Economic State of the Nation
By: Lungisa Fuzile, Chief Executive of Standard Bank South Africa
National Treasury’s latest projections of economic growth and government debt show that South Africa is on an unsustainable path, and that urgent, meaningful interventions are needed to lift the country out of the low-growth trap it currently finds itself in.
In his medium-term budget policy statement, Finance Minister Tito Mboweni acknowledged as much as he delivered a sobering set of forecasts. Tepid economic growth and increased spending on overindebted state-owned enterprises (SOEs), mainly Eskom, means the budget deficit is expected to remain at over 6% for several years. This will push South Africa’s debt-to-GDP ratio to above 80% by 2028 – that is, if reforms are not implemented.
Against this backdrop, Treasury recently gave the country an opportunity that should not be squandered when it published a discussion paper aimed at facilitating a national dialogue on a broad range of economic reforms.
If implemented with speed and care, these interventions would lay the foundations for faster, more inclusive growth. The open invitation to comment on the document is commendable, as is the pursuit of growing the economy while transforming it at the same time.
Measures that can be implemented in the short term – such as rolling out e-visas to boost tourism, importing much-needed skills and auctioning spectrum – should be taken immediately so as to provide a solid platform for longer-term interventions. The time for action – underpinned by a clearly defined roadmap – is now.
In its formal response to Treasury, Standard Bank stated that it is firmly in support of the underlying theme of the paper – that South Africa needs faster economic growth. The country cannot resolve its social and economic challenges unless GDP growth rises to at least 5% over the medium to long term.
As the paper and the National Development Plan note, such high rates of growth require much higher rates of investment – a prerequisite of which is the restoration of policy certainty and confidence.
Importantly, Treasury’s paper paves the way for the resolution of a range of policy issues in key sectors of the economy. The document brings all these outstanding debates into one process and calls for focused and deliberate conversation – an important proposal considering that policy paralysis has hampered South Africa’s efforts to attract investment.
To bolster policy stability, we proposed that the requirement for social and economic impact assessments which inform policies must be rigorously enforced, and that the findings of these assessments should be publicised. Adherence to these rules has been somewhat weak, and this can give rise to policies that have unintended negative consequences.
And to avoid constant amendments to legislation, we suggested that the impact of new policies be evaluated at predetermined intervals.
We also highlighted the fact that changes in ministers need not give rise to changes in policy. Amendments should be based on empirical analyses, which could be driven by a strengthened Performance Monitoring and Evaluation Department. At the same time, clear policy targets should be set wherever possible so that responsible government departments can be held to account.
In general, we welcome the proposed approach to policymaking, which aims to ensure that legislation benefits the nation, rather than individuals or select groups. The policymaking process must aim to identify unintended consequences, while also ensuring timely execution.
Third, the broad theme of enhancing competition to raise South Africa’s global competitiveness is worth applauding, and this should inform policy decisions. But gains will be muted for as long as the country’s firms have to contend with electricity supply and transport and logistics issues.
Reliable and affordable energy is crucial for South Africa to achieve its growth ambitions. The current structure is untenable, as our recent growth statistics show. For this reason, we support calls to separate Eskom’s generation, transmission and distribution functions to enhance competition, and we welcome proposals aimed at allowing more private-sector participation in the industry.
All impediments to competition in the energy sector should be removed, and progression towards a more competitive, efficient and cost-effective market structure should be promoted.
Meanwhile, we agree with Treasury’s emphasis on growing the small-business economy – a meaningful tool in the country’s job-creation arsenal. Aiding small businesses through grants and cheap finance, and by buying their goods and services, is the right move.
However, we should be cognisant that shifting the buying power of the state from big business to smaller enterprises will probably not expand the economy, since aggregate demand remains unchanged.
Other measures to grow demand should be prioritised, including a renewed focus on exports. The African Free Trade Agreement is one step in the right direction.
The private sector too can play its part to support small businesses. For instance, Standard Bank has successfully piloted a funding instrument that allows entrepreneurs to have flexible repayment terms aligned to the seasonality of their cash flows.
Finally, the emphasis on collaboration between the public and private sectors is another welcome theme of the paper. To rebuild lost trust, open dialogue is more important than ever.
To achieve our common goals, the state and the private sector must each play to their strengths. For example, with government’s fiscal position now severely constrained, financially healthier private sector players may be able to find ways to bridge funding gaps. It is encouraging then to hear that government’s Infrastructure Fund, which will draw on public- and private-sector funding and will be housed under the Development Bank of Southern Africa, is making progress.
We look forward to engaging with the government and other stakeholders in robust debate, with the goal of implementing the measures highlighted in the paper. Our discussions on the way forward should be comprehensive but swift – implementation, backed by accountability, is the order of the day.