Business Leaders Urge South Africa to Take Bolder Steps on Economy

(Bloomberg) -- South Africa’s political leaders have balked at the “radical” steps needed to cut excessive state costs and stabilize the nation’s finances, according to Sipho Pityana, head of one of the nation’s biggest business groups.

“Bold steps have to be taken” by the government to improve the economy, starting with scaling back public spending, Pityana, the president of Business Unity South Africa, said in an interview at Bloomberg’s Johannesburg office. The decision by the cash-strapped power utility to concede to union demands in wage negotiations is a sign it’s unwilling to do so, he said.

Bailouts for Eskom Holdings SOC Ltd., which generates around 90 percent of the country’s electricity, and South African Airways raised the risk that the National Treasury will breach its spending ceiling and slow efforts to narrow a fiscal deficit from more than 4 percent of gross domestic product. The utility has also said it hasn’t yet entered into talks about cutting the size of its workforce that’s swelled in the last decade.

“In a private sector context, most of those state-owned entities would be rationalized by cutting back costs in a very radical way,” Pityana said. “From my own reading and what has happened at Eskom, it’s an early indication that government may not be ready to do that in the face of opposition from trade unions.”

Narrow Victory

While Eskom initially announced it can’t afford any pay increases this year as it battled to fund operations, it’s now offered employees raises of around 7 percent for the next three years. Inflation was 4.6 percent in June.

The debate around the need to change the country’s constitution in order to seize land without compensation for redistribution to the black majority could hinder efforts to revive the economy and attract investment if it was handled in a “populist” manner, he said.

“The constitution already is permissive of expropriation of land without compensation in certain circumstances,” said Pityana. “That provision of the constitution sits comfortably without threatening property rights.”

While Cyril Ramaphosa taking over as president of the country in February has improved the outlook for South Africa, he has a tough task pushing policies through the African National Congress after a narrow victory in a party election in December, according to Pityana.

Mandela Legacy

Nelson Mandela commanded huge authority after coming to power in 1994 and could make difficult decisions, he said.

“Now we have a leader in Cyril whose standing is probably greater than that of the ANC in society, but in his party he only just made it as a leader so he has to constantly negotiate his journey,” said Pityana, who is also chairman of AngloGold Ashanti Ltd. and led a campaign to try remove former president Jacob Zuma from office.

Ramaphosa acted quickly to overhaul boards of the biggest state companies, including Eskom, to improve governance. The government also plans to review the role of the firms to help boost their contribution to economic growth, according to statement on the website of the African Development Bank, which is assisting with the project.

“If you were a business you would look at where the leakage is, and you’d close the tap,” Pityana said.

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