October 12, 2020


SOUTH AFRICA: A Plan of Plans?

BY Anne Frühauf

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On 15 October, President Cyril Ramaphosa will present an economic recovery plan at a joint sitting of parliament. Ramaphosa has pledged “extraordinary measures” to boost an economy facing a record recession, but the leaked draft plan largely rehashes old ideas around infrastructure, localization and “reindustrialization.” It will be presented just one week ahead of what will likely be a devastating Medium-Term Budget Policy Statement (MTBPS) on 21 October.

Faced with the worst recession in 90 years and a looming fiscal crisis by 2024/25, the government has never faced greater pressure to convince a skeptical public and investors that yet another plan will be meaningful. The fact that Ramaphosa has called a joint sitting of parliament – which is unusual outside of annual State of the Nation addresses – will be an attempt to make the plan look concrete, even though it contains few new ideas. Given the government’s poor implementation track record, Ramaphosa will try to gain credibility by attaching funding indications, implementing agencies and timelines to specific deliverables.

On the energy security front – arguably an overwhelming structural constraint on growth – the deliverables include fast-tracking the licensing of own-generation; the more vaguely worded “financial and operational stabilisation” of Eskom; the utility’s unbundling; and the conclusion of the Eskom ‘social compact’ (previewed here). In short, the plan contains nothing new. At best, the conclusion of the Eskom compact could build consensus around the power utility’s gradual transformation.

Other aspects of the document and its eight “priority areas” – which range from energy security to agriculture and reviving the pandemic-hit tourism sector – read like a jumble of past plans and measures that individual cabinet ministers already have in the works. Going for low-hanging fruit is hardly wrong, but the plan looks unfocused. Broad aspirations like reindustrialization have been driven by the Department of Trade, Industry and Competition (dtic) for years. Localization – to be driven through interventions like public procurement – is also nothing new but now faces even greater fiscal constraints. The private sector will welcome plans for the restructuring state-owned enterprises (SOEs), but the wording of Department of Public Enterprises (DPE) deliverables hardly suggests a more radical liberalization, speaking as it does of a “centralized delivery unit” and in the longer term a “white paper on government shareholder management.”

At best, the private sector may benefit from a few interventions that do not require funding. The plan talks rather vaguely of “confidence boosting measures including land rights, digital migration and mineral rights,” but at least on the mining front a legislative amendment is suggested with a view towards halving current timeframes for licensing of mining concessions.

The plan speaks of the need for fiscal sustainability, but Finance Minister Tito Mboweni’s Medium Term Budget Policy Statement (MTBPS) – to be presented on 21 October – will tell a different story. Extreme financing constraints overshadow plans for infrastructure-focused mass employment schemes (hardly new) and the restructuring of SOEs. Mboweni has already warned that, on the current fiscal trajectory, South Africa risks a fiscal crisis by 2024/25, with the debt-to-GDP ratio expected to reach 81.8% this financial year and breach 100% by 2023/24. Mboweni has cautioned that this year’s MTBPS will not be “popular,” but he cuts a lonely figure in trying to force cuts. Chances are that the MTBPS will be unpopular with both the public and the markets.

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