Implementation remains key
Let me start by stating the obvious: the Covid-19 crisis has been devastating to our economy. Two million people have lost their jobs, the economy will shrink by 8% this year and government revenue is expected to fall by 14%. This is the crisis that an economic recovery plan must confront. It is unprecedented in our lifetimes.
Yesterday, the economic recovery plan that President Cyril Ramaphosa presented sets out a series of steps that, on paper, will go far in kickstarting growth. But, as is often said, South Africa is good at making plans but bad at implementing them.
Organised business, of which I am a part, has been highly active since the start of this crisis. Through Business for South Africa, many businesses volunteered to support government and the public through the crisis. B4SA created an extensive plan to guide a recovery, and Business Unity South Africa engaged with other social partners through Nedlac to develop a jointly agreed plan to present to the president. From mobilising global supply chains and sourcing PPE, to switching production to produce hand sanitiser, many businesses stepped quickly up to the plate to deal with the most urgent challenges. Business, along with other social partners, has now committed to assisting government in executing the recovery plan. We will mobilise skills and experience from the private sector where necessary so government can implement the plan effectively.
The president’s plan reflects many of the issues that BLSA has repeatedly highlighted that are constraining growth. These have now been made priorities. Long running policy uncertainty around the MPRDA is to be resolved, the times to obtain water and environmental licences will be halved, visa rules and administration will be adjusted to attract skills and tourists and the release of high frequency spectrum will enable better broadband access. When delivered, the resolution of these issues will unleash investment. Another major constraint on investor confidence is the debate over land reform, but that too made a step in the right direction with the expropriation bill published this week that sets out a sensible approach.
The president also aggressively focused on energy security which is probably the biggest growth constraint we face. We have seen policy opening up to allow firms to generate their own power, though it is hard to see how his 2022 target to resolve the energy crisis will be reached without further liberalisation to enable consumers to generate their own electricity both for their own consumption and to feed into the grid. He said little about fixing Eskom’s problems directly, particularly how its unsustainable balance sheet can be repaired, which will continue to worry investors.
Collectively, these policy certainty measures will take the foot off the brake, but we need to apply a foot to the accelerator too. We also need to drive the sort of industrialisation that creates internationally competitive businesses, but the plan is too focused on driving the local market to buy locally produced goods with little clear strategy on how to access the global market. For example, the green energy drive has the potential to underpin a major green industrialisation strategy with a view to supplying the global energy transition. With the African Free Trade Agreement giving access to a market of 1.3-billion people, there is substantial new opportunity for South African businesses. We should be looking outwards for new markets, not inwards.
The private sector also stands ready to work with government to implement its vision of a large-scale infrastructure investment rollout. The president has put infrastructure at the centre of his economic plans since his election and it has become ever more important since the crisis. He has achieved much in establishing Infrastructure South Africa and the Infrastructure Fund and building a pipeline of projects. The critical issue, however, is the mechanisms that will mobilise private sector funding. The president spoke of PPPs in his speech, an area that I think has been underplayed as a mechanism to attract large-scale private investment. Improving the framework to launch PPPs could be a key part to doing so.
Employment is also obviously a critical issue. The president’s mass employment stimulus will see the public sector creating 800,000 work opportunities at a significant cost to the fiscus. This is a welcome step in dealing with the immediate challenge of 2-million newly unemployed people, but it can only be temporary. There is no substitute to creating sustainable high-quality jobs in the private sector. We cannot, in the midst of a fiscal crisis, expect the public sector to be the provider of all new jobs in the economy. Yet, we continue to avoid having uncomfortable conversations about what would really boost employment in the private sector. While the growth-enhancing policy measures will certainly encourage growth and employment with it, we could do more to drive the employment intensity of this growth. We would welcome honest conversations in which we can put on the table in practical terms how labour regulation constrains business from hiring more.
The second challenge facing the plan is its credibility. The public needs to believe that this time is different – that this plan really will be implemented. There was welcome continuity with the National Development Plan, which should be re-centred as a coordinating mechanism at the heart of public sector strategies across all departments and levels. If it is, you get leverage effects into the economy, as businesses confidently plan their own investments to meet public sector implementation as it happens. Rebuilding business confidence is a fundamental starting point to resuscitating investment.
To get that level of buy-in from the private sector, it needs to be confident that plans will become reality. That calls for accountability from our political leaders. The president promised in the State of the Nation address this year that his cabinet would be signing performance agreements which would be made public. We have not yet seen any announcements that this has concluded, but it would be a positive indicator to business that commitments will be stuck to.
We all have much work to do for South Africa to regain its economic momentum that will deliver the inclusive growth to make for better lives for all. Business is ready to do its part.