South Africa risks becoming a failed state, warn business leaders

28 May 2023

Big business supported Cyril Ramaphosa when he threw his hat in the ring for the ANC presidency in 2017. But the goodwill around him is fading fast.

President Cyril Ramaphosa’s management of the economy over the past five years has come under intense criticism, with prominent business leaders warning that he is fast running out of time to turn South Africa’s economic fortunes around.

In recent weeks, more business executives from several industries, including Ralph Mupita of MTN, Gareth Ackerman of Pick n Pay, Sim Tshabalala of Standard Bank, Chris Schutte of Astral Foods and Hendrik du Toit of Ninety One, have sounded the alarm, even suggesting that SA risks becoming a failed state.

The reason business leaders are exasperated with Ramaphosa’s presidency is that it has failed to stem the tide of rolling blackouts and also failed to move with speed in implementing pro-growth and investment reforms in sectors such as rail, water and electricity.

Schutte, who runs SA’s biggest poultry producer, was withering in his assessment of Ramaphosa’s administration and its inability to ease electricity blackouts, which are pushing businesses to prepare for a total collapse of the grid. Schutte used the word gatvol (fed up) to describe how frustrated he was with the government’s inability to provide electricity and water, which “Astral Foods and many businesses in South Africa pay for through taxes”.

“We should be focusing on our main business, which is efficiently producing chickens. But we are spending energy, time and effort in putting in place alternative sources of electricity and water,” Schutte told investors on 23 May.

Schutte’s frustrations are arguably justified considering that Astral spent R741-million extra during the six months ending in March 2023 on services it already pays the government to provide.

Astral Foods is not the only company spending an inordinate amount of money to compensate for government failures. MTN recently spent R695-million to mitigate the impact of blackouts, Vodacom spent R300-million, Pick n Pay R522-million, Shoprite R560-million and Woolworths R90-million.

These eye-watering amounts of money could have gone into expanding company operations, and in the process created new jobs and boosted investments in the economy.

Relationship with Russia

More executives have expressed similar sentiments of frustration. FirstRand chief executive Alan Pullinger was one of the first C-suite executives to voice concerns publicly, calling the government out about its cosy relationship with Russia. Shortly after, Standard Bank’s Tshabalala pointed out that “meaningful structural reform and an improvement in the electricity supply could lift confidence and accelerate economic growth, job creation and social upliftment”.

MTN’s Mupita said SA risks becoming a “failed nation-state” if Ramaphosa’s administration doesn’t fix the many problems afflicting the country. Ninety One’s Du Toit said: “I just cry for the country”, about the “economic emergency in South Africa”, which, if left unresolved, might lead to social instability.

Pick n Pay’s Ackerman warned of an “existential threat” to the country’s food security if the government’s inaction over the electricity crisis persists. Coen Jonker, the CEO of TymeBank, has expressed similar views, saying there is a crisis of confidence in the country, worsened by blackouts.

“I’ve just spent time in London and New York, speaking to investors, and I’ve never seen investors this spooked about what’s going on [in SA],” Jonker told Daily Maverick.

Morale and confidence dipped further when the rand plummeted to a record low against the dollar after the US accused SA of covertly providing arms to Russia. South Africa has denied this allegation, which has sparked a diplomatic row between both nations.

Said a political analyst, who once worked with Ramaphosa and ANC head honchos: “This row might have been a big shock for big business as South Africa’s close and cosy ties to Russia will have big consequences for the former. Ramaphosa is leading us on a collision course with the US, and businesses in South Africa will emerge as big casualties.”

Fading goodwill

The growing criticism of Ramaphosa’s administration might infer that he may be losing support from business, which was a big supporter when he joined the race for the job of ANC president in 2017. After all, Ramaphosa was seen as one of their own; business-savvy, pragmatic and adept enough to fix the governance crisis left by Jacob Zuma. The support from business paid off, as Ramaphosa emerged victorious as the ANC president and went on to replace Zuma as the country’s number one citizen.

But the goodwill around Ramaphosa is fading because the economy is barely growing, jobs are increasingly being shed, blackouts are part of daily life, corruption and crime have become rampant, and key state-owned enterprises (SOEs) such as Transnet are failing to move trains and transporting goods to market efficiently.

Political analyst Ralph Mathekga said business leaders underestimated how complex decision-making is within ANC circles, which has probably led to many disappointments with Ramaphosa’s presidency.

Even public finances under Ramaphosa’s watch have deteriorated because of ongoing bailouts for SOEs and the ballooning cost of compensating the country’s 1.3 million public servants.

Michael Sachs, adjunct professor at the Southern Centre for Inequality Studies and former head of the National Treasury’s budget office, said that, over the past five years, the government’s spending programme had largely been consumption-led, especially in the wrong places.

“The National Treasury has increasingly resorted to using the Budget not as a good estimate of how much we are going to spend in the next three years, but as a negotiating position,” said Sachs during a recent webinar hosted by the financial services firm PSG. “A good example of this is wages [in the public sector]. The number that was put in the Budget for the wage increase this year was zero…”

But the government reneged on this promise and spent an additional R37.5-billion on public servants’ pay when it awarded them a 7.5% wage increase for 2023.

No sympathy

Dr Iraj Abedian, the chief economist at Pan-African Investment and Research Services, has no sympathy for business leaders, saying their criticism of Ramaphosa is too late.

“They should have been outspoken five years ago. Instead, Ramaphosa charmed big business by making commitments to business leaders that he would not be able to fulfil. South Africa’s decline didn’t start yesterday, but years ago,” Abedian told Daily Maverick.

He said business leaders were becoming more vocal because problems in South Africa, mainly the energy crisis, were increasingly affecting their pockets.

“Their financial performance and bonuses are going down because of the need to spend additional money on generators. The problems are now hitting where it hurts the most: their bottom line.

“Business leaders were hoping that Ramaphosa would offer a new dawn, but they have suddenly woken up to a new reality. It is not a new dawn but an old dawn wrapped up in a new cover.” DM

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Business Maverick

Relationship with Russia

Fading goodwill

No sympathy