IF THE primary purpose of President Jacob Zuma’s trip to the World Economic Forum in Davos last week was to assure investors that all is well in South Africa and that their capital is safe, he was probably wasting his time. Mr Zuma assured the international community of Africa’s growth potential and argued that no one can say they are uncertain about the direction the country is taking. Yet, the same day, the rand plunged to its lowest level against the dollar in almost four years on the large current account deficit and investor fears about labour and social unrest. It seems foreign investors are clear on the direction South Africa is taking — and they don’t like it one bit.
That is unsurprising given the contrast between what Mr Zuma was saying in Davos and the TV images, broadcast worldwide, of angry mobs throwing stones and burning businesses, crops and farming equipment. The contradiction between his words and reality has undoubtedly contributed to the weakening of the rand.
It is clear that the political freedom and social progress Mr Zuma boasted about has failed to translate into meaningful economic freedoms for most South Africans. The markets’ reaction to his comments shows the world is no longer buying the brand of rhetoric long favoured by the African National Congress (ANC) and the government any more than South Africans are. Mr Zuma needs to walk his talk.
Evidence of how increasingly poorly the international investment community views the domestic situation is perhaps starkest in an announcement by the International Monetary Fund this week. It lowered South Africa’s growth forecast for the year ahead and warned that the economy could "underperform" if labour unrest persists and the business environment deteriorates further. While it is true that global economic conditions have resulted in most countries facing lower growth forecasts, few others were warned in such strong terms as South Africa.
Although public protests such as those in Sasolburg recently were initially sporadic and easily dismissed by the government, concerns over the social effects of an ever-widening inequality gap have become deafening. Rating agency Standard & Poor’s summed things up last week with its comment that "social dynamics" in South Africa could further slow economic growth.
If the government is committed to maintaining debt and spending growth at sustainable levels, as it claims, private investment is key, otherwise there will be insufficient economic growth. The challenge is to convince domestic and international investors that their interests in South Africa are safe, and that the government supports a robust growth agenda. At the heart of this lies a need for communication to be consistent and that it is not contradicted in practice.
Mr Zuma can speak at length about promising growth prospects, but if high-profile individuals in the ANC and the government, such as Mineral Resources Minister Susan Shabangu and ANC secretary-general Gwede Mantashe, publicly attack business interests and threaten to revoke or unfairly scrutinise mining licences, he may as well be whistling in the wind.
If Mr Zuma cannot convince individuals in the ANC of the necessity of a business-supportive stance, then he should at least ensure that their antibusiness statements are made privately. It would be even more beneficial if the government took heed of businesses’ concerns and engaged with them rather than setting a tone that is threatening and reactionary, as we saw in its response to a series of advertisements by First National Bank that were perceived to be critical of the government. Paying more than lip service to addressing corruption is also key to improving South Africa’s image and, with it, investor confidence. The latest revelation by Public Works Minister Thulas Nxesi that R206m was spent on security upgrades to Mr Zuma’s country estate and that Mr Zuma was unaware of the costs and therefore blameless, does little to improve our international image.
South Africa needs to make every effort to restore its image as the gateway to investment in Africa and as a fierce competitor among other emerging markets. Part of the recent weakening of the rand has been attributed to our dwindling appeal compared with other developing countries that have stable growth and lower risk profiles. Turkey, for example, is increasingly favoured among international investors after having received an investment upgrade in November. There is speculation that it may get a second upgrade by another agency within six months. If South Africa is to compete, we need to offer the same level of policy stability and positive attitude towards business.
Ultimately, South Africa’s trajectory comes down to service delivery and economic growth. Without growth and the ability of the government to translate it into meaningful advances for South Africa’s poorest, we can expect even greater social tension and less foreign investment.