Address by Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), at the FW de Klerk Foundation’s Coalition Government Conference, 12 July 2024

Thank you very much, Christo and good morning everyone. Thank you so much for the invitation for me to come and share my thoughts here this morning on this very important topic. Thank you so much for the invitation, Chairlady of the FW de Klerk Foundation, Mrs Elita de Klerk. Thank you for the invitation it is a great pleasure for me to come and have this conversation with you this morning very important conversation very important time in our country, Christiaan says the dust has settled just for a while. Christiaan, I hope it’s not just for a while. I really hope that the dust has settled. I’m really more optimistic, maybe than most of you, in terms of where we are at the moment and what this era holds for us as the South African people.

Dr Sizwe has really done a brilliant job you know of analysing the voter turnout. You know what the elections told us and what we saw during the elections. And I think the one thing that is very important is the fact that a lot was riding on these elections, we all knew that the status quo was untenable and unsustainable something had to give and it needed to do so quickly. Our biggest failure was that the politics were no longer working and that was the elephant in the room. There were way too many crooks in the ANC and they far outnumbered the few good men and women who were trying to effect real change and because politics equals economics the SA economy has underperformed as a result of being constrained by politics.

Fast forward we are here and we have the GNU and the markets have clearly rallied behind it. The demand right now for South African local-currency bonds is surging and we are outperforming all other emerging markets local markets and its driven by optimism around the coalition government. The foreign demand we are seeing right now halfway through the year has outstripped the total for 2023. Yields on government bonds have dropped to 17-month lows. And it’s been very interesting for me the uproar and backlash that arose as a result has been caused by being the markets response was interesting for me during this time. You see whether we like it or not, whether we accept it or not the markets matter… why? Because we borrow R2 billion everyday as a country just to balance the books. Because we need R5 trillion rands worth of investment to get ourselves out of this economic rut. Because about 60% of the JSE is foreign owned meaning those investment decisions are not made in SA they are made elsewhere in the world and they have no sympathy for our politics or challenges: they are interested in which market can deliver decent Return on Investments (“ROI”). Because we need Foreign Direct Investment (“FDI”) to grow our economy beyond the dismal barely 1% that we have posting over the past 10 years – and as much as we may think that it is still a positive number and therefore it is growth – in real terms we are not growing.

This number is negative if you consider it in terms of GDP per capita given that population growth is outpacing it. Our population is growing at 1,6% and this trend of economic growth being surpassed by population growth has been so since 2013, so we have now crowned a decade of negative per capita growth. You see, capital is like water: it follows the path of least resistance and it also has many addresses so it can reside anywhere.

I’ve been asked to talk about the economic dynamics facing the coalition government and understanding what the coalition Govt needs to do and I’m saying for a country in our position, which cannot wipe its own nose and whose debt repayment is now the second largest item on its income statement, the markets matter. And the markets, just like the investors, just like companies, are looking for the same that the citizens are looking for: which is a sustainable fiscal policy so there can be stability. Markets are looking for certainty – and markets, by the way, do not judge whether if the economy is just and inclusive, neither are they anti-EFF nor pro-DA. But as owners of capital, nationalisation does not appeal to them, because they just want their money back.

So if you are country that borrows a trillion and spends R2 trillion, yes markets matter, because access to debt markets at a reasonable cost ensures that the state can fulfil its obligations.

So what does this coalition Govt needs to do? There’s many things, but let’s just limit it to 3:

Firstly, they must not do what the previous administration did: Where business & investor confidence were at a record high, all social partners firmly behind Cyril and he seriously missed an opportunity. There was a serious failure to make bold decisions to change the country’s trajectory and instead got stuck in competing ideological positions. I don’t think Cyril realised the power he had: Cyril won the elections in 2019 in spite of the ANC, not because of it … and he squandered that opportunity and trust that the people placed on him. Instead, decision making was outsourced to task teams and commissions in an effort to navigate politics. There was an obsession with rescuing the party and the cost of the economy, the country and her people. They overly accommodated and embraced people who were involved in the State Capture project. He allowed thieves to continue masquerading as government officials. The past administration failed to assume a no-nonsense approach to malfeasance and corruption. Those accused of crime continued to walk around with impunity and they still do. The political culture was that being accused of crime is not embarrassing – which is why Zizi Kodwa and Zweli Mkhize are still MPs. The message was that crime pays, because you can be accused of crime and still hold high political office. And as a result of these serious failures, by Cyril first and foremost, the mood in the country right now is that of cautious optimism.

Secondly, the coalition government will need to focus on building a capable state. I was listening to a 702 interview on Tuesday by Hendrik du Toit, CEO of NinetyOne, on his views of what the 7^th administration needs to focus on. And he said they need to be ruthless. And I agree with him. He says the President is in his last term and can hopefully lead without restraint. He has been given yet another opportunity and he needs to be ruthless: ruthless in his pursuit for service delivery; ruthless in his pursuit to eradicate corruption; ruthless in his pursuit for discipline within government; ruthless in his pursuit for economic development; ruthless in his pursuit to grow the economy; ruthless in his pursuit to eradicate PUI; ruthless in his pursuit of building a capable state.

An important determinant of a functioning state is its administration and without proper administration you cannot have a capable state. I was talking about the markets earlier and their importance on pumping investment and the markets wants to invest but that will be triggered by two things: policy reform and a functioning state. No country can succeed without an effective state and this is why governments matter. Do you know what sets countries apart? It is governments. Not geography. Not ethnicity. Not strong man leadership. Not natural endowments. It is governments: governments are what separates good prosperous states from bad failing states and the segue me to my last point which is politics.

I’ve already said earlier on that politics equals economics so if we are trying to answer the question of the economic dynamics facing us the answer lies in politics and getting our politics right. The biggest challenge facing our economy is the low growth trap. South Africa is the only country in our peer group that still hasn’t recovered from the pandemic. How do we change our economic trajectory? What does government need to do?

Southing Africa is a political economy, meaning our economic growth will always be constrained by our politics. Yes, economic institutions are critical for determining a country’s prosperity or poverty, but it is politics and political institutions that determine what economic institutions a country has. So, solving for an economic challenge will most often require a political solution. Achieving prosperity depends on solving basic political problems. You see poor countries are poor because those who have the power make choices that create poverty. They get it wrong not by mistake or ignorance but on purpose, so let’s very quickly dismiss the ignorance hypothesis, because if the answer was sheer ignorance, then well-meaning leaders would quickly learn what types of policies increased their citizens’ incomes and welfare and would gravitate towards those policies. So, it’s got nothing to do with ignorance, but it is because of the endless stream of economically irrational developments. It is a function of intentionally choosing bad policies (like we almost did with the Russian nuclear deal) and, therefore, bad economics, because they think they can get away with it, or they think it is good politics and a way of keeping themselves in power by buying political support. To understand this, you need to go beyond economics and expert advice on the best thing to do and instead study how decisions actually get made: who gets to make them and why those people decide to do what they do. Essentially, a study of politics and political processes.

I was listening to a presentation last week on this issue and the person was saying at least now, policy debates have been liberated from Luthuli House and from being rubber stamped with no accountability. Maybe now we can get can have evidence led and based policy decision making. You know, the most classical examples of politics gone wrong and the economy going up in flames is that of Tunisia. If you look at what the roots of discontent were that led to the Arab Spring on the 17^th December 2010 leading to the ousting of President Zine El Abidine Ben Ali on the 14^th January 2011 and the similar ousting of President Hosni Mubarak in Egypt on the 11^th February 2011, you will see that the root of these countries discontent lied in the politics. The discontent of Tunisians and Egyptians lied in their poverty. Ordinary Egyptians were clear that they are suffering from corruption, oppression and bad education. They are living in a corrupt system which has to change and their demands were focused on political change. They were very clear that the things that held them back were an ineffective and corrupt state and they realised that the roots of their problems were political. Poor countries whether it is Sierra Leone, North Korea or Zimbabwe are poor for the same reason that Egypt is poor: political power has been narrowly concentrated and has been used to create wealth for their own benefit at the expense of the vast majority. And rich countries such as the Unite States of America, Great Britian and Germany become rich because their citizens overthrew the political elite who controlled power and created an environment where government was accountable and responsive to citizens.

The two currencies that had kept social stability in South Africa were hope and trust and those were no longer there, our people have lost faith in politics because of corruption. So, we obviously have a better shot at managing our politics now that there’s no single centre of power, but this really is our last chance and if, for whatever reason, South Africa fails to manage its politics and if this coalition government fails do what is right for the people, then we will have a repeat of the July 2021 anarchy.