When the long and troubled history of the Jacob Zuma administration comes to be written in South Africa, few decisions will appear as consequential as the December 2015 sacking of respected finance minister Nhlanhla Nene.
Given his marching orders by President Zuma as he battled to reform state-owned enterprises and ward off credit downgrades, the decision – which sent the rand plummeting against the dollar – summed up Zuma’s contempt for economic prudence, investor sentiment and the restraining influence of colleagues. Thus when new President Cyril Ramaphosa embarked on his first major cabinet reshuffle this February, investors were delighted to see the ex-finance minister reappointed to his former role after a two-year absence in the private sector.
Speaking to African Business at the offices of his employer, Thebe Investment Corporation, in Johannesburg just days before his return to the National Treasury, Nene says that President Cyril Ramaphosa has ushered in a new era of confidence – but that the ruling African National Congress (ANC) now needs to step up to the plate and nurse South Africa back to economic health.
“You now have all the stakeholders who say we hear you are making the right noises, but what role can we play? And this is what we’ve been calling for, that everyone has a role to play – the private sector has a role, civil society has a role, labour has a role, and the government has a huge role of actually marshalling these forces together for us to be able to build an economy where everyone stands to benefit,” Nene says.
For South Africa’s surviving investors, Nene’s rallying cry is a welcome antidote after years of declining relations with the government. Zuma’s prolonged era of misrule – characterised by policy inertia, corruption allegations and the sacking of respected ministers – prompted capital flight among investors both domestic and foreign.
As a result, the South African economy grew by just 1.3% in 2017, and has failed to grow at more than 2% since 2013, amid unemployment of 26%. For Nene, the challenge is to capitalise on the newfound confidence enabled by Ramaphosa’s appointment while pursuing the tough but essential reforms that South Africa desperately needs in order to drag millions out of poverty and overcome apartheid legacies.
Overhauling state-owned enterprises
Nene says that a long-term strategy should focus on reforms to South Africa’s network of state-owned enterprises (SOEs), potential engines of economic growth that degenerated under Zuma into houses of patronage, corruption and wasteful expenditure.
“The SOEs carry a dual role; [they have] a developmental mandate they need to execute, but at the same time they must do that in a commercially viable and sustainable manner. So one thing the president has said is he’s going to be moving with speed to establish an institution which is going to be overseeing SOEs in order to be able to define clearly their developmental role… Instead of being a drain on the fiscus they are supposed to be supporting economic growth and development in the country.”
In contrast to his troubled 2015 attempts to control spending and encourage reform at the SOEs, Nene now appears to have the all-important support of his superior. In January, Ramaphosa, then deputy president, moved to appoint a credible board at Eskom, the state-owned energy utility that is battling to reform itself after years of economic mismanagement. That was followed by the popular reshuffle appointment of the respected Pravin Gordhan, another deposed Zuma-era finance minister, as minister of public enterprises.
“It was a rocky road for [Gordhan] but he held fast and kept together a steady boat at the Treasury,” says Nene. “I think we are getting back to that again now, if you look at how the SOEs have begun to occupy centre stage in terms of government policy. If you look at the appointment of the board at Eskom in the past few weeks, the board was accepted by the broader community, labour, business, and even civil society.”
Nene says that the attitude of the new Eskom board stands in stark contrast to the fierce resistance he faced last time around as finance minister, when his attempts to encourage reform and control the purse strings of wayward SOEs were met with obfuscation. Nene says that looking back, it is clear that some of the opposition he faced was motivated by shadowy agendas in an era defined by “state capture” – the illicit contact between the worlds of politics and business.
“The experience of companies one had to deal with, be it SAA or Eskom – in one way or the other you would wonder why people were not doing what they were supposed to do. At times you would attribute it to incompetence or insubordination. It’s only now you realise… it was because they had a particular agenda they were pursuing which was contrary to what those institutions were supposed to do.”
Nene says that he has been encouraged by a renewed government determination to investigate state capture, which some directly blamed for his 2015 departure from government. In her influential State of Capture report, then public protector Thuli Madonsela suggested that the controversial Gupta business family may have improperly known about the appointment of Nene’s replacement.
“A start has been made and law enforcement agencies have actually started flexing their muscle,” says Nene. “Parliament itself is an institution which holds the executive to account and those officials are beginning to answer to parliament. Those committees have done some very good work where you’ve seen parliament begin to take its place, with the commission [Commission of Inquiry into State Capture] also being set up to drill deeper into this stage of state capture.”
Radical economic transformation?
While there may be government consensus on the need for action on state capture and reform at the SOEs, one of Nene’s most urgent challenges will be to navigate the fierce ANC policy debates between economic conservatives and those keen to pursue “radical economic transformation”. The factions are currently battling over the future of agricultural land, which still substantially remains in white hands over two decades after the end of apartheid following the failure of piecemeal government reform efforts.
For now, ANC left-wingers appear ascendant following a National Assembly vote backing a process to amend the constitution to allow for the “expropriation without compensation” of land. While the generally business-friendly Ramaphosa has sought to soothe investor fears of a Zimbabwe-style “smash and grab” by insisting that any action will be constitutional, Nene insists that a compromise can be found and that prudent economic policies can take place alongside radical government action on pressing social issues.
“I think we’re beginning to see the convergence of the two now, by raising these things in a non-populist manner. The only problem is when we are populist about these things and not taking into account the realities. If you have followed the new president of the ANC especially on the matter that has been quite topical of land reform – expropriation without compensation – he’s been very clear that it should be done in a manner that does not negatively impact the economy, that does not compromise food security but also that is constitutional… We are beginning to hear people raising the matter… but it must be addressed in a responsible manner.”
While investor concerns around land reform are inevitable, Nene hopes that a mature attitude by the ANC leadership can take the sting out of rancorous policy debates and encourage a tone of mutual compromise among all stakeholders.
“Leadership at the top has a big role to play in changing the hearts and minds of people. What you are beginning to hear lower down in the ANC ranks is that we appreciate that there have been problems, we also accept that these challenges run deeper than one individual, but all of us have a role to play.”
As Nene again takes the helm of the Treasury, where he solidified his reputation for economic prudence, he insists that the country’s institutions have been strengthened by the challenges of the Zuma era and stand ready to play their part in a much-needed economic revival: “It’s been a very good test of the resilience both of the institutions but also of society at large… The wealth of experience that has been built over time at the Treasury will take a lot of doing to dismantle. Even the most junior staff member at the Treasury is actually equipped with the skills and experience that puts the country on a positive trajectory.”