More of South Africa’s citizens are receiving state aid than salaries

When he took office last year, Cyril Ramaphosa promised a ‘new dawn’. So what happened?

A suburb in Cape Town. Citizens are suffering as South Africa's economy is squeezed. AFP

Well into his second year as South African president and Cyril Ramaphosa is in deep trouble. So too are the promised reforms that were to put the corruption of his predecessor Jacob Zuma in the rear-view mirror.

When he took office last year, Mr Ramaphosa promised a “new dawn”. If anything, economic conditions have worsened as Mr Ramaphosa battles to stay in office while factions in his party the African National Congress do everything to unseat him.

“We haven’t created jobs for the last 10 years,” says Maudi Lentsoane, chief executive of Lehumo Capital in Johannesburg. “It’s getting worse and worse and to have reached this level is just shocking.”

Almost a third of the countries’ workforce is sitting at home according to Statistics South Africa, and youth unemployment – those between 18-34 years old is hovering around 63 per cent. More people now receive state aid than receive salaries, according to the Institute of Race Relations (IRR) in Johannesburg.

IRR chief economist Ian Cruickshanks says state aid, or “grants” - are overwhelming state resources.

“So, there are more people out of work than there are people with fixed jobs. Certainly, government is doing its best to get more people on grants, but they haven’t the resources to keep everybody properly fed.”

More than 17 million people now live off grants, which pay 1,800 rand a person per month. Meanwhile Mr Ramaphosa’s apparent inaction and inability to reign in state spending is causing investors, both local and international, to lose hope.

At the heart of his apparent inaction is a bruising internal squabble. Beneficiaries of the Zuma years are fighting to neutralise Mr Ramaphosa and those he appointed to lead reforms. Most recently, a list of businesses who supported Mr Ramaphosa’s campaign ahead of ANC party elections in 2017 was leaked.

The list included a who’s-who of wealthy white industrialists, badly hurting Mr Ramaphosa’s public standing in a country where race remains a heated issue. When he first took office last year, the rand quickly reached a three-year high as investors enthusiastically endorsed Mr Ramaphosa’s reformist and business friendly stance.

Now, the rand has given up all its gains, falling to 15.30 to the dollar, approaching levels last seen in 2016.

Mr Ramaphosa has given little guidance as to how he intends reversing the situation. Last week he gave a talk to a branch of the party’s Womans League in Johannesburg. He warned that the party’s internal feuding was damaging confidence.

"When they see us, fighting and arguing amongst ourselves, whether ourselves in the governing party or in the country broadly, they think there is political instability and they walk away with their dollars and pounds,” he said, according to the Citizen newspaper. “I want those dollars and euros to be here."

He added cryptically, "We will turn our economy around, we will turn it around whether people like it or not." Whether this referred to much needed market reforms fiercely opposed by his detractors, or an indication that he intended to go ahead with radical proposals such as nationalising land, was not clear.

One of the more frustrating elements of Mr Ramaphosa’s administration from an investors’ perspective has been his shepherding along of proposals that economists warn would ruin the already damaged economy.

These include a possible change in the constitution that would allow the state to confiscate property without compensation; dismissing calls to cut down on the bloated payroll of state enterprises such as electricity utility Eskom; and the latest, backing plans to introduce a national health programme that economists say will end private medical insurance.

The latter has become an especially emotive talking point over the past few weeks, as many of the country’s state hospitals are in poor condition, forcing those who can afford it to pay for private medical care. The proposed changes will greatly limit consumers from choosing their own healthcare, obliging them to use state facilities while docking wages to pay for the scheme.

“The problem we have is that the numbers don’t add up,” says Dr Chris Archer, chairman of the The South African Private Practitioners' Forum. He fears that as the state meddles in private practice, doctors and surgeons will simply leave the country rather than be forced to work in substandard conditions.

“We think there may be a big exodus of skilled personnel, which is the last thing we need.”

The news of the plan was so poorly received that Discovery, which provides more than 60 per cent of the country’s private health insurance, shed 16 per cent off its share price since the bill was tabled on August 8, and 31.8 per cent since June 20. The company’s shares are at their worst level since late 2014.

Other discussions within the ANC are also making investors nervous. Talk of nationalising the Reserve Bank, one of the few institutions to escape the rot of the Zuma era, is also putting the market on edge. So is the possibility of legislating ‘prescribed assets’ for the country’s pension funds. This will oblige them to invest citizen’s savings in state assets such as debt laden Eskom.

Eskom itself embodies the calamitous mismanagement of resources. It now has 14,000 more employees than it did in 2007, when Mr Zuma took power. Yet the utility still produces the same amount of electricity as it did. Economists have urged the cutting of Eskom’s bloated workforce, but this will be difficult to achieve as unions, key allies of Mr Ramaphosa, have promised to fight any job losses.

With more than 440bn rand of debt, the government’s options are limited. Some speculate that it may have to go to international institutions such as the IMF, and get it to do the dirty work.

“The IMF and EU helped Greece to drastically reduce its unemployment rate,” says Thabi Leoka, an economist in Johannesburg. “Perhaps that’s who we need to crack the whip. That will be so unfortunate because there’s nothing new that the IMF will tell us that we haven’t suggested. Only difference is that they have money, which comes with strict conditions. Conditions that may or may not work, as seen in Europe post financial crisis reforms.”

In the meantime, investors will watch closely to see whether Mr Ramaphosa can get a grip on his party – or will eventually succumb to his opponents. Business leader Magda Wierzycka, chief executive of Cape Town investment firm Sygnia, said via Twitter that infighting was damaging the country’s growth and a distraction from the single biggest problem; unemployment.

“Can we please allow Cyril Ramaphosa to focus on delivering growth? What are the alternatives? Back to Zuma years? Focus on this statistic: South Africa has 0.8 per cent of world’s population but 3.8 per cent of the world’s unemployed. That’s a headline.”