SA must turn hope into reality
THE ORGANISATION for Economic Co-operation and Development (OECD) argues that South Africa should turn hope into reality based on the evidence that a substantial rebound is expected in the second half of this year as a result of the high demand and favourable prices for the country’s exports.
Although private investment is restrained by a lack of business confidence, certainty, trust, political leadership, and factionalism, gross domestic product (GDP) is set to increase by 3.1 percent in the second half of this year and 2.5 percent next year.
Very shortly, growth will nonetheless be unexceptional because of restrained domestic demand, as household consumption will remain low, as unemployment will remain very high.
The global economy will expand over the next two years. International GDP is expected to grow by about 4.25 percent this year and 3.75 percent next year. Scientific progress, pharmaceutical advances, more effective tracing and isolation, and adjustments in the behaviour of people and firms will help to keep the virus in check, allowing restrictions on mobility to be lifted progressively.
The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) cut the repurchase rate from 6.25 percent in early March to 3.5 percent and provided liquidity to the banking sector. Inflation has remained below the SARB’s target, allowing the MPC to reduce policy rates further to stimulate the weak economy.
Prudential regulations were eased to help financial institutions cope with the consequences of the crisis.
On the fiscal side, the government has put in place a rescue plan amounting to 10 percent of GDP to support households and businesses. The initial increase in the social grant amounts has been prolonged as long as the of state national disaster continues.
In October, the government released a reconstruction and recovery plan aiming to mobilise R100 billion (about 2 percent of GDP) for infrastructure investment next year. This plan also includes an ambitious employment stimulus programme to support job creation in the public and social sectors. Courageous fiscal measures are necessary to curb public debt increases. The Minister of Finance warned that government debt will stabilise at 88.9 percent of GDP in 2025/26. Therefore, the option to freeze public service wages and restructuring state-owned enterprises would limit government spending increases.
The OECD is also opportunistic about the targeted financial support to households and firms still affected by the low activity should be continued, notably for the entertainment and tourism sectors. Broadening competition in the economy, particularly in network industries such as electricity, gas, rail, local public transport, telecommunications and postal services as well as the transport sector, can boost the potential of the economy. Courageous implementation of government economic reform announcements is needed to lift the confidence of households and businesses.
Tourism is one sector that will need persistent support in the short-run. International tourist arrivals increased from 4.5 million to more than 10 million between 1995 and 2017 and were accompanied by a tripling of employment directly related to tourism. The role of tourism in the economy has been increasing since the end of apartheid.
Furthermore, the recent Covid-19 pandemic and resulting lockdown measures have triggered an unprecedented crisis in the tourism sector. Still, tourism offers significant opportunities for an economy with weak growth and high unemployment. Streamlining and implementing electronic visa services for international tourists could increase South Africa’s international openness. Reduction of red tape could strengthen the integration of the tourism sector into local value chains and amplify the impact of tourism on the domestic economy.
The launch of the Tourism Equity Fund (TEF), worth more than R1.2bn, will accelerate transformation in the tourism sector, which includes the smallest bed-and-breakfast to major hotel chains, from local tour companies to airlines, rural and township tourism development, and golf.
TEF will provide a combination of grant funding, concessionary loans, and debt finance. The fund will cater to the specific needs of black-owned businesses to acquire equity, invest in new developments or expand existing developments. More important is the role that the Public Investment Corporation and commercial banks could play to ensure that participants can access further loan financing, enterprise development and investment.
The green economy is another sector that can turn hope into reality. The South Africa carbon tax is a way for the government to put a price on carbon emissions, and to shift the costs from society to those companies that are creating the emissions. The more a company emits, the more tax it must pay. The more action a company takes to reduce its emissions, the lower its tax. There has been an exponential increase in the installation of solar photovoltaic (PV) by homeowners, businesses, the government and industry in South Africa.
GreenCape submits that installations are driven largely by a combination of supportive local government policy frameworks, above-inflation electricity price rises, and decreasing technology costs.
Solar PV can help South African businesses to save 15 percent in electricity costs, with systems paying for themselves within 3 to 12 years of installation, providing free energy for nearly 15 years thereafter.
Furthermore, solar PV incentives include feed-in tariffs, customers are “paid” for any electricity they feed on to the grid, through reductions in their energy bills. The tax allowance incentive is designed to support greenfield and brownfield investments through support for both capital investment and training.
As a low carbon energy source, solar PV will reduce the impact of the impending national carbon tax on businesses. Furthermore, a tax benefit allows for 100 percent accelerated depreciation in the first financial year. In effect, it equates to a 28 percent discount on the price of the solar system. Solar PV is VAT-deductible.
The International Renewable Energy Agency (Irena) submits that the solar PV industry remains one of the largest employers of all renewable energy technologies. Renewable energy provides a significant and growing number of jobs worldwide each year. The renewable energy sector, according to Irena’s estimates, employ a record 10.3 million people worldwide. South Africa can turn hope into reality for many in the economy.