Ramaphosa and Eskom in Eyes of the gods

Last week, President Cyril Ramaphosa unsurprisingly fired the head of the South African Revenue Services (SARS), Tom Moyane. This is considered a good move that ordinarily should not raise an eyebrow but the interesting thing about the whole process is why the president had to fire Moyane at this very moment?

Just earlier in March of this year, the President concluded that he had lost confidence in Moyane’s ability to lead SARS, this was a time many expected him to push the fired button, but he did not. He even had the luxury of the advice of an ad hoc committee two weeks ago headed by Retired Judge Robert Nuget, which recommended Moyane be sacked, but again, Ramaphosa stalled his decision. So, why now?

Why did the President Delay?

Well, one big factor was the Discovery Leadership Summit, attended by the Clintons, who interestingly are the first major world leaders to call expropriation without compensation a bad idea in public to the president’s face. However, Ramaphosa managed a great public relations coup in winning front page coverage of himself with a lip-biting Bill Clinton and adulation for firing Moyane with details buried elsewhere.

The terms of Moyane’s contract are unknown, so whether the firing makes any difference to his still getting paid every month remains one of those curious imponderables. Moyane is probably paid for most of 2018 to do nothing, and before that to do worse than nothing. The pursuit of which is called rent-seeking. Ramaphosa claimed to detest rent-seeking most of all in his speech to the Clintons, but does he really?

In relation to that, the World Bank estimated that Eskom, South Africa’s state energy company, is 66 percent overstaffed and that its salaries are double the norm. Eskom is good for rent-seekers. That is just what one would expect from an artificial and poorly governed monopoly in the energy sector. But Ramaphosa’s new dawn minister of Public Enterprises, Pravin Gordhan, insisted on further wage increases this year and said that capital investment should be sacrificed instead.

In light of the fact that all South Africans have suffered at Eskom’s overpriced lack of delivery, streamlining that rent-seekers paradise would surely count as an easy win, as Bill Clinton recommended. Here are more low hanging fruit Ramaphosa could pluck.

The Zwelithini Controversies

The largest monopolist, at least by land-extent, is king Goodwill Zwelithini, with over 3 million hectares in his trust. Annual leases are issued, effectively rents, without provision of concomitant services. Entrepreneurs are forced to develop infrastructure on land before they get the right to purchase longer-term leases. The former practice is not ubiquitous but everywhere it occurs, it extracts from the very bottom of the pyramid, while the latter shrinks growth.

Expropriating this land without compensation would be both impractical and unjust. But mandating that our most divine monopolist issue only long-term leases, 99 years or 999 years, to residents should produce an easy win-win. The residential plots must be dirt cheap since market considerations like access to social amenities, work and infrastructure are negligible.

Previous lease payments might justly be built into the long-term lease purchase cost, further reducing the burden on ordinary people. Added together, the king will get more money than his already untold fortune and his heretofore vassals will gain the assets needed to accumulate inter-generational wealth.

Townships drip with even lower hanging fruit. For instance, GG Alcock is a man who made his fortune by looking at township business people and seeing actual business people rather than basket cases. In his latest book, Kasinomic Revolution, he makes the case that an estimated R30 billion is paid in rent by foreign nationals to South African township dwellers, especially for use of Reconstruction and Development Programme (RDP) houses, every year. For a sense of perspective, the spaza industry is at least 85 percent immigrant-operated and turns around over R100 billion annually.

But sadly, RDP policy has effectively turned many South Africans into extensions of government, overwhelmed by corruption and rent-seeking, which are of course, the two things Ramaphosa said government is supposed to prevent. It is illegal for RDP dwellers to sell or rent their homes without title deeds since an estimated 5 million RDP dwellers lack title. Therefore, any businesses related to these assets, including local-to-local trade, are by definition, corrupt.

Since it is impossible to sell these assets on the open bonded market, incentives to maintain and develop them are curbed if not totally stomped out. On the demand side, there is no shopping elsewhere. The upshot is not, to most tastes, as offensive as what goes on at Eskom. A good reason to look on these informal arrangements with sympathy is that immigrant dealers deliver valuable services to townships at extremely competitive rates. Still, on the rental side, the inefficiencies of a distorted market obtain far too pervasively and the future threat of un-maintained and already collapsing RDP houses looms large.

To right this wrong, RDP dwellers must be issued with title. Then they can keep, improve, rent, or sell without dodging the law or fair market forces. Locals would benefit largely and legal immigrants would be able to integrate positively by investing directly into fixed assets. The only loser would be the African National Congress, which would release its eternal carrot of deeds dangled in front of voters. But in any case the carrot cannot dangle forever, it will rot or be snatched

Ramaphosa’s cheerleaders might think escaping the corner will simply require charm and a stroke of canny timing as regards the Moyane issue. That would be a terrible mistake. Ramaphosa has a command of the ANC that can no longer be doubted. He can better utilize it to his own advantage by making fair land reforms. Obviously, ending rent-seeking and promoting entrepreneurship is not a game of PR but it is necessary for South Africa to crawl out of its longest downward business cycle World War II.

Gabriel Crouse is an Associate at the Institute of Race Relations (IRR), a liberal think tank that promotes political and economic freedom.

First Appeared in Rational Standard.