In recent years, South African politics have been characterised by corruption scandals, poor service delivery, and a population disillusioned by the socioeconomic benefits democracy has offered thus far. With the country facing a pressing need to pivot from its trajectory, Zaynab Hoosen explores key actions necessary for the new administration to strengthen the South Africa’s democratic institutions, a key element for driving sustained improvements to the economy.
South Africa is the continent’s most industrialised country and boasts an abundance of some of the world’s most sought-after minerals, including platinum, manganese, and gold. The country attracted USD 5.3 billion in foreign direct investment (FDI) in 2023, among the highest in Africa, yet it faces significant socioeconomic challenges: the economy has stagnated – GDP growth averaged at 1.1 percent over the past 10 years – while unemployment is at a staggering high of 33 percent, and inequality is the worst in the world. This has contributed to growing dissatisfaction among the population, which has been further exacerbated by the notable erosion of accountability in the ruling African National Congress (ANC) over its past three decades in power, with pervasive corruption and persistent governance failures essentially being left to eat away prospects for development. This article will outline the key challenges business faces in this context and outline initial steps that the new administration could take to address them.
Source: Stats SA
A recipe for a challenging business environment
South Africa’s socioeconomic circumstances and governance failures make for a challenging business environment. Extreme crime levels – which are fundamentally symptoms of both of the aforementioned factors – pose considerable security risks, as organised criminal gangs maintain a stronghold in the country and many businesses have to navigate threats of extortion, violence, and robbery, among others. Crime in the country is further perpetuated by rife corruption in police services, with some officers deeply embedded in criminal networks and involved in various crimes, including firearms trafficking as well as small- and large-scale bribery. Further operational challenges stem from substandard infrastructure and poor service delivery, consequences of corruption and the government’s failure to effectively invest in maintenance and development. Businesses feel this most acutely through regular rolling electricity cuts (loadshedding) – which the central bank says cost the country ZAR 926 million (USD 50 million) worth of economic activity per day in 2023 – as well as water outages, inefficient ports, decaying roads, and a dysfunctional railway system. An additional concern for businesses is the threat of civil unrest. The country’s socioeconomic context provides fertile ground for populist leaders to rally supporters for their personal political gain, most acutely demonstrated by the July 2021 riots that occurred after police arrested former President Jacob Zuma (2009-2018). The incident involved widespread vandalism and looting in KwaZulu-Natal and Gauteng, wiping off an estimated ZAR 50 billion (USD 2.7 billion) from the South African economy in just eight days. While there has not since been a repeat of as wide-ranging unrest, protests are frequent, and the new government regardless of its make-up or intent will not feasibly address the underlying issues overnight.
What will it take to pivot the country’s trajectory?
Considering these challenges, there are some initial steps that the new administration could take to make incremental improvements in governance and create conditions that can facilitate economic activity. The first, and most important, is to strengthen anti-corruption mechanisms. Corruption is one of the largest impediments to development, as billions of rands of public funds are foregone to the pockets of the politically-connected few each year; Unite 4 Mzansi, an initiative led by the South African Institute of Chartered Accountants (SAICA) estimates that ZAR 1.5 trillion (USD 81 billion) was lost through corruption just between 2014 and 2019. While the long-awaited Public Procurement Bill 2023, which seeks to better regulate deals with the state, could be a useful start, further progress in addressing corruption would come from legislation enhancing the independence of the National Prosecuting Authority (NPA). Although the NPA Act stipulates that the body “shall serve impartially”, the NPA’s ability to hold high-level officials to account for corruption has been compromised by political interference on several occasions in the past. As such, clearly stipulating the NPA’s independence in the laws that govern the body, as in those of the Chapter 9 Institutions*, could strengthen the integrity of the NPA and its ability to root out corruption across all levels of government.
The road remains a long one, and electoral victory alone will not spur the new government to facilitate change.”
Another beneficial step would be to strengthen parliament’s oversight role to ensure that ministries are fulfilling their responsibilities, and that they are held accountable for the funds allocated to them. Although parliament’s power to oversee the executive branch is well enshrined in the constitution, lines between the two branches of government have been blurred under the ANC’s dominance, as parliamentary committee members belonging to the ANC have long been reluctant to call out senior party members in the ministries for misgovernance and corruption. A worthwhile starting point for the new administration to address this could be to revisit the legislation recommended in the Report on Parliamentary Oversight and Accountability led by Hugh Corder back in 1999. The report suggested that government implement separate laws to set minimum requirements for accountability for public officials and outline a framework within which committee members can perform oversight; the Zondo Commission, a public inquiry into state capture and corruption under Zuma, also drew on these proposed laws in its recommendations in 2022. These laws could provide parliament with better guidance on how to exercise its oversight role and supplement the existing Oversight and Accountability Model, strengthening its ability to address misgovernance and holding officials accountable.
Strengthening the cornerstones of democracy
The road remains a long one, and electoral victory alone will not spur the new government to facilitate change. Persistent misgovernance, enabled by institutions unable or unwilling to fulfil their mandates, have hindered socioeconomic progress and contributed to various challenges to doing business in South Africa. Going forward, taking steps towards strengthening the country’s democratic institutions, specifically the mechanisms of rule of law and the separation of powers, could facilitate incremental improvements in governance and accountability. This would better at least begin to ensure that public funds under the new administration are effectively spent to address pressing issues in the country, and ripen conditions favourable for economic activity.
*South Africa’s Chapter 9 Institutions are a group of institutions that are intended to guard its democracy. These include the Public Protector, South African Human Rights Commission, and Auditor-General.
