It is now 24 months since President Ramaphosa was elected president of the ANC and just short of 22 months since he took over from Jacob Zuma. He set himself two tasks: rebuild the ethical foundations of the state (reclaim it from state capture) and revitalise the economy.
We described the attempts to reclaim the state in a note 'Act 1', published in August. In the three months since then a lot more has happened to reclaim the state and we will update you in due course. In this note, we look at Ramaphosa’s other priority, the economy.
In his seventh month in office (Sept 2018), Ramaphosa announced an economic recovery package. The package consisted of 25 actions. In our evaluation 11 of these have been done; 5 are in process; 3 have not been done (all 3 to do with extra money); and on 6 we could not obtain hard data.
The recovery plan was clearly not strong enough. Growth remained anaemic and unemployment got worse. Growth this year will be 0,5% against 0,8% in 2018. As Danie Craven liked to say, look at the scoreboard. The first attempt to ignite growth has not worked. Clearly the country needs a strong dose of structural reform to get growth going. What is the score on that?
(Some people argue the Reserve Bank should lower interest rates radically and Treasury should increase the budget deficit further to ignite growth – neither of those will be done by this administration so we will not discuss these arguments further.)
1. Structural reform
The requirement for unions to hold a secret strike ballot amongst their members before engaging in a strike is now part of labour law. It was fiercely resisted by unions and some even threatened a constitutional challenge, which has not happened.
A second measure, the youth wage subsidy, that the unions also opposed aggressively has been extended for another ten years.
A third fiercely opposed measure, the evaluation of teachers, has been agreed. On 3 September an agreement was signed with the education union, SADTU, for a quality management system in schools. The system is detailed and comprehensive, will begin on 1 January 2021 and teachers will be evaluated twice a year. In Gauteng province schools will be rated with stars (as in the hotel industry) from next year. One province only, but it brings a welcome focus on schools' capacity.
So much for the conventional wisdom that government can't introduce policies the unions disagree with…
Energy and Eskom
The Integrated Resource Plan (IRP) was finalised and gazetted. This must be read with the government's plans for Eskom. These are truly ground-breaking policy initiatives as an entire sector (electricity) currently dominated by a government monopoly (Eskom) will be turned on its head. Some dismiss these policies as insufficient and 'it-will-not-happen', partly based on the 'unions-will- not-allow-it' argument. Government has signalled a strong political desire to implement these initiatives and I am happy to place my bet that this will happen.
The IRP and Eskom proposals will together unlock considerable investment, expand the role of the private sector and significantly expand sectors like gas and wind power.
The short-term issues outstanding here are authorising 2 000 MW of new capacity to plug Eskom load-shedding, the finalisation of 17 applications for own-generation licenses sitting on the minister's desk and allowing municipalities to procure their own power.
Government has finalised its policy on spectrum-licensing and handed it over to ICASA for implementation. ICASA released its guidelines on how 4G and some 5G spectrum will be allocated, and the public now has 90 days to comment. This matter has been hanging since 2010 and it is a relief that there has at last now been action. The availability of more spectrum will also help with the recent Competition Commission rulings on MTN and Vodacom.
Collaboration in sectors
The success of the South African automotive industry is well known. Auto exports are 19% up on 2018. The motor industry support plan was recently extended from 2020 to 2035, cementing the progress and providing policy certainty. The success of the motor industry is the product of government and private sector collaboration, resulting in an industry or sector plan.
Similar sector plans have now been developed for the clothing, textile and leather, and poultry industries. There is also one underway for the sugar farming and production industry.
The PPGI (public private growth initiative) is led by Roelf Meyer and Toyota's Johan van Zyl, with full support from government. It covers 19 sectors with 43 projects where the private sector has committed to invest R843 billion over five years, provided identified obstacles are removed.
The relevance of these agreements is that they bring business and government together in the same room to work on what investment is needed to grow a sector and what impediments should be removed. It is part of the secret behind Japan's success, where Van Zyl is currently working and from where he brought the idea to South Africa.
Eight countries were added to the list of countries from where travellers can enter South Africa without visas, making it a total of 100 countries that don't require South African visas. South Africans enjoy visa-free travel to 75 countries. To reach the president's target of doubling tourist arrivals, arrivals from India and China will have to be tackled even more. This can happen through e-visas and South Africa's first on-line visa facility went live this November in Kenya.
The big delay in progress with visas is resistance from the security people worried about various threats. Turkey has overcome this problem, so it should not be insurmountable.
The birth certificate requirement has been abolished for foreigners and South Africans must show 'parental consent' when travelling with children.
Tourism envoy Derek Hanekom observes that the changed visa regime has not yet 'filtered to international airlines and embassies'. Presumably part of his work as tourism envoy will be to make them aware.
At the Investment Summit the president set the target that visas for skilled applicants must now be finalised within a week and in due course he wants to
get it down to one day.
3. Ease of doing business
South Africa has gained seven places in the Global Competitiveness Report (60th out of 141 countries) but lost two in the Ease of Doing Business Report (84th out of 189 countries). The president has set the goal of being amongst the top 50 for Ease of Doing Business.
At the Investment Summit he announced the launch of Biz Portal where a business can be registered, and at the same time also register for tax, a domain name, a BEE certificate, the Compensation Fund, the Unemployment Insurance Fund and open a business bank account. The goal is to be able to register a business in one day.
The President has hung his hat on increased investment. There is a quantitative target (R1,2 trillion by 2023) and an institutional target (establishing an Infrastructure Fund). Judging by last year and this year's investment conferences, he will comfortably reach the target – in two years more than R660 billion was mobilised and there are still three years to go.
South Africa Reserve Bank numbers confirm the investment turnaround. In the second quarter of this year gross fixed investment increased by 6% after 5 quarters of decline. Gratifying is that public corporations and government invested less, whilst the private sector rebounded sharply.
The Infrastructure Fund will leverage investments from foreign financial institutions like asset managers and banks. The president must be exasperated with the slow progress. True, a CEO was announced in the mini budget (the highly regarded Dr Sean Phillips), but legislation is required and Treasury has yet to submit that. Ambition also had to be toned down. Initially government would have contributed R400 billion to the Fund, but this figure is now R100 billion over ten years. The wheels of bureaucracy grind slowly; and Eskom is slurping up money that could have gone to investment.
5. Prescribed assets
On 4 November the finance minister made it clear in parliament that prescribed assets will not be introduced. It was always unlikely that prescribed assets would be introduced while government is trying to entice the private sector to participate in the Infrastructure Fund. It is also unlikely when there is a
deep capital market that can provide loans to a money-starved government.
6. Structural reform must also be about inclusion, not just the formal economy
Structural reform cannot just be about big sectors and the formal economy. It must also result in more inclusion.
In the September 2018 recovery package, the president made a point of including informal, township and rural economies. Five of the 25 actions in this package relate to these economies. At the Investment Summit he reiterated again: 'Our broader strategic vision (is) catalysing economic activity in our districts, municipalities and provinces.'
Textiles, poultry and sugar farming are labour intensive industries with big scope for emerging farmers. Government's policy directive to ICASA specifically makes provision for black-owned small enterprises in the telecoms sector through a WOAN (Wireless Open Access Network) mechanism. It will boost black participation considerably.
Government has released 167 000 units of land belonging to SOEs (totalling 14 100 ha) for redistribution to citizens. Thirty-year leases on 1 400 farms have
also been signed with beneficiary farmers.
|Outstanding items on structural reform
It is useful to keep a check list of what still needs to be done. Readers’ views are welcome.
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