that the welfare state has brought many out of poverty but has been limited in driving investment, creating a skilled and employable population and achieving the consistent levels of growth necessary to ensure economic mobility of future generations.
It is perhaps the most explicit an ANC leader has been in recognising that these challenges are not just as a result of the apartheid legacy but due to “a failure of leadership and misguided priorities.”
It would also need to stem the growth of redistributive transfers such as cash grants and leave further land reform to market processes and the securing of tenure for current landowners.
In building a solid industrial base there is no way to escape the need to develop the primary resource which is a trainable labour force.
In this regard world class educational outcomes are crucial. Ramaphosa has been clear that “unions must refuse to defend those who stand in the way of the education of the children of the working class.”
His experience in negotiating and brokering deals with unions would suggest that he, above his successor, might stand a chance in reaching an agreement with unions around strikes, teacher appointments and performance; areas which have contributed to stunting progress in education outcomes.
Speaking in Soweto, Ramaphosa proposed that it was in the villages that “new businesses will be established, new factories opened, new social infrastructure developed and where new technological innovations will emerge.”
It is statements such as this while addressing ANC members in the Vaal, which have given Dlamini Zuma’s bid a greater tinge of the racial redistributionist approach.
Her statements have tended to deepen the racial wedge and to paint South Africa’s economic disparities as a result of ‘business dragging its feet’ or ignorant white South Africans.
More recently she was quoted saying, “I will show these white people that there are people who live worse than their dogs.”
Dlamini Zuma’s keenness on accelerating the land redistribution agenda, early on entertaining the idea of constitutional change to accommodate expropriation without compensation, has signalled that she may be more willing than Ramaphosa to appease populist fervour, and to regain ground the ANC has lost to the Economic Freedom Fighters (EFF) who have championed the issue of white South Africans giving back land.
The ability to achieve the industrial policy aims of the developmental state; which both Ramaphosa and Dlamini-Zuma aspire to, depends on leaning the scale away from extractive redistribution programs to productive growth programs.
Dlamini-Zuma has displayed less affinity to that compromise.
3. Small scale, elite bureaucracy with close links to business to ensure consultation and cooperation
David Kaplan, who between 2000 and 2003 occupied the position of Chief Economist in the Department of Trade and Industry, has written that the key to effective industrial policy is driven by two criteria: 1. the professionalism and capacities of the government 2. Effective collaborative effort between government and business.
South Africa has performed poorly in these respects; prominent examples include governance failures at SOEs and policy upsets with important business stakeholder groups including with the Chamber of Mines over the Mining Charter and AgriSA over a variety of legislation including the Agricultural Land Holdings Bill which threatened to put ceilings on land ownership.
Ramaphosa more committed to reversing this trend repeatedly emphasised the need for greater consultation and a “compact” with the business community.
Furthermore he has called as “an immediate task the appointment of boards and executives at each of the strategically important SOEs” that are “skilled and experienced”, as well as having a commitment to scaling down the size of the public administration.
4. Strategic industrial policy
It has already been said that the developmental state places less significance on the choice between market and state. Indeed successful developmental states are those able to protect crucial elements of private property and competitive markets.
The state has to make structurally defining choices about which industries to invest in and guide towards national outcomes, and which to leave well alone. In those sectors in which a significant degree of bureaucratic intervention is to occur it is imperative that private players are provided with a stable and predictable environment in which it makes sense to undertake long-term risks.
Ramaphosa’s thinking is undoubtedly animated by this kind of industrial policy thinking.
Furthermore that the government would “target specific items where we can replace imports with locally-produced goods.”
And on the policy front that the national government would “need to do more, through policy certainty and partnership, to ensure that the industry remains a source of wealth creation and foreign-exchange earnings.”
Dlamini-Zuma has been vaguer, but not far off Ramaphosa’s sentiments, on the nature of the developmental path and its relationship to business saying, “A developmental state also means a partnership between government, business and labour, and a partnership with and respecting all citizens. It means working together across all political lines for the achievement of common national objectives.”
Is either candidate likely to make significant inroads towards a developmental state? Probably not.
A successful state-led industrial path must come with some compromises on the redistributive end, and it is unclear that Ramaphosa has the stomach nor the political capital to confront that conflict.
Aside from the expenses of a widening social welfare programme, aggressive preferential policies based on race threaten to increase costs of procurement and delivery at the expense of efficiency, encourage rent-seeking at the expense of productivity, and in many instances have tended to create a gate-keeping class instead of breaking down barriers; all flaws antithetical to the state-led but markedly efficiency-driven aims of the East Asian model.
Even under Ramaphosa redistributionist elements will weigh on fiscal and administrative priorities.
To be fair Dlamini-Zuma has said comparatively little to Ramaphosa, agreeing to fewer public engagements and interviews, making her agenda more difficult to assess.
Her reputation as the vehicle through which present patronage networks and populist policies would continue is largely down to the utterances of her backers than anything she has revealed herself.
Where she has been more detailed, including her proposal of an Economic Codesa, she has tended to sound more like Ramaphosa than the caricatured figure of radicalism.
Where Ramaphosa may be hampered by a failure to execute promising ideas, Dlamini-Zuma is more likely to be hampered by entertaining populist investor hostile policies but succeeding in their execution.
There are varied accounts of her time at the African Union, but by many, she is recognised as a ‘doer’.
She has insisted on this herself saying, “South Africans will know that I’m very decisive. I don’t sing about things, I act.’ She has been credited with improving interdepartmental cooperation and coordination and running an administration that used scarce resources efficiently. In addition, she built a strong reputation for reform during her tenures as minister of foreign affairs and then of home affairs.
Attuned to the right policy direction Dlamini-Zuma may be capable of adding much-needed grease to the slow grinding bureaucratic cogs than her opponent.
How has the ANC moved from developmental state to welfare state?
It would seem that aspirationally the state-led development approach appealed to the ANC in the early 1990s and 2000s more than the idea of a welfare state.
Examples of this include, a) the fact that the significant portion of the land reform strategy had a clear horizon; the land claims process was opened in 1994 and closed in December 1998 to ensure rural stability and market certainty, b) the idea of a sunset clause animated early discussions around affirmative action, c) social grants were at best a necessary tool on the path towards a capable state commanding an inclusive economy, and at worst a political gimmick useful in portraying to the masses an image of strength and magnanimity. And when it came to the idea of a universal basic income grant the ANC has historically been the most vociferous opponent.
The basic income grant found dissidents in the ANC from Joel Netshitenzhe to Trevor Manuel who famously quoted Cicero saying, “people must again learn to work instead of living on handouts,” and Mbeki in the 2003 State of the Nation Address spoke about “increasing the numbers that rely for their livelihood on normal participation in the economy.”
But as the economy faltered and more have become dependent on the state what were short term corrective measures needed to address historical wrongs, and social grants to support the poorest of the poor have become linchpins of the political narrative and strategy.
In 2014 KwaZulu-Natal MEC for Agriculture and Environmental Affairs Meshack Radebe was quoted as saying that, “[Zuma] has increased grants, but there are people who are stealing them by voting for opposition parties.” He continued to say that “if you are in the opposition, you are like a person who comes to my house, eats my food and then insults me.”
A Ramaphosa victory will undoubtedly be met with market enthusiasm; in the last week the Rand was already firming up on news that Ramaphosa was ahead in the branch nominations.
Still, it is unlikely that a Ramaphosa win has been strongly priced into the market, and a further strengthening of the currency can be expected should he win the presidential race.
His election risks a near-inevitable reversal however because there is few low hanging fruit; the road to economic recovery requires hard graft and hard decisions. It would be surprising if Ramaphosa with a divided ANC is able to pull through the reforms necessary towards a successful developmental state.
Dlamini-Zuma’s election comes with greater downside risk; an initial negative surprise after her win will likely see downward movement in the Rand and overall market sentiment.
Without positive sentiment to buoy her initial days in the role, it is likely that the public and markets will react quicker and more negatively to missteps she may make.
Because she has said so little and the mood of business and the media has been more critical, you have negative sentiment compounded with uncertainty in the case of Dlamini-Zuma increasing the likelihood of 2018 as a very volatile year with her election.
Gwen Ngwenya is an economist and the COO of the IRR – a think tank that promotes political and economic freedom
The views expressed here are not necessarily those of Independent Media.
-BUSINESS REPORT