SA needs more dy­namism to boost growth

The Star Early Edition - - OPINION & ANALYSIS - Nh­lanhla Nene

LEAD­ERS of the 20 na­tions whose col­lec­tive eco­nomic out­put ac­counts for more than 80 per­cent of the global econ­omy will meet this week­end in Bris­bane, Aus­tralia, to re­view the state of the global econ­omy. They will do so against the back­drop of global eco­nomic re­cov­ery that re­mains un­even.

The fo­cus of the sum­mit will be on how mem­bers of the Group of 20 (G20), both col­lec­tively and in­di­vid­u­ally, can im­ple­ment ad­di­tional mea­sures to raise global eco­nomic growth by 2 per­cent over the next five years, over and above its cur­rent tra­jec­tory. The G20 mem­ber coun­tries have agreed to take con­crete ac­tions to see this col­lec­tive am­bi­tion through. Th­ese ac­tions in­clude mea­sures on in­vest­ment, com­pe­ti­tion, trade and em­ploy­ment.

South Africa’s per­for­mance

South Africa’s eco­nomic per­for­mance has weak­ened since the be­gin­ning of the year. We have there­fore re­vised down­wards our growth pro­jec­tion to 1.4 per­cent this year, which is down from 3.6 per­cent in 2011.

Short-term pres­sures on the econ­omy have in­creased: global growth has slowed, while the room for fis­cal ex­pan­sion has re­duced.

Elec­tric­ity con­straints have re­duced the in­cen­tive for firms to invest while strike ac­tiv­ity has weighed heav­ily on growth and con­fi­dence. This has put greater pres­sure on em­ploy­ment and growth. Th­ese chal­lenges in­clude high lev­els of un­em­ploy­ment, dis­mal ed­u­ca­tion out­comes, poorly lo­cated and in­ad­e­quate in­fra­struc­ture, high lev­els of so­cial in­equal­ity and a strong re­liance on re­source in­ten­sive growth.

Against the back­drop of an un­even global re­cov­ery, South Africa needs to work swiftly to lift the bind­ing con­straints on growth in or­der to achieve rapid and in­clu­sive growth.

Na­tional De­vel­op­ment Plan

The Na­tional De­vel­op­ment Plan (NDP) pro­vides a strong plat­form for the ac­tions we can take as a na­tion to tran­si­tion to a faster­grow­ing and more in­clu­sive econ­omy.

The plan pro­motes, among oth­ers, en­hanced com­pet­i­tive­ness, ex­panded in­fra­struc­ture, greater spa­tial ef­fi­ciency in grow­ing ci­ties and ac­cel­er­ated ru­ral de­vel­op­ment.

The NDP ex­plic­itly recog­nises the im­por­tance of both the pub­lic and the pri­vate sec­tor in ad­dress­ing th­ese chal­lenges. Business is the key part­ner in en­sur­ing that the NDP be­comes a re­al­ity. Business can do this by adding value, in­no­vat­ing, fos­ter­ing tech­no­log­i­cal progress, trans­fer­ring knowl­edge and cre­at­ing jobs.

But business needs the support of a ca­pa­ble and ef­fec­tive state that cre­ates an en­abling en­vi­ron­ment while fur­ther­ing so­cial equal­ity.

The gov­ern­ment must en­sure ef­fi­cient net­work in­dus­tries (such as roads, rail, telecom­mu­ni­ca­tion and ports). It has to lay the foun­da­tions for the sup­ply of skilled labour and de­liver a sup­port­ive and pre­dictable reg­u­la­tory en­vi­ron­ment.

The next phase of growth will be about the dy­namism and agility of the pri­vate sec­tor, and the syn­er­gies be­tween the pri­vate sec­tor and gov­ern­ment.

By cre­at­ing a plat­form for ac­tion, gov­ern­ment strate­gic frame­work for the next five years bol­sters pol­icy co­her­ence, align­ment and co-or­di­na­tion across gov­ern­ment. Im­por­tantly, most pri­or­i­ties of the five-year Medium-Term Strate­gic Frame­work (MTSF) are fi­nanced within the pre­vail­ing three-year medium-term ex­pen­di­ture frame­work. Be­cause when you have a plan with­out a bud­get, the bud­get be­comes the plan.

The two ma­jor chal­lenges fac­ing the econ­omy are the need to en­cour­age greater pri­vate sec­tor in­vest­ment and the need to im­prove the state’s ca­pac­ity to mon­i­tor, im­ple­ment and man­age projects.

Fis­cal Con­sol­i­da­tion

I can hear you say­ing, but what is gov­ern­ment ac­tu­ally do­ing?

First and fore­most, we have to put pub­lic fi­nances on a sus­tain­able foot­ing. The 2014 medium-term bud­get pol­icy state­ment out­lined a pack­age of mea­sures. First, we have to slow down the growth of gov­ern­ment debt. To do oth­er­wise would be to place our achieve­ments over the past 20 years at the mercy of fickle global mar­kets.

The fis­cal frame­work achieves this through slow­ing in­creases in spend­ing, and pen­cilling in mod­er­ate in­creases in tax rev­enue.

Sec­ond, we have to im­prove the qual­ity of gov­ern­ment ser­vices. De­spite the huge in­crease in gov­ern­ment spend­ing over the last ten years, the qual­ity of gov­ern­ment ser­vices have re­mained a chal­lenge.

Thanks to a freeze in non-es­sen­tial ser­vices and wage mod­er­a­tion, com­bined with tax mea­sures to in­crease rev­enue, we will im­prove the fis­cal po­si­tion by more than R50 bil­lion over the next two years.

Any po­ten­tial support given to sta­te­owned en­ter­prises will be bud­get neu­tral. If re­quired, bal­ance sheet support will come from dis­posal of non-strate­gic as­sets.

Our sec­ond main thrust is to crowd in pri­vate in­vest­ment. The past five years have seen in­vest­ment rise to nearly 20 per­cent of GDP, buoyed by a dou­bling of pub­lic sec­tor spend­ing on in­fra­struc­ture.

While pub­lic in­vest­ment has been re­silient, pri­vate in­vest­ment has re­mained sub­dued since the on­set of the global fi­nan­cial cri­sis be­gin­ning 2008. Our con­crete ac­tions in­clude: Con­tin­u­ing support for business. In­cen­tive pro­grammes housed in the Depart­ment of Trade and In­dus­try grew by 18 per­cent a year over the past three years. We are in the process of es­tab­lish­ing spe­cial eco­nomic zones which will bol­ster trade com­pet­i­tive­ness and support rapid growth in ex­ports amid an en­vi­ron­ment of a com­pet­i­tive ex­change rate.

Part­ner­ships that draw pri­vate cap­i­tal into pub­lic-sec­tor in­fra­struc­ture projects will be used. The in­de­pen­dent power pro­ducer pro­gramme shows how the pri­vate sec­tor plays an im­por­tant role in help­ing South Africans start busi­nesses. Closer co­or­di­na­tion be­tween gov­ern­ment and business can help un­block skills and ca­pac­ity short­ages, avoid du­pli­ca­tion and al­low flex­i­bil­ity in re­sponses.

Gov­ern­ment has also stepped up ef­forts to pro­mote en­trepreneur­ship and self-em­ploy­ment, through the es­tab­lish­ment of a ded­i­cated Min­istry for Small and Medium In­dus­tries, while a fund is to be set up to support in­for­mal sec­tor en­ter­prises.

We are tak­ing steps to im­prove labour re­la­tions. Ev­ery business re­quires good re­la­tions be­tween em­ploy­ers and em­ploy­ees. In line with im­prov­ing do­mes­tic labour re­la­tions, dis­pute res­o­lu­tion mech­a­nisms have been gal­vanised via re­cent amend­ments to the Labour Re­la­tions Act.

Ad­di­tion­ally, the re­cent ind­aba on labour re­la­tions has be­gun the work of iden­ti­fy­ing ar­eas where so­lu­tions to long­stand­ing prob­lems can be ad­dressed.

An im­por­tant fo­cus will not only be the Na­tional Min­i­mum Wage, but other ar­eas in which we can im­prove the func­tion­ing of labour re­la­tions in this coun­try.

Although poli­cies are of­ten set at the na­tional level, we know that business hap­pens at the lo­cal level. Hence our fo­cus on im­proved ur­ban en­vi­ron­ments and rein­vest­ment in ci­ties, which will lower costs of search­ing for jobs and re­duce the cost of liv­ing and of do­ing business. To this end, we are in­tro­duc­ing a new ap­proach to lo­cal gov­ern­ment in­fra­struc­ture fi­nanc­ing with a fo­cus on mixed-use precincts, we are re­form­ing the lo­cal grant sys­tem and we are find­ing ways to ex­pand debt fi­nanc­ing for mu­nic­i­pal in­fra­struc­ture.

Fur­ther­more, we are pro­vid­ing support to mu­nic­i­pal­i­ties such as project prepa­ra­tion fa­cil­i­ties to help mu­nic­i­pal­i­ties pre­pare plans that are ready for im­ple­men­ta­tion and we are ex­pand­ing the in­fra­struc­ture de­liv­ery man­age­ment sys­tem from prov­inces to large ci­ties. The top pri­or­i­ties of the MTSF in­clude: Ex­pand­ing en­ergy sup­ply through pub­lic and pri­vate in­vest­ment, in­clud­ing procur­ing 2.5GW of pri­vately sup­plied baseload elec­tric­ity and sign­ing co-gen­er­a­tion agree­ments for more than 800 megawatts to be added to the na­tional grid.

En­hanc­ing the per­for­mance of sea ports and in­land ter­mi­nals, re­vis­ing and con­sol­i­dat­ing port charges, es­tab­lish­ing a sin­gle trans­port reg­u­la­tor and re­duc­ing cross­sub­sidi­s­a­tion in trans­port pric­ing.

Pre­par­ing to ex­ploit on- and off­shore oil and gas by de­vel­op­ing an ex­ploratory drilling plan and leg­is­la­tion.

Ex­pand­ing rail ca­pac­ity for coal ex­ports be­tween Mpumalanga and the Richards Bay Coal Ter­mi­nal, build­ing a new heavy­haul rail line from the Water­berg re­gion, and in­creas­ing port ca­pac­ity for iron ex­ports via Sal­danha and the North­ern Cape.

Red tape, con­fi­dence

To bol­ster con­fi­dence, trust and di­a­logue be­tween pub­lic and pri­vate sec­tor stake­hold­ers, the Pres­i­den­tial Business Work­ing Group is work­ing hard to iden­tify block­ages to growth, in­vest­ment and em­ploy­ment.

Business is also pre­par­ing pro­pos­als on “shared-ser­vices” mod­els in the in­vest­ment task team, where mu­nic­i­pal­i­ties with­out the nec­es­sary ca­pac­ity can draw on a pool of skills to en­sure in­fra­struc­ture pro­grammes are planned, ex­e­cuted and main­tained.

Other con­fi­dence-boost­ing mea­sures in­clude the com­mit­ment by the Pres­i­den­tial In­fra­struc­ture Co-or­di­nat­ing Com­mis­sion to host quar­terly meet­ings with business on the in­fra­struc­ture build pro­gramme. Th­ese meet­ings will be a fo­rum for business to make in­puts on the over­all in­fra­struc­ture build pro­gramme.

The Skills and Ed­u­ca­tion Task Team has agreed to find ways to scale up Work­In­te­grated Learn­ing and work-based learn­ing to support the SIPS skills needs and pi­lot mod­els. Other goals are to scale up and im­prove the qual­ity of en­trepreneur­ship ed­u­ca­tion and to support the Na­tional Ed­u­ca­tion Col­lab­o­ra­tion Trust and oth­ers im­prov­ing the qual­ity of ed­u­ca­tion.

The third ma­jor fo­cus at hand is to en­hance the state’s ca­pac­ity to plan, man­age and main­tain its pro­grammes and in­fra­struc­ture. Ser­vice de­liv­ery out­comes will be bol­stered by ef­forts to tackle cor­rup­tion. Fi­nan­cial ac­count­ing and con­trol sys­tems are be­ing strength­ened. The of­fice of the chief pro­cure­ment of­fi­cer has been es­tab­lished to cen­tralise over­sight of pub­lic pro­cure­ment. The of­fice will in­tro­duce a na­tional price-ref­er­enc­ing sys­tem which will be launched early next year. Pro­cure­ment sys­tems will also draw on pri­vate sec­tor ex­per­tise and best prac­tice.

A strong fo­cus on im­prov­ing ed­u­ca­tional out­comes will im­prove the qual­ity of our ba­sic ed­u­ca­tion sys­tem, and in­crease the sup­ply of ap­pro­pri­ately skilled work­ers. New tools for mon­i­tor­ing ed­u­ca­tional out­comes, such as the an­nual na­tional as­sess­ments, will es­tab­lish plat­forms to ad­dress long-stand­ing chal­lenges.

I am con­fi­dent that we have the frame­work in place to turn things around. The next two years will be chal­leng­ing. But I am con­fi­dent that South Africans will rise to the chal­lenge. Nh­lanhla Nene is Min­is­ter of Fi­nance. This is the edited ver­sion of a speech he gave yes­ter­day at the Amer­i­can Cham­ber of Com­merce in South Africa.

PHOTO: BLOOMBERG

Fi­nance Min­is­ter Nh­lanhla Nene says the next two years will be de­mand­ing for the econ­omy but that he be­lieves South Africans can rise to the chal­lenge.

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