South Africa’s Risky Populist Turn
(The Bloomberg View) -- If South African President Cyril Ramaphosa is serious about attracting the foreign investment his country needs, he has an odd way of showing it. His government and the ruling African National Congress have been pursuing policies all but certain to put foreign investors on edge, and hurt the very people they are meant to help.
South Africa’s economy is in trouble. Unemployment has reached 27 percent — 35 percent if you include discouraged job-seekers. The budget gap has widened, as has the current account deficit. Buffeted by falling demand for minerals and rising oil prices, South Africa has also found itself vulnerable to Turkey’s lira crisis, which has spooked foreign bondholders. No wonder the “Ramaphoria” that followed the exit of former president Jacob Zuma in February has faded.
Fixing the damage of the Zuma years was always going to take time. Yet Ramaphosa now threatens to make the job harder by pandering to populists in ways that sow economic uncertainty and undermine investor confidence in property rights.
Ramaphosa’s most misguided proposal is for a constitutional amendment that would allow land to be expropriated without compensation. Notwithstanding President Donald Trump’s reckless and inaccurate tweet about land seizures and attacks on farmers, Ramaphosa’s proposal is roiling investors and could jeopardize South Africa’s trading benefits under the U.S. African Growth and Opportunity Act. A similar strategy in the 2000sruined the agricultural economy of Zimbabwe, South Africa’s neighbor to the north. The policy could also leave Ramaphosa’s government liable for debts on seized land adding up to more than $2 billion.
Yes, the distribution of agricultural land in South Africa remains deeply unequal: Whites, who represent 9 percent of the population, still control more than two-thirds of all farmland owned by individuals. But as much as 70 percent of the land that has already been redistributed now lies fallow, thanks to policies that have left black farmers unequipped to manage their new holdings. Intensifying uncertainty around land ownership stands to depress investment and hurt production, ultimately raising the cost of food for the poorest. Rather than accelerate redistribution with abandon, the president should focus on first making the process work.
A similar pattern of racial inequity and division bedevils the mining sector. South Africa has the world’s largest reserves of platinum and manganese, as well as other valuable deposits whose production together accounts for 7 percent of its economic output. But with commodity prices down, and costs up, this is hardly a good time to introduce a new mining charter that would saddle companies with stiffer mandatory set-asides, including 5 percent ownership stakes for communities and workers.
Ramaphosa’s motives are obvious enough. He and his party face pressure to shore up support going into next year’s elections. The president must contend with divisions inside the ANC, as well as radical politicians outside the party, beginning with ex-ANC member Julius Malema, who champions expropriation, free university tuition and nationalizing South Africa’s central bank. The Democratic Alliance, the ANC’s mainstream rival, made big gains in municipal elections two years ago. Ramaphosa has to worry that the corruption investigations he has wisely launched could boomerang, reminding voters of the ANC’s past malfeasance.
But South Africa’s need for outside investment argues for resisting the lure of populism. The better way for Ramaphosa and the ANC to deliver results and win votes is to double down on efforts to address South Africa’s fiscal problems; curb the corruption that has eaten up billions of dollars in state investment; safeguard the integrity of its institutions; and improve the delivery of health, education and other public services. Addressing the deep-seated inequities still entrenched by decades of apartheid requires evidence-based remedies, not populist gambits.
Editorials are written by the Bloomberg View editorial board.
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