ROGER BAXTER: After The 2017 Changes SA Has Been Stabilised, But Now We Need Growth
SA is in its most serious economic crisis since the mid-1980s. The initial 14-year period of fiscal stabilisation and positive growth of the democratic era came to a grinding halt as the era of state capture took hold, and pushed us to the abyss and over. The change of government from 2017 has helped stabilise the situation, but the country’s potential growth rate at 1%-2% (because we have no productivity growth — due to shortages of electricity, rail, ports — and low investment rates) remains too low.
There are five sets of critical structural and institutional reforms essential to SA’s economic recovery, involving raising the growth rate above 3% a year. First, we have to stabilise the country’s government finances through fiscal reform, to avoid a full-blown sovereign debt crisis and systemic banking crisis.
Our focus now must be on reducing wastage and corruption, and for the government to stop wasting scarce fiscal resources on bailing out inefficient state-owned enterprises (SOEs). While corruption is far from what it was during the “lost decade”, it continues to raise its head in so many places.
We have a public debt-to GDP ratio of more than 80% and payments to service debt are the fastest-growing item of government expenditure. The government is, through unsustainably high fiscal deficits, consuming most of the savings of households and the private sector, resulting in a small pool of savings left to fund investment. Not a sound economic strategy!
There was a positive signal earlier this week with Eskom managing to reduce its debt burden by about R80bn. Hopefully this trend will continue, and Eskom can also stabilise electricity prices and regularise supply. But dozens of other SOEs are waiting for bailouts based on unsustainable business models. The tough choice of shutting inefficient and unnecessary SOEs needs to be taken.
The second critical reform is linked to this — the need to completely reform the public service. Our public service is too large, has too much duplication, is inefficient and simply costs too much. It is not only from business that the complaints arise. Public protest against poor service delivery is widespread. Red tape is drowning out investment and growth.
Public services need to be made fit for purpose, efficient and much more based on automated electronic platforms. Consider licensing, where my industry is concerned, and a shift from the moribund SA Mineral Resources Administration Database (Samrad) system to a more automated online mining cadastral and licensing system could unlock substantial investment.
The third critical reform is about reducing the government’s role in network industries and unlocking private-sector investment and competition. I think here of energy, rail, the ports, fuel pipelines and spectrum. The government owns most of these network industries and has failed to run them as proper, efficient businesses. Take the electricity crisis, where Eskom simply cannot generate enough electricity to meet demand. The solution is staring us in the face.
It appears that the mineral resources & energy minister is listening. The private sector, at no cost to the government, could probably add 5,000MW of renewable energy supply for self-generation to supplement the grid in the next three years. This would give Eskom the space to improve the reliability of its remaining fleet and spell the end of load-shedding.
At the Minerals Council annual general meeting on Wednesday Mantashe, responding to concerns that self-generation projects of up to only 10MW can be set up, rather than the 50MW we and others had asked for, invited the industry to approach him with larger projects and said he would give quick and sympathetic consideration. That is an invitation we will certainly be taking up, as our members have 2,000MW of generation projects ready to embark on.
This is an indication of how much scope there is for private sector investment in other national infrastructure, which is a huge constraint on economic growth.
The fourth set of reforms relate to improving the impact on global competitiveness of policies, legislation and regulation. For the mining industry the resolution of Mining Charter matters subject to litigation is critical, as is — among other things — the introduction of a transparent and efficient online mining cadastral system.
Where national policy is concerned this year’s corporate tax easing needs to become a multiyear corporate tax reduction programme. And the areas of uncertainty around expropriation without compensation need to be resolved.
The fifth set of reforms relates to the security and criminal justice cluster to ensure a crackdown on lawlessness and criminality. These all have severe impacts on economic confidence. Mines have been besieged by the procurement mafia, and cable theft on railway lines is hindering exports of chrome, manganese and coal. This week a senior executive was murdered. While we don’t know the motives of the killers, there are suspicions that they were related to his work. While we recognise and encourage local procurement by mining operations, the extent of the force and blackmail used to demand commercial contracts is unacceptable.
Each of these reforms will contribute materially to the country’s investment attractiveness and the potential economic growth rate. Without these reforms growth will remain structurally low and our economic and social problems will multiply. This is now a matter of critical national importance. Let’s stop being ideological on economic policy and focus on being pragmatic.
The way to growth is good public policy choices and proper implementation. We now need both.
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