Gigaba’s toothless list fails to tackle gaps
Last week, Finance Minister Malusi Gigaba released a 46-item to-do list he titled “Government’s inclusive growth action plan”. Just a week earlier, the IMF released its annual Article IV report on SA’s economy, which called for urgent reforms to “reignite growth and render it more inclusive”.
Comparing and contrasting the two documents highlights just how unwilling the government is to contemplate the kinds of bold action that would be needed — even though Gigaba’s to-do list claims to respond to the concerns raised by “stakeholders”, presumably including the IMF.
Those concerns, as Gigaba acknowledged, are about slow growth and rising government debt, and in particular, about the state of the state-owned enterprises (SOEs) and the risk they pose. The concerns are also about poor confidence and policy uncertainty.
The 46 items touch on all of these, especially the SOEs, which make up almost two-thirds of the list in one way or another.
The emphasis is appropriate: the IMF’s research makes it clear how important it is for SA to fix the SOEs. Their losses have averaged 0.4% of GDP for the last eight fiscal years and they have been a significant drag on the fiscus, with an average of 0.8% of GDP having to be transferred to bail them out each year. That’s even before the huge risk the guarantees to SOEs, which represent 10% of GDP, pose to public finances if they have to be triggered.
SOE reforms are needed to reduce those costs and manage those risks to the public finances, and ultimately to SA’s credit rating and its borrowing costs, says the IMF. Crucially, however, they are also needed to increase efficiency in the economy. They play a large role in providing services such as power, transport and telecommunications, and their performance affects economic growth and job creation, say the fund’s economists.
This is where Gigaba’s approach diverges from that of the IMF. Rather than focusing on input costs for the economy, the list is about more money for ailing SOEs such as South African Airways and the Post Bank, and about tackling “Eskom hardship” and providing Eskom with “soft support”.
There are several items about governance and a private sector participation framework, as well as costing developmental mandates, all of which feature in the IMF report. But nowhere do terms such as “efficiency” or “competitiveness” make an appearance. There is certainly no notion that the private sector be allowed to compete with SOEs on a more level playing field, as the IMF urges, and none whatsoever that the government would review SOEs in the way the IMF says other countries have done — which is to consider options that include liquidating those that are not commercially viable or privatising those that have no particular public policy objective.
The IMF has long urged structural reforms to SA’s product and service markets, but the 2017 report makes it clear it means, especially, reforming the markets that are dominated by SOEs.
The IMF sees opening up the power market, cutting port tariffs and allocating broadband spectrum as immediate priorities to boost inclusive growth. Also on its list of structural reforms is one that doesn’t feature at all on the Gigaba list — labour market reform, with a focus on creating jobs especially for young people and especially in smaller businesses.
The IMF identifies improving access to finance for small and medium enterprises as another priority structural reform to boost growth and job creation — again a contrast to the Gigaba list of priorities, which mentions small and medium enterprises just once, in the context of government funding for them.
Investors and ordinary folk could be forgiven for being a little confused, given that fewer than half of the items on the list are the responsibility of the minister of finance and that it’s President Jacob Zuma, not Gigaba, who will supposedly be monitoring and co-ordinating implementation of all these items, most if not all of which have been on the government’s to-do list for some time.
Investors and the IMF might be tempted to stop calling for policy certainty if what they get is the one item on Gigaba’s list that’s already been gazetted – the new Mining Charter. That’s a structural reform for sure, but one that does the opposite of supporting business confidence or reviving the economy, and in a way that goes to the heart of the problem with the “inclusive growth action plan”.
It may occasionally relate to the reforms economists say SA needs, but it’s far from clear how this apparently random list of items would boost growth and inclusion. Nor are there any signals the political will is there to make growth and jobs a priority.
Gigaba talked of reaching a 3% to 6% growth rate. Some economists now think SA won’t get even to 2% anytime soon. His list has done nothing to persuade them otherwise.
IT’S FAR FROM CLEAR HOW THIS APPARENTLY RANDOM LIST OF ITEMS WOULD BOOST GROWTH AND INCLUSION