The Three Things That Will Make or Break a New Coalition Government

The three major challenges facing the new government are fixing the state-owned enterprises; enabling entrepreneurship and employment; and clamping down on crime and corruption.

15 June 2024 ·   5 min read

The Three Things That Will Make or Break a New Coalition Government

A new, reformist government, which will rule by coalition, is the country’s best chance at finally breaking the logjam and delivering on the long-delayed structural economic reforms needed to speed up growth, boost investment in new industries and provide the millions of young South Africans outside the system with an opportunity to meaningfully improve their lives.

The outline of these economic reforms is well-known and even the ANC has made it clear from time to time that they ought to happen.

1. Fix state-owned enterprises

The most urgent reforms are needed to energise the moribund state enterprises to bring them into the 21st century.

What is often missed, though, is that there will be no successful reforms of these enterprises until and unless corruption, graft and illegal rents are removed root and branch, through law enforcement, ethical leadership and oversight.

The present attitude – the Minister of Electricity has gone so far as to say that corruption is not a major factor in Eskom despite mounds of evidence to the contrary – will have to change dramatically if state enterprises are to have any chance of fulfilling their mandate to provide efficient, cost-effective services on the right scale.

Once corruption and graft are demonstrably under control, a massive injection of capital is needed to turn around electricity generation and rail in particular. Until now, there has been much talk of the need for private sector involvement in the energy sector and in rail, but this has been slow to take place as the government has taken “one step forward and two steps back”, because of the powerful coal lobby and old-order suspicion of “privatisation”.

This coal lobby represents the many ANC-connected tenderpreneurs that make a good living on supplying coal – some of it low grade and even including rocks – to power stations from miners to truckers and from the myriad of maintenance and other contracts linked to Eskom. In the words of one Eskom insider: “Eskom has become a giant contract management agency.” Similarly, rail requires a large injection of capital.

To unlock private investment in these enterprises, there must be a sea-change in the government’s approach. The break-up of Eskom into generation, transmission and distribution units has been spoken of and even half-heartedly attempted in recent times. This needs to be speeded up so that private energy generators can compete in an energy market not dominated by their competitor – Eskom. This will ensure market competition over pricing and encourage large-scale investment in generation.

Ramaphosa announced the government’s intention to pursue the “just transition” from coal to renewables in energy but his minerals and energy minister, Gwede Mantashe, laughed him off and declared that he was a “coal fundamentalist”. Years passed while nothing was done, and, when something was finally done, it was anaemic and ineffectual.

Illustrating this “one step forward, two steps back” approach was the dramatic failure of Bid Window 6 in October 2023.

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As rolling blackouts bit hard, Mantashe announced the intention to procure a record 5.2GW of additional energy for the grid. Some 9.6GW was proposed by bidders. But only 860MW — less than a fifth of the target amount — was procured, apparently because of a grid connection problem. Some saw government bungling, others saw a “coal fundamentalist” quietly laughing to himself

In December, it emerged that Transnet had bungled the awarding of 16 rail network slots to private operators. Only one of 19 bids was successful, because the terms were wholly unrealistic.

Transnet expected bidders to invest hundreds of millions of rands in equipment with a 30-year lifespan in exchange for a two-year contract. As Mesela Nhlapo, the CEO of the African Rail Industry Association, pointed out, financial institutions backing such projects require a seven- to 10-year horizon.

2. Enabling entrepreneurship and employment creation by cutting frictional costs

Beyond the state-owned enterprises, the economy requires radical reform to remove obstacles to starting and running new businesses, to unleash the country’s entrepreneurs. South Africa presently has two economies – sophisticated corporations from finance to mining and agriculture on the one hand and a vast network of micro-entrepreneurs that is off the radar and poorly understood because it is outside the company registration and tax networks. This sector, which includes small hustler enterprises and larger informal retailers that employ people – again off the books – lacks the finance and access to markets to grow. It is also resistant to formalisation because of the vast network of regulations and accompanying taxes, costs and bureaucracy. Again, the government has spoken many times of removing the red tape, but seems unable to execute on this.

Key to unlocking growth is labour market reform to allow start-up enterprises and small employers to hire more people without the onerous regulations which govern formal employment. At present, a small start-up business is expected to offer the same labour environment as a large corporation which is doing so at scale and therefore at much lower cost per employee. The extension of collective bargaining agreements reached between large corporations and trade unions to small workplaces imposes crippling costs and inhibits new entrants into the market – something which suits the established businesses who would prefer less competition.

Similarly, the reduction of frictional costs that deter investors would make a big difference to the drive to attract foreign direct investment. This ranges from the high cost of logistics due to the lack of rail alternatives to road freight, to an onerous visa regime which seeks to deter foreigners from settling in the country, to certainty about land tenure and property rights.

Finally, the vast potential to formally employ more people in labour-intensive industries such as agriculture and tourism needs to be unlocked by easing regulations, access to the country by foreign tourists and logistical bottlenecks in rail and in the ports that hold back agricultural exports.

3. A massive crime and corruption clampdown

South Africa is awash with crime across the full spectrum. From violent robberies and murder through to corruption, extortion and the emergence of mafia-style organisations that hold transport, mining and construction businesses ransom, the country has become dangerously lawless.

Unless the tide is turned against this wave of crime, there is no hope that the country will successfully reform its economy and reach its tourism and investment potential.

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In the “good” scenario, there is a change in the political dynamic which returns the government’s focus to the welfare of the people, safety and security.

The key reform that is needed is the disentanglement of law enforcement from political intervention. This means that the police and the intelligence services must be reformed so that they are professional and independent of the state – freeing them up to prosecute corruption, graft and theft even when these offences are committed by the powerful and politically connected.

A radical reform of crime intelligence is needed so that there is proper anticipation of and information on the criminal syndicates that are behind state capture, corruption and economic crimes.

This needs to be accompanied by the restoration of an independent investigative capacity at scale to deal with sophisticated economic crimes. The head of the National Prosecuting Authority, Shamila Batohi, has already started working with a new independent Investigating Directorate (ID), which has begun to turn the screws on State Capture cronies. But it is moving slowly due to the lack of proper resources.

She has called for the directorate to be made a permanent structure, which would give it the status of the disbanded Scorpions. “The methodology will certainly be the same, but the one big difference is that this is specifically, the ID will investigate corruption matters and not the broader mandate of organised crime that the Scorpions had,” she said in November 2022.

A powerful, fully resourced “Scorpions 2.0” would make a big difference in the fight against organised crime and corruption.

A merit-based police command structure would finally be able to allocate resources efficiently to deal with the tide of violent crime which has gripped the country.

At present many police stations lack vehicles – and in some cases, even telephone lines – that are badly needed to deal with crime and to ensure regular patrols to prevent crime. Professionalising the force and ensuring that the right skills are sought for vital positions such as station commanders and detectives will go a long way towards improving the conviction rate of criminals, improving deterrence and ensuring that justice is done.

The priorities of a new government are clear. What is urgently needed is the political will and the technocratic skills to realise these priorities.

This is an edited extract from The Good, The Bad, and The Ugly: Scenarios for a South Africa’s Uncertain Future. The three authors are Ray Hartley and Greg Mills, who are with The Brenthurst Foundation, while Prof Mills Soko is with the Wits Business School.

This article originally appeared in Daily Maverick.