By Terence Corrigan
It’s Davos time again. As they do every year, the great and even-greater of the economic world have converged on this pretty alpine town for the World Economic Forum. Here, they are discussing the trajectory of the global economy and its many implications for the fates of nations. It is an important event for South Africa. With the country heavily dependent on capital inflows to balance its books, and on foreign investors and trade partners for its future prospects, it is a seminal opportunity to showcase what South Africa has to offer.
For South Africa, even more rides on this meeting than usual. In 2017, South Africa’s reputation took a beating as the cabinet was reshuffled and the finance minister expelled, as concerns about state capture mounted, as the shenanigans in its state-owned enterprises commandeered the headlines. Growth and employment data gave little cause for cheer. Perhaps most significantly, ratings agencies Standard and Poor’s and Fitch gave South Africa a thumbs down, by downgrading its debt to ‘junk’. The latter phrase was ripely emblematic of a year that many South Africans would prefer to forget.
A good showing in Davos could help get South Africa back on track. And so, as any number of media reports have stated, Team SA will be going to Davos to advance a positive view of South Africa’s future. Key to this – as an article in one of the Sunday papers put it – would be the ‘Cyril effect’.
More than anything, the ascendency of Mr Cyril Ramaphosa to the presidency of the African National Congress – making him heir apparent of the presidency of South Africa – has injected some optimism into South Africa’s outlook. Well regarded as a negotiator, businessman and as one of the key figures in the drafting of South Africa’s constitution, Mr Ramaphosa has been hailed as the turning of his party’s fortunes, and as the leader best placed to convince others of this.
Mr Ramaphosa certainly has a unique window of opportunity to put South Africa’s case. This is potentially valuable. But South Africa’s economic future hinges ultimately not on the sentiment generated by individual leadership figures (no matter their intentions or personal appeal) but on the direction that economic policy takes.
South Africa’s existing economic realities will make Mr Ramaphosa and Team SA’s task an exceedingly difficult one. Available forecasts, for example, indicate that South Africa’s 2018 GDP growth performance will fall below emerging market averages by around 70%. But it is what lies in store in the country’s future that will prove the toughest obstacle for the mission to Davos.
At the ANC’s elective congress in December last year, the party pledged to accelerate land reform by means of a constitutional amendment that would allow the state to seize private property without paying compensation. Mr Ramaphosa has repeatedly voiced support for this proposal.
There can be no doubt that the abridgment of property rights in this way would have profoundly negative consequences not only for the agricultural sector, but for the economy as a whole.
Even if such a move were to be limited to agricultural holdings, the knock-on effects throughout the economy would be severe. South Africa’s farmers depend on secure ownership of their properties to leverage the funds that enable their operation from one year to the next – the agricultural sector owes a total of over R160 billion, roughly two thirds of this to commercial banks. Undermining the asset value of landholdings would in short order make farming largely unviable, while possibly also placing the banking sector in jeopardy. With agriculture in sharp decline, the agro-processing industry would struggle to stay afloat. And the need to import foodstuffs would drive inflation and a balance of payments crisis that would rapidly become unresolvable.
In reality, it is unlikely that, having empowered itself to expropriate property without compensation, seizures would be limited to land. Policy proposals in fields ranging from security to mining to intellectual property have sought in one way or another to intrude into the property rights of citizens and businesses.
Together, this would poison the business environment, making progress on any other issues – such as combating corruption or placing state-owned enterprises on a sound footing – largely irrelevant.
The commitment to expropriation without compensation will not have escaped the attention of the attendees at Davos, and is likely to be an albatross around the neck of Team SA’s efforts. Indeed, concerns about the introduction of a compensation-free expropriation regime are already palpable both among South African and international businesspeople.
Seeking the cooperation of business and political leaders globally, while pursuing baleful policy positions locally has been a long-standing contradiction in South Africa’s economic endeavours –something in which both government and business are complicit. It is particularly evident at such events as the World Economic Forum. And it is profoundly damaging to our economic prospects.
*Terence Corrigan is a Policy Fellow at the SA Institute of Race Relations (IRR), a liberal think tank that promotes economic and political freedom.
Read the article on IOL here.
