Recovery plan has to be bold enough to fix SA economy
A complex balancing act is essential to avoid falling into a debt trap
“The people of SA want action. They do not want words.” Who said that? Opposition leader John Steenhuisen? The EFF’s Julius Malema? Busi Mavuso, CEO of Business Leadership SA?
No. It was President Cyril Ramaphosa in his maiden speech after being elected ANC president in 2017. Several state of the nation addresses later, with a steady economic deterioration in SA, aggravated by the Covid-19 lockdown and junk status, Ramaphosa unveiled the long-awaited reconstruction and recovery plan designed to kick-start SA’s post-pandemic phase.
There have been other interim economic support measures, but this reconstruction and recovery plan was expected to be the “big ticket” item. It was intended to turn the economy around, implement key economic reforms, build investor confidence and put the country on a higher growth trajectory.
The plan was finalised after extensive consultations with interest groups and, importantly, came with a stamp of approval from the National Economic Development and Labour Council (Nedlac).
Whatever its limitations, the new consensus that has been forged at Nedlac is potentially a valuable platform from which to collectively help fix SA’s economic future.
In the initial stages of Covid-19, Ramaphosa acted swiftly to impose a drastic lockdown, but after that things went awry.
A lockdown exit strategy is a complex process of balancing trade-offs, handling fears and maintaining trust — all on the basis of shifting evidence and imperfect information, but with profound economic implications. How well countries fare after Covid-19 is determined by how quickly their economies and societies recover from their respective lockdowns.
It bears repeating that for many other economies the pandemic interrupted a positive growth cycle, but for SA it simply widened and deepened an existing recession. The lockdown reinforced the fault lines of unemployment, poverty and inequality in the economy. Hence the desire to move ahead with a pro-growth economic reform plan.
The fact that the plan again affirms the overall commitment to the 2012 National Development Plan (NDP) is welcome. But this is familiar territory, and the latest plan is rather like meeting an old friend. If fully implemented, it is expected to raise growth to 3% on average over the next decade. Yet the original NDP laid out an economic road map for an average 5.4% growth up to 2030.
On the positive side, this plan recognises the urgency required in tackling the crisis and the imperatives of promoting job-rich growth, protecting social safety nets, fighting corruption, narrowing down priorities to make them more manageable, and rebuilding business confidence. It broadly aims to feed economic opportunities and starve implementation obstacles.
But is it bold enough? Perhaps inevitably there is now a trade-off between consensus and boldness. The trouble is that we have been here so many times before with a slew of “plans”, which invites scepticism. Indeed, if SA could factor “talking” into its GDP, we would be one of the fastest-growing economies in the world .
There should have been more emphasis on jacking up implementation processes and locking in effective delivery with stricter timelines. We also need to understand what went wrong in the past with chronic failed implementation.
Ramaphosa schould have had more to say about how policies and projects will now be handled differently, with the biggest risk again being problems with state capacity.
Drift, poor governance and corruption have been the big enemies of delivery. Substantially reorganising governance and delivery mechanisms would require a harder look being taken at what the government should do, what it should not do, and what it should ensure is now done with or by the private sector.
The government “machine” will need to be overhauled to better meet the challenges.
All this may still require tough and unpopular decisions. “Politics”, economist John Kenneth Galbraith once said, “is often a choice between the disastrous and the unpalatable.”
A successful reformer is a leader who is able to steer and bring policy to fruition in a consistentway, despite opposition from economic actors, interest groups and political forces whose positions may be threatened.
Ultimately, there is no substitute for sustained, disciplined leadership, irrespective of the number of advisory structures being consulted.
If we are to successfully implement aggressive infrastructural development and reform as growth drivers, especially in restructuring Eskom, the role of the private sector needs to be speedily enlarged and mobilised to expedite the outcomes needed. Markets must be opened up and deregulated to tap into the “animal spirits” of business.
And if the government wants to get things right the first time and lighten the future regulatory burden on business, especially small business, it should dust off the erstwhile socioeconomic assessment mechanism.
Originally accepted by the cabinet in 2007, it has fallen into disuse. This is basically a process that evaluates in advance the economic impact — in costs, benefits and risks — of any proposed law or regulation.
Just think of the policy errors of recent years, which have often played out on a grand scale and been damaging to business confidence, that might have been averted through an independent and credible preliminary socioeconomic interrogation.
The other shoe will now nevertheless drop when the medium-term budget policy statement (MTBPS) is delivered on October 28. The MTBPS has to painfully concretise the recovery plan from a difficult fiscal situation and help get SA out of a “low growth trap” before it falls into a “debt trap”.
The MTBPS and the recovery plan must therefore move in tandem if policy uncertainty is to be reduced. Minimising policy uncertainty requires steadily creating a stable macroeconomic outlook for SA.
We are not there yet, but 2020 could be a turning point if we play our cards well.
Government ‘machine’ will need to be overhauled to meet the challenges