The South African Economic Reconstruction and Recovery Plan, unveiled on the 15th of October by President Ramaphosa, will follow the same path as other government plans: Grandiose scope and ambition, little in terms of actual, effective impact. Using the very low bar of ‘desperation,’ there were small glimmers of hope. On the other hand, given the corner into which Government has backed itself into over the years, where it has to deliver on every South African’s hopes and dreams, it is difficult to see where it will find the funding for everything this plan promises.
The ‘new’ plan has, as its main areas of focus, an expanded public employment programme, a R1-trillion infrastructure build-and-enhancement effort, and a pledge from Government to accelerate energy generation and distribution. It aims to create 800,000 job opportunities before the end of the 2020/21 financial year, and to raise growth to about 3% on average over the next 10 years.
Research from the Nids-Cram study, released at the end of September, revealed that “in the past four months, we have lost as many as 2.8-million [jobs].” To adequately deal with such devastation (added to the more than 10 million unemployed before the lockdown), you’re going to need way more than 3% growth – and you won’t get more without serious labour market reforms (for example, scrapping the National Minimum Wage), and a stable electricity supply. ‘Recovery’ implies a return to a state of health – and South Africa was most definitely not healthy before the COVID-19 lockdown.
The scope of the plan necessarily hinges on increased state spending – what happened to Tito Mboweni’s mention of reducing state debt, and the debt-to-GDP ratio? Government is looking for a further R10.5 billion for SAA – what could be more irresponsible than giving that failed airline yet more cash? Ramaphosa mentioned again the need for the state to start looking at its spending priorities – even mere words will have caused highly-paid public servants and Parliamentarians much internal angst. But will we ever see actual, proper cuts in spending?
Ramaphosa also announced a 3-month extension of the COVID-19 relief grant. The news that the life of this grant will be extended, reinforces that Government (read: The ANC) is worried about perhaps losing some support among those who have become dependent on state aid. One can only assume this Government is only focused on looking ‘good’ in the now, and not particularly concerned with leaving debt for future generations to deal with. Maybe, there will be more details in Mboweni’s speech in 2 weeks’ time.
To give some ‘praise,’ as it were, it’s very good to hear that an expanded list of countries for international travel is coming – the tourism sector needs to attract as much business as possible now.
Ramaphosa also touched on the continued ‘unbundling’ of Eskom. While this doesn’t go nearly far enough conceptually, it is some kind of step in the right direction. But, at the pace this Government moves, it may all come too late to be really meaningful in the long run. The President said that the implementation of the Integrated Resource Plan “should bring about 11,800MW of new generation capacity into the system by 2022.” I think that’s an incredibly lofty goal, and very unrealistic, given both the capacity aimed for, and Eskom’s infrastructural problems. 2022 is an incredibly tight deadline, and one has to wonder how exactly it will all be achieved.
A further reason for hope (but don’t bet your house on this), is that the much-vaunted infrastructure drive will require much assistance and investment from the private sector, To generate such investment, this government must know that it has to listen to the bureaucratic challenges facing business, and what it needs to do to eliminate these. Perhaps there are some in government who realise it’s time for the state to start moving out the way.
Given that most in government operate from the paradigm of, ‘The state should solve everyone’s problems,’ it shouldn’t be a major surprise that this plan has turned out to be quite boring and unimaginative. If government was serious about reform, it’d change tack radically, and embrace policies that would enhance economic freedom. At the point, it’s merely a case of playing games (and playing with people’s livelihoods and lives) with an ever-shrinking stream of money.
Chart of the week: The IMF’s latest World Economic Outlook shows South Africa’s investment rate falling further below the emerging market average, at 13% of GDP this year against 33% for peer countries. It is not possible to sustain growth with such low investment rates. pic.twitter.com/Fn84qfg3KI
— SA Reserve Bank (@SAReserveBank) October 16, 2020
The above graph, shared by the South African Reserve Bank, uses the International Monetary Fund’s latest World Economic Outlook to show how South Africa’s investment rate is falling further below the emerging market average. Without a serious shift in this downward trend – which only real structural reform could bring about – the country can forget about meaningful economic growth.
Ultimately, the latest plan is disappointing from a philosophical point of view. It indicates this government’s lack of courage in giving South Africans, especially the poorest, the necessary freedom, for them to actualise their own individual agency. The ever-growing state is terrified of what may happen if it stops trying to ‘lead’ people; this Plan is the latest manifestation of the worldview that the state must be at the centre of our lives.