Quick wins will strengthen Ramaphosa
Raising economic growth and stabilising public finances are the top priorities of Finance Minister Nhlanhla Nene. To achieve this his initial approach is to go for the low-hanging fruit rather than attempt a wholesale relaunch of the moribund National Development Plan.
There are distinct advantages in this given the state’s lack of capacity and deep ideological cleavages within the ANC over economic policy. A few quick wins should bolster President Cyril Ramaphosa’s popularity and raise business and consumer confidence.
As that confidence builds it should translate into faster economic growth, helping to bring the fiscus under control and delivering jobs. Success in these areas could give Ramaphosa the political backing he needs to tackle the more contentious, systemic reforms to education and the labour market that appear to be off the table for now.
The quick wins Ramaphosa has already notched up include ejecting former president Jacob Zuma and South African Revenue Service commissioner Tom Moyane; bringing stalwarts such as Nene and Pravin Gordhan back into the Cabinet; and replacing the Eskom and Denel boards.
The recent signing of 27 renewable energy contracts with independent power producers is another significant win, slated to generate R56bn in investment and more than 61,000 new jobs over the next three years.
The long-awaited finalisation of the Mining Charter is also within the Treasury’s grasp. The Chamber of Mines estimates that R120bn-R150bn in mining sector investment has been dammed up by the regulatory uncertainty that has plagued the sector for years.
Nene says SA can also expect the finalisation of the spectrum allocation in 2018, which should reduce the inefficiency of SA’s internet services. Studies show that a 10% improvement in broadband penetration adds 1.3% to growth in developing countries, making this reform urgent for job creation.
Nene also promises the establishment of a single transport regulator to improve the cost effectiveness of the logistics system; the lowering of anticompetitive barriers to business entry; and support for labour-intensive sectors such as agriculture and tourism.
The Treasury has estimated that if the government can finalise these reforms, coupled with supportive mining policies, SA’s potential growth rate could be raised from 1.5% now to 3.5% or more over the next decade.
Other affordable policies that could have outsize effects include supplying free Wi-Fi in urban centres, as the Western Cape government is doing, and channelling thousands of unemployed youth through work-readiness programmes, as Gauteng’s government is doing.
Allowing highly skilled immigration could pay big dividends. Studies show that making it easier for skilled foreigners to enter a country raises wages and creates employment for the locals.
Unfortunately, all these piecemeal reforms will count for little unless the government can also address the systemic failures that perpetuate the cycle of inequality and poverty. Among these, few things are more pressing than the need to fix the education system. It has become a central source of inequality and a cap on growth.
Free higher education, the youth internship service driven by the private sector and the government’s youth wage subsidy may paper over the cracks for a while but these policies do not tackle the heart of joblessness: failure of the school system to unblock opportunities for the poor. Free tuition will not change the fact that only 5% of students who qualify for higher education are from poor families. Only better schooling can raise this number. So the government must keep its eye on the challenge of bringing the unconnected into the formal economy.