Don’t cheer yet, we’ve only taken the first step towards proper energy reform

Iam feeling greedy. In the past two weeks we have got not one but two Electricity Regulation Act schedule 2 amendments gazetted. While awkward for the department of mineral resources & energy — and we can moan about the language and fudging of the first version

— we should recognise that in the end, thanks to unstoppable reformist forces overcoming (seemingly) immovable ministerial obstacles, we are in a totally different era for the electricity supply industry now.

For the first time in a long time we are going to see the private sector being allowed to solve SA’s problems of energy security and cost of supply, through deciding its own projects, getting its own funding, and doing all this in an employment-maximising way that can establish sustainable pipelines of demand.

These will create sustainable localisation opportunities that actually work, unlike the diktat command-and-control views emanating from the department of trade, industry & competition.

The amount of resistance that reformists encountered on the way to such a step shouldn’t be forgotten. The piles of evidence that were required and nonsensical arguments that had to be rebutted in the past year are testament to a lack of imagination in energy policymaking that is not fit for the future and does not provide for the agile change needed to deal with the scale of the Just Energy Transition and the role of Eskom in it.

The fact that our comrades in Cosatu were the first to get it is still amusing.

This introspection is required because SA has a habit of sealclapping successes and making them seem like they were easy. We are only taking the first (albeit big) step here in energy reform. This is the beginning, not the end.

The next steps on other reform fronts such as water and visas are deeply challenging and complex, though progress is being made with the water issue. With something like spectrum, change may be impossible in any reasonable amount of time.

The emerging contrasts between policymakers who “get it” and those who don’t is stark and will continue to be problematic in the economic cluster after the reshuffle. Such divides were acutely seen at the end of last month at the Presidential Climate Commission as ministers contradicted each other — some were pragmatic, others offpiste. The split between public enterprises minister Pravin Gordhan on the positive side and deputy finance minister David Masondo on the bizarre side, and between environment minister Barbara Creecy on the positive and mineral resources minister Gwede Mantashe stuck in the mud, was glaringly obvious.

This matters because dealing with the implications and consequences of the Electricity Regulation Act amendment, let alone with the wider Just Energy Transition, is highly complex and cuts across departments. The commission is thankfully, strategically at least, starting to box in and paint out guide rails for the bounds of rationality in the policy response as COP26 approaches.

The great irony is that these types of reforms — which the Left seems to show no interest in — are exactly what is going to expand the tax base over time, and sustainably.

It is crucial to bear this in mind as the arguments rage over the social security green paper and the madcap and unworkable, unaffordable vision it lays out.

There seems to be a view floating out in the echo chamber that is Twitter that somehow “financial” economists are against everything.

Nothing could be further from the truth. I want a more generous wider social wage — broadly conceived, including health, education, income and employment support, and as fast as possible.

Maybe “financial” economists are forced to think in general equilibrium terms, to include the money and financial sectors in their modelling and analysis given that these are our daily bread and butter, in a way others need not and can miss in their models. Maybe we are acutely aware of corporates and how they function and make decisions on investments and employment, which make up the largest portion of economic activity (not the public sector).

The point is not the provision of support — there can always be discussions about design and incentives — but the affordability of it, how it interplays with revenue and debt-funding constraints and the balance of risk, particularly with a nod to behavioural effects.

While I wouldn’t presume to speak on behalf of my fellow “financial” economists, I think many of them share this view or something akin to it. In other words, this is about choosing between options and seeing trade-offs. It’s not a magic tax that can solve all problems.

Reforms over time will generate the revenue to sustainably finance a higher social wage, but taxing the middle classes significantly more is certainly not the way to go about it. Cosatu, again a beacon of rationality, has forcefully pointed this out.

People say this is unfair. But to frame it in terms of fairness is to suppose you have two viable choices to choose between. That is not the case. The unfairness is at root the lack of growthboosting reforms since 2009, the lost years of state capture and the conflicting policy motivations now among some ministers. This is what creates the unfortunate choice between a step-by-step approach and a big bang.

But this is all the more reason to push labour-intensive growth reforms faster to expand tax revenues, reduce unemployment and afford a proper sustainable social wage.