Ramaphosa’s hard sell at Davos

With South Africa’s lights having been on for nearly a year, the president had a good story to sell at the World Economic Forum. But there’s no disguising the fact that prospective foreign investors would still be buying into a work in progress, rather than the finished product.
4 mins read

Right at the end of President Cyril Ramaphosa’s soothing keynote address at the World Economic Forum in Davos on Tuesday, the forum’s chair Klaus Schwab served up the sort of softball question for which any world leader would have traded his St Tropez bolthole.

“If you could explain to a major foreign investor why he should invest into South Africa at this particular moment, [can you give] three reasons,” asked Schwab.

Ramaphosa, like the professional he is, leant into this with all the reluctance of a small-town mayor piling into a buffet. 

Oh, said the president, you mean like the political stability that has come with South Africa’s coalition government; it being the most beautiful country in the world; the fact it’s a gateway to Africa; and its imminent hosting of the G20 summit in Joburg? And, oh yes, it’s also pregnant with promise, and we’ve also implemented sweeping reforms to curb the bribes.

But there was one consequential point he made which would have been noticed by the sort of sceptical European executive who had seen the country trudging through the Eskom-induced darkness for the past 15 years, and presumed it was only a matter of time before Eskom would revert to type.

“We have resolved our energy crisis,” said Ramaphosa. “We went through a debilitating energy crisis, and [we’ve now] gone through almost a year without having any blackouts – [this] was a major crisis. We have solved that.”

It was a significant statement, and not just for the fact that the president used the word blackouts – it wasn’t so long ago that government ministers would get a fit of the vapours if anyone dared use the term “blackouts” rather than “load-shedding”, as that apparently implied an unexpected collapse of the grid rather than a conscious effort to make the population take turns using the electricity supply.

But wait, there’s more …

Most importantly, it was the fact that Ramaphosa chose to use this moment to definitely declare load-shedding “dead” – something which his own energy minister Kgosientsho Ramokgopa and Eskom CEO Dan Marokane have been painstakingly scrupulous to avoid, lest the scourge raise its gnarled hands from the grave at some point. 

The president’s declaration was a positive step: it sets a new bar at this level, and provides his appointees with a very real incentive to ensure the head of state isn’t embarrassed by any recurrence of the blackouts. But Ramaphosa’s hard sell didn’t stop at Eskom. 

“We’re also reforming our governance and dealing with corruption levels that had risen to a high level,” he said, citing the partnership with the business sector as instrumental in sharpening up the state. “There aren’t many countries I know of in the world … where there is a long-term co-operation between business, labour, and government at such a close range.”

That is equally true, but what it doesn’t say is that the business sector was largely forced to step in to help the government pull itself together on the three biggest threats to the economy – power, logistics and crime – because the state’s own efforts over the previous few years had proved utterly futile. Largely clueless ministers had been left to flail for too long in critical portfolios, as indeed were largely clueless heads of state-owned entities.

Nonetheless, the improvements have been tangible and, most particularly when it comes to power, shouldn’t be sniffed at. Certainly, Ramaphosa’s administration deserves some credit for finally getting it right at Eskom, even if it took far too long to appoint the right board, who then empowered the right people to pull the right levers at the six worst-performing power stations. 

But the reality is, South Africa’s recovery, even with the private sector in the engine room, is far from assured.

Not quite on track

Just days before Ramaphosa and his ministers began sharing sherries with the caviar set in Switzerland, the country’s port and rail operator Transnet published its half-year results for the six months to September which showed that not only had it made a R2.16bn loss, it had also breached its loan covenants to its lenders.

The problem, like most state-owned entities, is the giddying heights of its debt. The good news is that Transnet actually made a R4.4bn operating profit; the bad news is that this was more than wiped out by the R7.1bn it had to pay in interest on its R136bn debt. The upshot was that Transnet had to eat into its cash reserves, which meant it fell below the bank balance required to keep its bankers comfortable, given the size of its interest payments. 

“The breach is an event of default,” Transnet said. “Transnet submitted waiver requests to each of the affected lenders requesting that they waive the triggered event of default … Transnet has received all the required waivers.”

Now, this is not an existential crisis for Transnet in the way it would be for a normal company; after all, its shareholder is South Africa’s government, which has already provided guarantees of R30bn to the logistics company, so lenders are pretty confident the state isn’t going to let it sink.

It’s also true that, on the ground, there are better things happening at Transnet under its new CEO Michelle Phillips, including that its revenue rose 6% to R41.5bn – a positive development for a company that in recent years had been doing less and less business.

But there’s no hiding the fact that Transnet is still exceedingly frail, and that Ramaphosa’s “reforms” aren’t happening on the sort of linear trajectory that South Africa needs. Even if the President does at least have some legitimacy for the brighter sales pitch he delivered, what with the lights now being on.

Investors who bought the dream back in 2018, shortly after he’d first been appointed, will of course take this all with a pinch of salt.

As they should. In real estate lingo, a more accurate pitch might be: for the ambitious foreign investor keen to distinguish themselves from the herd – a renovator’s dream in an up-and-coming neighbourhood, where a handyman’s flourish could give you a head start before everyone else wants a piece of the action. Bringing your own water supply would be an advantage.

Top image: South African President Cyril Ramaphosa. Picture: Gallo Images/Brenton Geach.

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Rob Rose

With more than two decades in business journalism and as an author of Steinheist and The Grand Scam, Rob knows his way around a balance sheet. While editor of the Financial Mail for eight years, the title bucked the trend of falling circulation, producing award-winning news.

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