Cyril Ramaphosa’s resignation will make no difference to South Africa

South Africa’s challenges are deep-rooted, with a simple change of who is at the top unlikely to drastically alter the country’s fortunes overnight. 

This is because of the country’s problems developing over the past 15 years of poor policy, a lack of service delivery, and elevated uncertainty. 

These challenges cannot be fixed by replacing South Africa’s president, but require hard evidence of improving fundamentals and a willingness to make the country attractive to investor capital. 

In particular, South Africa, due to its low savings rate, is dependent on foreign investment to drive a substantial portion of its growth. This will not return overnight, even with major changes. 

This is feedback from Corporate Modern Solutions mining analyst Peter Major, who said that Venezuela provides a clear example that changing the person at the top is not enough to encourage investment. 

Major explained that this is because a single change cannot undo decades of poor policies, mismanagement, and an unwillingness to listen to what the private sector wants. 

Another factor complicating significant change in a short space of time is the vested interests that have developed in South Africa over the past 20 years. 

“Even if Mr Ramaphosa resigned tomorrow, is it going to change anything? We will still have the construction mafia here. We will still have the taxi mafia. We will still have the same problems minus Ramaphosa,” Major told BizNews. 

“Fundamental change requires a lot more than the top person to go. There are thousands of people who have built a lifestyle in this country that does not build a country.” 

Major explained that a number of well-connected individuals have benefited from the country’s transformation policies over the past 20 years, while adding little value to the economy. 

The way empowerment and transformation are implemented in South Africa does not increase access to economic resources for the majority of the population or create wealth for the country. 

BEE and transformation currently redistribute existing wealth among individuals, and do not grow the economy to create more wealth for South Africans. 

Professor William Gumede from the Wits School of Governance estimated that up to R1 trillion has been redistributed to just 100 individuals and companies in South Africa under BEE.

“That is R10 billion each. Gumede also cannot find evidence of any of them putting anything back in. Not one of them has started something a fraction of what Anglo American, JCI, Rand Mines, or any of them did,” Major said. 

Venezuela wake-up call

Venezuela provides an instructive example for South Africa in this regard, with companies hesitant to invest even after the removal of a poor leader. 

Companies, particularly those involved in mining, have long memories and require substantial evidence of policy stability and service delivery before they invest capital anywhere around the world. 

These companies will be aware of previous threats to nationalise resources or industries as they are forced to think in multi-decade investment cycles. 

Major noted that it takes around 17 years to get a mine from the investment stage to operating at full capacity, forcing mining companies to be extremely careful about where and how they invest. 

This is currently playing out in Venezuela, with even radical changes in the short term being insufficient to get capital off the sidelines. 

“You have probably seen the results of the impromptu meeting Trump called with all the oil executives in America. They had a cold shower for Donald,” Major said. 

“Not one of the top four oil companies wants to go in there, and they have a lot of good reasons why. They said, ‘You know, we have been nationalised three times. The place has been run into the ground. How do we know we are going to get a return on investment?’”

“That is a wake-up call for places like South Africa. Even if we had a regime change tomorrow, the foreigners are not going to rush in here to open up these deep-level gold mines that the Oppenheimers built and founded. It is uninvestable.” 

The revival of South Africa’s mining industry will take significant investment from mining companies, with the sector having effectively lost out on a generation of infrastructure and new mines.

Major said it would take the reversal of substantial parts of mining policy implemented in South Africa over the past 20 years that have significantly changed how the industry operates. 

While South Africa has not nationalised any industry in the same vein as Venezuela, the threat has always been on the table, and the operational freedom of companies has been curtailed. 

Most crucially, their ownership of mineral resources and deposits has been significantly eroded, dramatically changing the equation for many mining companies with regard to investing in South Africa.

“Mines are a hundred-year investments. So, are you happy investing now? Somebody else took away your minerals, but they will let you borrow them with a lot of different terms and conditions than the day before,” Major said. 

“That is something that just does not register with Pretoria. It does not register with the mindset that the ANC has or indeed that South Africa has.”