BLSA reaction to Sona 2021

11/02/2021 | By Admin

President Cyril Ramaphosa got it right with his four overriding priorities in his state of the nation address: defeat Covid; accelerate the economic recovery; accelerate economic reforms to drive inclusive growth; and fight corruption.

As business we applaud the President’s focus on reporting on progress rather than making promises. We do, however, wish there was more progress to report. At last year’s Sona, he said the auction of additional spectrum and bid window 5 of the renewable energy programme would both happen then. Of course, Covid-19 upended many plans, but with the President’s focus on progress, we are ready to work with government to implement the plans we have all agreed on.

In terms of the first priority, a clear vaccination plan with a timetable is essential to getting the pandemic under control. We welcome the President’s specifics regarding procurement but would like more detail on the logistical plans for the rollout. Business is ready to assist.

We agree with President Ramaphosa that infrastructure is a critical plank of the economic recovery. However, we are concerned that the reality is continued declines in infrastructure spending across the public sector. State-owned enterprises spend 30% less as a percentage of GDP than five years ago, while general government spending on infrastructure has fallen 18%. So, we do not see the evidence for the large amounts of spending the President has talked of.

He made no mention of reforms to the key legislation and regulations that currently govern infrastructure procurement, such as the Public Finance Management Act and related regulations including the framework for public/private partnerships, even though these are in the Economic Reconstruction and Recovery Plan.

For the country’s growth ambitions, the drive to buy locally manufactured products must be carefully matched with on-the-ground capacity. For example, the President said green economy products could be manufactured locally. Unfortunately, many manufacturers of solar panels and other renewable energy products which started up in the early rounds of SA’s renewable energy programme had to close down because of the long delay to the fourth-round bid winners. Now SA has manufacturing capacity of only 300MW of PV a year.

Rebuilding that will take time and a reliable outlook of steady demand will help. But insisting on localisation targets vastly above that capacity in the short run merely delays energy projects, which overall does more harm to the economy. Localisation must also be focused on building competitive export industries as the President said – localisation that merely increases costs in supply chains and reduces our international competitiveness is unsustainable and damaging to the economy.

There was too little discussion on opportunities to stimulate private sector investment, such as resolving long outstanding policy uncertainty in the mining sector that is constraining exploration spending and capacity expansion. We are missing a major opportunity provided by a strong global market for commodities. This is infrastructure spending that government could have for free, if the policy environment was fixed.

But President Ramaphosa’s commitment to the spectrum auction – and his firm commitment to switching off analogue broadcasting – is positive after too many delays. Successful conclusion of the auction process will enable considerable investment in enhanced 5G networks and can lower the cost of doing data, though we share his concern that litigation regarding the process could lead to delays. We believe it is critical that the auction process be conducted in a manner that is beyond legal challenge.

Another positive step is the commitment to amend Schedule 2 of the Electricity Regulation Act within the next three months to increase the licensing threshold for embedded generation. This is another change that could immediately lead to an increase in private sector investment as many companies would quickly begin projects to generate their own electricity. However, we do not believe it is necessary to consult on the threshold. Eskom CEO Andre de Ruyter has said he believes 50MW is an appropriate level, and business agrees. Consultation is likely to lead to further delays.

While the Economic Reconstruction and Recovery Plan has supported 430,000 people with job opportunities and subsidies, it falls short of the R800,000 target and it’s possible that funding for this will be cut in the Budget later this month.

The extension of the R350 social grant for three months is important and necessary. Far too many livelihoods have been devastated by the pandemic.

News that the revised list of critical skills eligible for visas will be published for comment within a week is very welcome. Matching the list to the skills needed by the economy will go a long way to boosting productivity and will boost the recovery.

The President’s focus on progress is where we need to put all of our attention. We look forward to supporting him in driving this progress in the months ahead. The President called for all social partners to work together, and business is here to play its part. We can indeed look forward to a new era of growth if we do make progress on agreed reforms.