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Dawie Roodt’s three things South Africa’s new government must address
Renowned economist Dawie Roodt said South Africa’s new government would have to address problems with municipalities, state-owned enterprises, and state finances.
On 19 June 2024, Cyril Ramaphosa was sworn in for another term as South Africa’s president following a power-sharing alliance to form a government of national unity (GNU).
“The resilience of our democracy has once more been tested, and the people have spoken loudly that they choose peace and democracy over conflict,” Ramaphosa said.
GNU participants have agreed to prioritise economic growth, attract more investment, institute structural reforms, and ensure state finances are sustainably managed.
All eyes are now on Ramaphosa to see who he appoints to his cabinet. GNU partners are expected to get positions linked to their election strength.
The markets reacted positively to the new government of national unity and the reappointment of Ramaphosa as president.
South Africa’s stock exchange rallied the most this year, the rand strengthened, and government bonds surged.
On 19 June, the Johannesburg Stock Exchange broke through the 81,000 mark – an all-time high for the bourse.
This optimism was expected. Roodt previously said a positive election outcome could bolster the rand and South Africa’s capital and equity markets.
He said the JSE was at least 30% undervalued compared to its global peers and could rise by 20% to 30% with a favourable election outcome.
He added that South Africa’s capital market was also cheap and would be strengthened by a good election outcome.
Roodt’s positive election outcome scenario has materialised, and his prediction about the market reaction was spot on.
The equity and bond markets rallied, and the rand broke through R18/USD for the first time in a year.
However, the euphoria linked to the new government of national unity and Ramaphosa’s re-election will need to be backed up by good decisions.
Dawie Roodt’s advice to the new government
Roodt told Chai FM there are three prominent issues the new government must deal with to promote national economic growth.
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Local government – Municipalities are a mess. They have big financial problems and do not provide quality services to citizens.
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State-owned enterprises – Companies like Eskom, Transnet, and the SA Post Office have financially and operationally been run into the ground.
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State finances – South Africa’s finances are in a dire state. The country suffers from high debt levels, unsustainable state spending, and high taxes.
He said all governments and politics are about where the money is going to come from and where it is going to be spent.
There are many other challenges in South Africa, but the major ones are municipalities, state-owned enterprises, and state finances.
“In all three cases, we are in very deep trouble. Municipalities and state-owned enterprises are collapsing, and the state is heading for serious financial trouble,” he said.
In addition, the state should help the economy grow, improve efficiency, and address poor labour policy.
He said policy changes should focus on economic growth and creating a stable business environment.
There are three key ingredients which guarantee economic growth in any country.
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Protect private property rights – No trade can exist if you don’t own something. This is why private property rights protection is important.
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Allow for free trade – It is the only free lunch where both parties benefit from a transaction.
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You must have sound money – Inflation must be low. High inflation distorts prices and makes resource allocation difficult.
“You must see if your laws or policies stand in the way of these ingredients and remove them,” he said.
Considering the three key ingredients for economic growth, it is easy to pinpoint South Africa’s policy deficits.
Good examples are expropriation without compensation and high taxes. “These are changes we have to make,” he said.
source:Dawie Roodt’s three things South Africa’s new government must address – Daily Investor
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