Power tops the list of structural reforms
• President’s commitment to open up electricity generation ‘must be rapidly implemented’
Opening up the generation of electricity to more suppliers is the most pressing of the structural reforms that must be made to rekindle economic growth, says the Treasury.
The commitments made by President Cyril Ramaphosa to open up electricity generation to the private sector and speed up regulatory processes must be “rapidly implemented”, says the Budget Review.
The measures should include acquiring additional electricity from existing independent power producers (IPPs); launching a new round of procurement of renewable energy from IPPs; and allowing municipalities to procure energy directly from private suppliers. The Treasury estimates that electricity supply constraints shaved 0.1% off GDP growth for 2019 and are set to have a bigger effect in 2020.
Finance minister Tito Mboweni has championed structural economic reforms as the most effective way to stimulate the economy. He told parliament that “steps are being taken to address SA’s lagging productivity growth and reduce the cost of doing business”.
In August 2019, he published a growth strategy with emphasis on reducing the cost of doing business, in particular through the reform of network industries. The strategy advocated the involvement of the private sector in the provision of infrastructure. It suggested the selling off of some Eskom power stations and reforms to the labour market, both of which were removed from the version finally adopted by the cabinet.
As well as reforms to the electricity market, the Budget Review advocates for urgent regulatory reform to the ports sector and to freight rail to be accelerated. Among the changes will be steps to ease the access of private sector operators or third parties to the Transnet freight rail network.
Catherine MacLeod, chief director of macro-economic policy in the Treasury and one of the authors of the growth strategy document, said that while third parties are now able to make use of the Transnet rail network, new legislation in the form of the Economic Regulation of Transport Bill, “will make their access easier”.
The corporatisation of the National Ports Authority, already under way, should be accelerated, MacLeod says, so it is able to support greater investment in ports, free from constraints of Transnet group considerations.
Some progress has been made with telecommunications regulation, with the publication of the broadband spectrum licensing plan released in November 2019.
Mboweni said the release of the spectrum licensing will “prepare the way the auctioning of high-demand spectrum” and that the Independent Communications Authority of SA (Icasa) will be “appropriately capacitated for this”.