SA’s growth problem is mindset, not money
ANC needs to wake to real prerequisites of post-Covid recovery
● As SA grapples with the catastrophic fallout of the Covid-19 crisis, a conversation is beginning about how the country can lift itself out of its low-growth trap to “forge a new economy in a new global reality”, as President Cyril Ramaphosa put it this week.
Business is working on an extensive set of proposals on restructuring the economy for higher growth. The government has promised its own plan, details of which might emerge at the sustainable infrastructure development symposium the presidency plans for June 23.
Ramaphosa, who is expected to bring 69 projects worth an estimated R350bn to the symposium in search of finance, has said a massive infrastructure programme will be a key driver of the recovery.
And the ANC’s economic transformation committee, headed by Enoch Godongwana, led the charge with a reconstruction presentation compiled last month and reported on in Business Times last week.
The ANC presentation recognises the “unprecedented” challenges and sets out a series of sectoral plans as well as emphasising the need to invest in skills and in social and economic infrastructure.
But it is profoundly disappointing in some key respects.
It contains very little fresh thinking — it could almost be an ANC document from any time in the past five years and it’s not clear that the Covid-19 crisis has prompted any shift in the party’s tired approach to SA’s increasingly sick economy. It has, if anything, strengthened its commitment to the “developmental state”.
What’s new is that the ANC — or at least Godongwana — does seem to acknowledge that the government has no money and that state ownership and investment haven’t been an unmitigated success.
Instead, the emphasis is on the state “guiding” the economy — but with the private sector, evidently, putting up much of the finance.
Says the presentation, “a developmental state doesn’t necessarily mean higher levels of state ownership, but higher levels of guidance”.
Business Unity SA says: “The document resurfaces old ideology and dogma of a significantly increased role in the economy for the state … We remain convinced that the private sector is best placed to stimulate such economic growth, provided the state creates an enabling environment and business and labour reach a constructive compact.”
The ANC — like Ramaphosa — says it wants a social compact and “buy-in and compromises by all”.
But clearly this isn’t exactly going to be a compact of equals. The continued emphasis on the state calling the economic shots is particularly disappointing given that the coronavirus pandemic has, for the first time in many years, seen real signs of social compacting at a revived National Economic Development and Labour Council. And it has seen significant levels of collaboration between business and the government to tackle the health and economic crises.
The private sector provided extensive assistance behind the scenes in areas such as funding and sourcing essential personal protection equipment for the public health system and getting the Unemployment Insurance Fund Covid-19 relief scheme to happen. Business’s voice seems to have gained more traction with the government than it has had for many years.
But, says one leader, business wants to talk to the government about investing in infrastructure only if the government genuinely wants to partner — not if it just wants to
The ANC presentation is profoundly disappointing in some key respects. It contains little fresh thinking
stage more summits.
And this is where the Godongwana presentation is perhaps most disappointing. For the ANC, as for many in the government, infrastructure is a money problem. SA just needs to find the finance to pay for it; if the government has no money then it will need to come from somewhere else.
It doesn’t suggest prescribed assets but wants to amend regulation 28 of the pension fund regulations to unlock pension savings to fund long-term infrastructure and capital projects directly, and it wants such funding too from the unemployment insurance money managed by the Public Investment Corp.
It wants to see the South African Reserve Bank create a R500bn funding instrument for long-term infrastructure investment with the development finance institutions (DFIs).
Indeed DFIs, the Development Bank of Southern Africa (DBSA) in particular, are proposed as the key conduit for these initiatives — and Godongwana, who is chair of the DBSA, is hardly a neutral observer.
Specialised units
There clearly is an important role for the DFIs, and for Ramaphosa’s new infrastructure fund, in financing and preparing public projects, and a specialised unit in the presidency as proposed by Godongwana might be needed to make projects happen.
But SA’s infrastructure problem is not, primarily, a money problem. There is, arguably, plenty of private money available for infrastructure — it’s the lack of suitable, bankable projects and of the policy and regulatory decisions to enable them that’s holding back investment.
The private sector can’t finance new roads if there’s no clarity on how they will be paid for, nor new power plants if the minister won’t sign the requisite determinations, nor rail and port infrastructure if Transnet continues to monopolise it.
If those policy issues are addressed, the private sector will come — as it did when it invested hundreds of billions of rands in the renewable energy programme.
Bankers and institutional investors are keen to see a lot more such public infrastructure projects, in sectors such as energy, transport and telecommunications, to which they can lend and in which they can invest, boosting the economy’s potential to grow and create jobs.
Ample project finance skills are available in SA’s financial sector to structure them. But public-private infrastructure partnerships require a partnership of equals — not the ANC’s “state-guided” attempts to force cheap money out of pension funds or the central bank.
In the end it’s not just about infrastructure. If SA is to recover from the crisis and get back to growth, the government will need to create an environment in which businesses can thrive, expand and employ people. Whether the ANC is ready for that is unclear. But at least the conversation has begun.