We need leadership willing to make tough calls

Patrick Cairns | 13 October 2014 | Original Publication:  Moneyweb

South Africa can't just drift along.

CAPE TOWN – Of all the criticisms levelled against President Jacob Zuma's handling of the economy, perhaps the worst indictment is that he has failed to provide South Africa with decisive leadership. He has been unable to inspire the country towards a cohesive vision of where we need to go.

There are many reasons for this, not least of government's inability to produce and stick to a clear economic plan in the first place. But the president ultimately has to bear the responsibility of not being able to provide the guidance that the country has needed.

At a recent panel discussion hosted by Sanlam Private Wealth, political commentators Justice Malala and Tony Leon pointed to exactly this fact. They highlighted how although there has been some outstanding leadership in South Africa's economic spheres of government, its reputation is at risk of being undermined by the incompetence elsewhere.

“In South Africa you have the Revenue Service, Treasury, and the Reserve Bank, which are three fantastic institutions that seem to work pretty well, and then you have the rest of government,” Malala said. “You have this bipolar world and unfortunately, if the world of sloth overwhelms the world of efficiency, then we have a problem.”

For Leon, where South Africa's leadership needs to come to the fore is in tackling the country's current account and budget deficits. The present situation means that South Africa remains vulnerable and another credit downgrade will have serious repercussions.

“There are a number of money managers who, given another credit downgrade, will pull the plug on us,” he said. “Then our current account and budget deficits will become unaffordable and we're in a deep crisis. So whatever the leadership does or doesn't do, there are a whole lot of external factors barrelling down the highway that are inescapable.”

Leon said that while the Minister of Finance, Nhlanhla Nene, has a very informed appreciation of how little is in the cupboard, he doesn't believe that the rest of government necessarily shares the same understanding.

“The head of the government prevaricates between the national development plan, which is a good thing, and the national democratic revolution, throwing out concessions to unions and everyone else,” Leon said. “But leadership is about making tough choices. When you have good leadership the tough choices are made and you move forward. If you don't, then you drift along. But you can't just drift along when you are so dependent on external financing.”

Leon noted that his three years as the ambassador to Argentina gave him a solid understanding of how a country is able to destroy itself both economically and politically. The case of nearby Venezuala, which is one of the richest oil producers in the world yet still has to import food, is another example.

However, other Latin American countries like Peru, Colombia and Chile have managed to avoid such disaster. And their policies are worth taking note of.

“Each used the crisis years to repair their balance sheets, improve their governments, and create more business-friendly environments,” Leon said. “And today they are among the high-performing emerging market economies. So it’s no secret. Either we take those examples and apply them, or we don't.”

Malala expressed that one of the vital parts to achieving this is forming a new understanding between government, business and labour. And that also means that each of the three entities has to provide better leadership than it is currently doing.

“In a country where we have a 25% unemployment rate by the narrow definition, you cannot say we're okay growing at 1.9%,” Malala said.

He said that while political leadership has been most prominently lacking, business and labour have equally failed to offer direction.

Malala believes that there has to be a push towards a conversation where these three critical role players in the economy can talk without being afraid to voice any opinion.

Most of all though, what is needed is implementation. Those at the top need to make firm decisions about what has to be done and then there must be a cohesive drive to do it.

“At one stage we were an emerging market darling and now we are a laggard. Emerging markets themselves are less than the flavour of the month,” Leon said. “When we had credit coming into this country, we didn't use those good times to take advantage and now, in more challenging circumstances, we are going to have a hard landing. I just hope we will have the leadership to make the tough calls that are necessary.”