While South Africa has made genuine progress since forming the government of national unity, particularly in electricity and logistics reform, these incomplete achievements fall short of building the deep credibility needed to convince investors and businesses that the future will be meaningfully better, writes Ann Bernstein.

In some important ways, South Africa is in a better place today than it was at the start of any year since at least 2019. This has become a fashionable thing to say in some circles: certainly, government and organised business have been on an extended campaign of self-congratulation about what has been achieved. There are indeed some areas of progress, and the GNU deserves credit.

The question, however, is not whether some things are better than they were, but whether the country genuinely believes it is on a trajectory that will lift investment, growth and employment, none of which has improved meaningfully.

That distinction matters because the economy is driven by what people expect to happen in the future.

This may be marginally improved by announcements, applause or repeated invocations of the success of Operation Vulindlela (OV). Ultimately, however, confidence in the future derives from much deeper issues of policy and political credibility. And having been subjected to decades of misgovernance, deep suspicions about the quality of current and future governance are hard to turn around.

Has there been progress?

OV is the most frequently cited evidence of the progress of reform. But its praise singers are wrong if they believe that listing achievements is enough to persuade businesses and households that the future will be materially better than the present.

Much more potent is the “lived experience” of businesses and households. Yes: some of this has improved as load shedding has declined and as ports have become more efficient. But do people genuinely believe that progress is being made on vital issues like crime and corruption, school quality and local governments’ performance?

Notwithstanding OV’s progress in some domains, deep challenges in others will continue to hold back growth.

And the roots of OV‘s successes are not nearly as deep and healthy as they need to be. Consider two of OV’s most frequently cited successes.

First, electricity reform. The liberalisation of generation, the erosion of Eskom’s monopoly and the rapid entry of private producers mark a decisive break with the past. Load shedding has receded and investment in renewable generation has surged. These are real reforms, but they are not the end of the story.

The electricity market is still incomplete and prices continue to rise rapidly. Grid capacity constraints remain binding, wheeling rules are unresolved, and the wholesale market has not yet begun to operate.

From crisis management to reform

Large volumes of “investment in the pipeline” are still just that. We have moved from crisis management to reform, but we do not yet have a fully functioning, competitive electricity system. Execution risk remains high amid pushback on some reforms by industry players, including Eskom.

The Minister of Electricity is reportedly walking back vital commitments to make the transmission company independent of Eskom.

Second, freight logistics. The opening of rail access to private operators and improvements in port performance represent meaningful progress after years of decline. Reduced vessel waiting times and increased private-sector participation are important achievements.

And yet, Transnet remains financially fragile. Operational monopolies in key sectors persist. Concessions and private participation are only beginning, and the infrastructure backlog is enormous. Exporters cannot yet rely on rail and ports with confidence, and investment decisions presumably reflect that reality.

Seen clearly, then, OV’s record is neither a failure nor a triumph. It is a set of incomplete reforms, achieved over a long period, with many of the hardest steps still ahead.

OV’s qualified success has been complemented by positive news elsewhere. One example: an impressive-seeming candidate has been appointed as the new National Director of Public Prosecutions. Andy Mothibi has his work cut out for him during his short tenure (he will have to retire in two years when he turns 65). Time will tell whether his was a good appointment, but the president was right to ignore the shortlist from his own badly constituted panel.

Moving towards sustainability

Critically, macroeconomic policy has remained reasonably disciplined and is edging towards sustainability as reflected in the ratings upgrade by S&P. Debt stabilisation, primary surpluses and a more cautious fiscal stance have reduced the risk of crisis. Monetary policy credibility has been maintained and is enhanced by the lower inflation target. The steps taken were not crowd-pleasing, but the achievements are foundational.

Put together, these developments justify the measured assessment offered above: on the fiscal and economic front, South Africa is in a better position today than it has been at the start of any year since 2019.

But this is where the harder argument begins.

Investment and growth will not rise simply because a set of reforms mainly targeting two key issues exists on paper, or because officials and business leaders praise them.

Investment rises when firms, investors, and households believe in their bones that the future is likely to be meaningfully better than the present, and that the risk of social, economic, or political crisis over the next five years is negligible.

But would such a belief be credible? The hard truth is that the answer is no.

Undermining confidence

While the GNU is finally making some progress, the risk of destabilising policy changes in the medium and long term is real. And it is not really clear whether that risk is rising or falling, no matter how many more containers are going through Durban’s port.

Crime, corruption, government failure, infrastructure decay and weak execution capacity continue to exist and undermine confidence.

Many reforms are vulnerable to delay, dilution or reversal, whether now or if a new president is elected. Others depend on institutions that have yet to demonstrate consistent competence.

This is why credibility is the central issue. Credibility is built when reforms are completed, not when they are announced. It is built when laws are enforced, not when law enforcement is promised. It is built when institutions perform efficiently and predictably, not episodically when we want to impress the G20. It is undermined by a lack of urgency and, especially, when vested interests are allowed to block the implementation of promised changes.

Credibility is also undermined when praise focuses on the areas where progress is tangible and deflects attention away from equally vital areas where progress is non-existent or where there is actual regression, law enforcement being the obvious example.

OV deserves credit for clearing paths that were blocked for years. But South Africa’s growth prospects will not be determined by how often or how loudly the particular set of reforms is applauded. They will be determined by the extent to which South Africa’s progress is made over a broad range of policy domains, and whether the state demonstrates, repeatedly and convincingly, that it can execute on its commitments.

Our prospects will be determined by the speed of progress and the country’s return to competitiveness with peer countries. This fact demonstrates the limits of our ambition in rebuilding what the ANC government broke: OV indicates that freight tonnage carried by rail will reach the volume achieved in 2016 by 2030.

 Unless and until leadership is shown across a wide range of domains and visible progress becomes irreversible, business’ optimism will remain fragile and investment will remain cautious. Decisive and committed leadership is as important now as it has ever been.

• Ann Bernstein is executive director of the Centre for Development and Enterprise.

This article was published on News24