FirstRand Urges South Africa's Ramaphosa to Shun Populism

(Bloomberg) -- The South African government has adopted certain populist policies that the country cannot afford, according to FirstRand Ltd. Chairman Roger Jardine.

These policies include “higher public-sector wages, a questionable approach to higher education funding and” the introduction of national health insurance, the chairman of Africa’s biggest bank by value said in Johannesburg-based FirstRand’s annual report on Thursday. If government’s drive to amend legislation to transfer land to black owners without compensation is “implemented poorly,” it runs the risk of compromising the property rights of South African citizens, Jardine said.

The ruling African National Congress aims to accelerate the transfer of land to black owners 24 years after the end of apartheid. With elections looming next year, President Cyril Ramaphosa has embraced the notion of expropriation without compensation and has said the country’s constitution may need to be changed to allow for this. He has also said there won’t be a land grab and any policy changes won’t damage farming production or the economy.

“So far, the presidency is navigating this issue well,” Jardine said. “The process is transparent and designed to be inclusive of all views, but the assertion that mortgaged private property assets can be expropriated without compensation, and the banks will just have to absorb the loss, is a ludicrous and dangerous fallacy.”

Ailing Institutions

The country’s biggest lenders have an estimated 1.6 trillion rand ($109 billion) extended in loans financing real estate, according to the Banking Association South Africa. The banks also lend to state-owned companies including cash-strapped Eskom Holdings SOC Ltd. and South African Airways.

“We need to ask ourselves if South Africa really requires a national carrier that costs the country billions of rand a year when the vast majority of our citizens do not use its services,” Jardine said. “The banks can step in with short-term liquidity, but this is just ‘kicking the can down the road’ and it is not sustainable.”

Ramaphosa unveiled plans last month to reallocate 50 billion rand of the national budget, set up a new infrastructure fund and implement a range of other measures to revive an economy that’s mired in recession. Africa’s most industrialized economy contracted in the first and second quarters and the central bank projects just 0.7 percent growth this year.

The reforms in the stimulus package “are not expected to lift economic activity meaningfully over the near term,” Jardine said. “Together with other structural reform initiatives -- such as addressing state-owned enterprises’ finances and removing other policy uncertainties -- they could start to bear fruit toward the end of next year and into 2020.”

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