The president must put meat on this RRP bone
In his parliamentary address, President Cyril Ramaphosa said: “As even the darkest of clouds has a silver lining, we need to see this moment as a rupture with the past and an opportunity to drive fundamental and lasting change. We shall not rest until we have built a new economy based on fairness, justice and equality. This is the task of our generation: to renew, to repair, to rebuild.”
The president communicated a firm and credible message: that the government has put in place an economic recovery plan which would lead to the eradication of the legacy mentioned above.
The president identified four core strategic areas, which constitute the heart of the plan:
A massive rollout of infrastructure throughout the country;
Rapidly expanding energy generation capacity;
An employment stimulus to create jobs and support livelihoods; and
Driving industrial growth.
With regard to the first core programme of the “rollout of infrastructure”, the president said: “We developed a robust pipeline of projects that will completely transform the landscape of our cities, towns and rural areas.”
It would be of interest to the people to know more about the interventions that will “completely transform the landscape”. The president did not provide this information.
The president also said: “Moreover, a list of 50 strategic integrated projects and 12 special projects was gazetted in July 2020. The catalytic projects have been prioritised for immediate implementation with all regulatory processes fasttracked — enabling over R340bn in new investment.”
Again, the president did not explain what these “catalytic projects” are and whether the funds are indeed available for their implementation.
The president further said: “The Infrastructure Fund will provide R100bn in catalytic finance over the next decade, leveraging as much as R1-trillion in new investment for strategic infrastructure projects.”
This suggests that the only thing that is certain about the funding of the infrastructure rollout for the period up to 2030 is that at least R10bn will be spent annually.
Obviously, this will not be enough to bring about the major socioeconomic changes visualised by the president.
The president made other worrying statements on this matter of funding the infrastructure rollout, viz: “We are exploring the use of credit-enhancing instruments to unlock bulk water infrastructure and national roads improvement projects.”
Through his mention of credit enhancement, the president communicated the message that at least some of the infrastructure rollout will be financed through money borrowed in the financial markets. The president did not explain how much of the projected infrastructure spend would be borrowed money.
With regard to the expansion of energy generation capacity, the president said: “We are accelerating the implementation of the Integrated Resource Plan. The current regulatory framework will be adapted to facilitate new generation projects while protecting the integrity of the national grid. Applications for own-use generation projects are being urgently fast-tracked.
“To achieve this, a long-term solution to
Eskom’s debt burden will be finalised, building on the social compact on energy security recently agreed to by social partners.”
Naturally, given the challenges facing Eskom, it would be important to inform the population about the content of the social compact on energy security.
With regard to “an employment stimulus to create jobs and support livelihoods”, the president said: “We have committed R100bn over the next three years to create jobs through public and social employment as the labour market recovers … The employment stimulus is focused on those interventions that can be rolled out most quickly and have the greatest impact on economic recovery.”
The proposition that the financing of projects through this employment stimulus would have
“the greatest impact on economic recovery” has little substance. In fact,•“economic recovery” is not the central matter in terms of the listed areas of employment. These include Working on Fire, Working for Water, basic education, early childhood development, community health, arts, culture and sports, community environment and social grants.
With regard to the “drive for industrial growth”, he said: “To place our economy on a new trajectory, we are going to support a massive growth in local production and make South African exports much more competitive.” He committed to:
Publishing localisation targets for goods in areas that include consumer goods, agroprocessing, construction material and transport rolling stock;
Enforcing government policy to ensure that all public infrastructure projects use locally made materials;
Financial assistance to business for infrastructure support, facilitating routes to market, and assisting with technical skills, testing and quality assurance;
Working with women-empowered companies to reach the target of directing 40% of procurement spend to these businesses;
Publishing a revised list of critical skills and occupations in high demand to enable skilled individuals to be recruited speedily, and expediting the issuing of skills visas;
Promoting private sector participation in rail, including granting third-party access to the core rail network and revitalisation of branch lines;
Improving efficiency and capacity of the ports of Durban, East London, Cape Town and Ngqura;
Release of high-frequency spectrum by March 2021 and the completion of digital migration;
Focusing on the development of small, medium and micro enterprises when promoting localisation and industrialisation, including the development of rural and township economies;
Clamping down on the illegal economy, and illicit financial flows, including transfer pricing abuse, profit shifting, VAT and customs fraud, under-invoicing et cetera.
Reducing government expenditure, prioritising funds towards poverty alleviation and infrastructure investment, fighting crime and corruption; and
Stabilising state-owned entities, reducing their reliance on the fiscus by accelerating their rationalisation, and where appropriate, identifying strategic partners.
All these very important tasks raise a number of questions, including: What are the time frames for achievement of the objectives stated above?
What organisational structures exist or should be created to ensure achievement of these objectives?
What volumes of investment will be required to finance these objectives?
What proportion of these investment funds will be controlled by the public and private sectors respectively?
The programmes contained in the Reconstruction and Recovery Plan (RRP) and the presidential address will remain a mere vision until the resources are made available to enable their implementation.
This is why it is imperative that the government publish another document, one that gives a realistic and credible indication of the capital that is and/or will be available to fund the RRP.
It is also important that such a document should give a similarly realistic and credible indication of how much of this capital would come from the public sector and how much from the private sector.
This is important because the country suffers and will continue to suffer from serious fiscal constraints. The cost of borrowing will be quite high given the sovereign rating downgrades and serious uncertainties about the future.
Since 1994 significant sections of capital in our country have been sceptical about the future of SA and have therefore hesitated to fully take advantage of existing investment possibilities. Indeed, there has been a sustained and continuing process of the export of capital. This has not been for the mere purpose of “diversifying portfolios”, but as a step towards the relocation of the businesses and the businesspeople concerned.
That “risk aversion” by capital was worsened by the negative political, economic and social situation in the past decade, remains the same today, and is now reinforced by the impact and consequences of Covid-19.
For some time now, foreign investors have been reducing their South African exposure in terms of both government bonds and equities. It is obvious that the implementation of the RRP cannot be “left to the market”.
The government must act to ensure that its structures have the necessary capacity to carry out the tasks that arise from the people as a whole in the national, provincial and municipal state structures.
The government must put in place transparent processes as it addresses all these governmental challenges as an important part of its response to the urgent and important task of restoring the confidence of the people in our system of governance.