‘Good governance means better GDP’

● Improved governance can add as much as two percentage points to GDP, according to Montfort Mlachila, International Monetary Fund’s (IMF’s) senior resident representative in SA.

Governance in African countries is generally poor. Only two Sub-Saharan countries rank above average in terms of the PRS Group’s International Country Risk Guide.

SA is not one of them, according to “A Governance Dividend for Sub-Saharan Africa?”, an IMF working paper published recently. Botswana and Namibia are consistently strong performers on the International Country Risk Guide, but 80% of Sub-Saharan African countries score below the global average in Transparency International’s corruption perception index.

The authors of the paper acknowledge SA’s state-capture challenge: “Various aspects of the South African government apparatus and institutions were made subservient to a select group of people during the so-called state-capture episode.” They say since 2018 the government has been engaged in a “bold fight to reverse the damage”.

Mlachila said: “Improving governance, even just to bring governance levels in African countries to the average, will improve growth in per capita terms by one to two percentage points. It is a very important issue that countries should be cognisant of, and important for the wellbeing of the population.”

Speaking to Business Times on the sidelines of Deloitte’s Africa risk conference on Thursday, he said an obvious area for the improvement of governance is state-owned enterprises (SOEs). Eskom, which is at the centre of state capture, has assets bigger than the GDP of Kenya, he said. “So it’s macroeconomically critical. Malfeasance or poor governance at Eskom has had a material impact on the country in several ways.”

The government has had to step in with a bailout of more than R130bn over the next decade to rescue the company.

“That takes away resources from where they could be spent in terms of improving the social safety net, infrastructure and so on. It also increases the cost of doing business for consumers and for companies. Because of inefficiencies in Eskom and governance issues you’ve had very rapid increases in … prices. The price of electricity has increased by more than three times the rate of inflation for the past decade. That obviously has an impact on the economy,” he said.

Eskom chair and acting CEO Jabu Mabuza, speaking at the same conference, said the lack of consequence management was a critical challenge for SA. Suppliers involved in corruption should be banned from doing business with any other SOE, he said.

Challenges in SA’s economy have a material impact on those of other countries, Mlachila said. “SA is increasingly integrated with the rest of the continent. The integration is proceeding at a faster pace than with the rest of the world.”

He said the IMF maintained its forecast of 0.7% growth for SA for 2019 but structural reforms are now critical to boost growth, particularly as SA’s negative per capita growth is forecast to continue for the next two years.

Mlachila said the IMF will engage the government on the National Treasury’s proposed strategy to enhance economic growth when the IMF returns to the country in November for the annual consultation under the article IV process.

“But on balance, I think that it’s going in the right direction, without doubt.”

Asked about the sale of SOEs, he said the IMF was of the view “there is no doubt there is a need for greater private sector participation in the economy by allowing the entrance of more competition in various sectors, including in electricity generation and the area of network industries by, for example, giving greater access to ports to the private sector to operate, and … the issue of broadband allocation … would increase private sector participation in the sector”.

Improving governance will improve growth in per capita terms by one or two percentage points