WAITING FOR GODOT

The credibility of the government’s reform programme is in jeopardy as the country waits to see decisive changes in the way it manages the economy

Organised business is gnashing its teeth over the slow pace of structural reform needed to increase SA’s economic competitiveness and ignite a recovery, given the desperate need to raise the growth rate to create jobs and stave off a fiscal crisis.

Despite a few recent wins by Operation Vulindlela (a joint task team of presidency and National Treasury officials), there has been little progress on the immediate actions urged by Business for SA in the economic plan it presented to the government a year ago.

One called for the government to introduce lower port fees on exports, but these are still 88% higher than the global norm, even though the World Bank recently ranked SA’s container ports among the least efficient in the world.

Business Unity SA CEO Cas Coovadia — speaking at the #500DaysForGrowth colloquium hosted last week by the EU’s capacity building programme for employment promotion — expressed “significant frustration” at the state’s failure to make progress in easing the cost of doing business.

He cited the fact that it now takes more than a year to secure mining rights in SA, compared with just three weeks in Botswana.

Minerals Council CEO Roger Baxter echoed these remarks, adding that SA is “heading for deep trouble” and a “full-blown debt crisis” if it does not enact structural reforms to raise the growth rate.

The mining sector believes it could be contributing much more to the economy if the government could just get a few basic things right. For example, the Minerals Council estimates that the backlog of 5,000 mining licences is holding back about R30bn in investment.

Meanwhile, criminal syndicates, the procurement mafia and large-scale illegal mining operations are costing the industry another R30bn-R40bn in lost revenue annually.

Baxter conceded that there are some signs of progress in that the government is supposed to put out a request for proposals by the end of this week for a new online cadastral system for mining licences. It is also set to release a comprehensive exploration plan for the country within the coming month.

However, Baxter argued that due to excessive policy and regulatory change — the industry has been subject to more than 2,000 new pieces of regulation since 1994 — SA now accounts for just 0.1% of global greenfields mining exploration, compared with 13% in the rest of Africa.

What the mining sector needs above all else is policy certainty and an immediate reduction in red tape around energy self-generation, including raising the 10MW cap.

Sean Phillips, who heads Operation Vulindlela, credits the unit with helping to get the cap raised from 1MW to 10MW and, mindful that industry is pushing hard for it to be raised to 50MW, said “detailed engagements” are ongoing regarding its appropriate level.

Phillips said the unit has notched up several wins, even though it’s just a few months old. These include reviving the blue- and green-drop water quality assessment system, securing the establishment of a national water resource infrastructure agency, rolling out an e-visa system, and co-ordinating a review of SA’s framework for attracting skills.

But he conceded that there is “still a long way to go” before most reforms are fully implemented.

Many of the reforms are complex and require thorough planning and consultation, he said, but the most difficult implementation challenges are those caused by policy contention — the resolution of which often requires that political decisions be taken.

“This is particularly so where the policy contention includes debates relating to market regulation and the future role of the state versus the role of the private sector in markets,” he added.

Take the liberalisation of the ports, for example. SA’s ports face severe congestion due to ageing infrastructure and equipment, and staffing shortages. Though the case for freeing them from the dead hand of Transnet has been clear for the past 20 years, the

Cre123RF/Normaals pace of reform has been glacial.

Phillips says the work has been done on the pros and cons of corporatising the Transnet National Ports Authority. There is also finally a plan for Transnet Port Terminals to partner with an international private terminal operator to raise to raise the efficiency of SA's container freight terminals.

Meanwhile David Maynier, the Western Cape minister of finance & economic opportunities, says many vessels have now begun to bypass Cape Town rather than wait up to seven days before they can berth, causing financial losses all along the port logistics supply chain.

Though a provincial task team has helped to improve the port’s efficiency, it ultimately requires an intervention by national government, he says. “In the end, our terminals are simply unable to service the volume of cargo that can potentially flow through Cape Town.”

More encouraging is the progress being made in turning around the SA Revenue Service (Sars), which has prevented an outflow of R57bn, including R44bn in unlawful refunds, over the past year alone. Though the agency lost 3,000 skilled people during the period of state capture, its recent R3bn budget boost will allow it to hire 500 new people with specialised audit and IT skills over the next three months.

Sars chief revenue officer Johnstone Makhubu told the colloquium that while it will take until 2024/2025 to rebuild the organisation, things will improve each year.

Judge Dennis Davis said he is encouraged by the turnaround at Sars, as this generates “significant hope” that SA will make inroads into the R100bn tax gap that exists because many high net worth individuals and corporates do not pay their fair share of taxes.

Davis, who chaired the Davis tax committee, was adamant that this should be the focus of fiscal policy, rather than raising taxes across the board, saying that would be “ridiculous” in the current economic climate.

Edgar Sishi, who heads the Treasury’s budget office, agreed, saying that trying to squeeze more out of the existing tax base would likely deliver disappointing results and have a growth-retarding impact.

Speaker after speaker emphasised that the only solution to SA’s fiscal dilemma is to raise the growth rate.

“In the absence of a substantial and sustainable increase in growth, we are going to have a substantial problem and risks to the fiscus are going to be very difficult to overcome — if not close to impossible,” said Sishi.

But Wits associate professor Michael Sachs argued that the pace of fiscal consolidation the Treasury has proposed, the largest in SA history, is “excessive” and will increase inequality.

While he agreed that fiscal consolidation cannot be achieved through huge tax increases, neither should SA be reducing taxes on affluent households and corporates just as they are experiencing a huge income windfall on the back of a commodity boom. And then, at the same time, force down the income and consumption of the poor by slashing government spending growth.

Unless the burden of adjustment is shared more equally between the affluent (who pay taxes) and the poor (who depend on government spending on things such as health and education), this will increase inequality, he warned.

But perhaps the most revealing presentation was made by Ronette Engela from the government technical advisory centre, which has conducted more than 200 reviews of government spending. From these reviews she concludes that “there is no interest, intent or need from Pretoria to minimise costs” and therefore that there is still plenty of fat in the system.

Among the many examples she presented was a 2013/2014 survey of 1,000 national government office leases, which found that an average 60% were concluded at above-market rates, at a premium of about 45%. Savings of up to R2.2bn could have been realised over three years had action been taken but nothing has been done, she said.

“Many policies are designed and adopted with no thought to the cost or affordability and with very unrealistic expectations with regard to the availability of resources,” she added.

Many policies are designed and adopted with no thought to the cost or affordability and with very unrealistic expectations with regard to the availability of resources

Summing up the conference after three days, University of Cape Town economics professor Haroon Bhorat said the first of his top takeaways was the centrality of economic growth.

It is “astounding” the extent to which SA’s growth path has diverged from comparator countries and, unless reforms are implemented, it will continue to do so. Growth is the closest thing SA has to a “magic bullet” to address its fiscal and social problems.

The second stand-out feature was the “almost schizophrenic” nature of fiscal consolidation that is being pursued, whereby the Treasury is attempting to freeze the wage bill while other parts of government are talking about a huge social spending push.

Third was the obvious need to carve out a greater role for the private sector, though this will require a leap from parts of government that are still highly suspicious of business.

Fourth was the need to recognise that there is something wrong with the big business/big union approach to growth in SA, which results in people being kept out of the workplace and fuels inequality.

In the end, though the colloquium delivered little that was truly new, it did reveal mounting frustration over the government’s inability to reform, and growing alarm over the long-run implications of the country’s downward growth trajectory. x

Ronette Engela