‘Government needs SA Inc’
FirstRand chair Jardine weighs in on NHI, prescribed assets, SOEs.
FirstRand chair Roger Jardine says “government’s apparent unwillingness to champion the private sector as a growth engine is mystifying”. Writing in the group’s 2019 integrated report, he says “there is no plausible plan for SA to prosper without the private sector playing a strong role in creating sustainable growth”.
It is “time for government to partner with the private sector to drive the developmental agenda”, he says.
“The private sector has the incentive, skills and resources to build businesses that employ people and build the wealth of SA. It cannot, however, do it on its own. It needs a government that creates policy certainty, is not distracted by trying to keep failing SOEs afloat and/or running sectors of the economy that can be done more efficiently by the private sector.”
Jardine argues that SA’s skills and expertise are concentrated in the private sector: “It provides 79% of the country’s employment and contributes approximately 50% to the fiscal purse through corporate tax [around 19%] and personal income tax paid by its employees [some 31%].
“FirstRand Bank alone paid R8.5 billion in tax this year. Leveraging private sector balance sheets for infrastructure initiatives can work, as shown by the Renewable Energy Independent Power Producer Procurement programme, where R210 billion was mobilised from the private sector.”
He is, however, under no illusion that a partnership between government and the private sector on its own will be a panacea for growth.
He says a “deep reform in the public service must also be implemented”. Jardine cites the proposal for national health insurance (NHI) as just the latest evidence of government’s “desire for stateled solutions”.
He says he is “reasonably confident that it will be very hard to find a South African who does not agree on the desirability of universal access to health care”.
“It is, however, incomprehensible that government can propose new NHI legislation without a detailed grasp of its full financial impact on the country. This is particularly of great concern given the fragility of the country’s finances. Important elements of the new policy remain unknown and this creates risk to further investment in the sector.”
While the introduction of prescribed assets is “gaining increasing political currency”, Jardine makes a strong point about pension liabilities.
“We seldom talk about pension fund liabilities (particularly with the emergence of defined-contribution funds), but it’s the pension liabilities that are the real issue. The average net replacement ratio in SA pension funds stands at 17% – meaning a pensioner can expect to receive only 17% of their final monthly gross salary when they retire.
“On this basis alone it is reckless to contemplate prescribed assets (often with misaligned risk and return) when we are under-saved as a country.”
Jardine offers three obvious examples that would yield meaningful results on the growth front:
“Implementing the Eskom restructure plan as proposed in the recent Economic Strategy Paper presented by National Treasury;
Increase competition in the telecommunication and transport sectors (including the ports) by breaking up public sector monopolies and allowing the private sector to provide services (also proposed in the National Treasury paper); and
Design and introduce policies that will incentivise a meaningful lift in domestic savings.”
Hilton Tarrant works at YFM.