Khulekani Magubane and Jan Cronje, Fin24, 28 August 2019
Minister of Finance Tito Mboweni has called for a series of “deliberate and concerted actions” to raise SA’s moribund GDP growth rate by up to 3% per year in a new 77-page page economic policy paper.
The document Economic Transformation, Inclusive Growth and Competitiveness: Towards an Economic Strategy for South Africa was published on National Treasury’s website. The finance minister has asked the public to submit comments by September 15.
“This paper is a detailed examination of the structural reforms that can reverse the downward trend in South Africa’s growth potential and competitiveness,” said Treasury in an accompanying statement.
According to Treasury, SA’s current economic path is unsustainable with the country facing the triple threat of stagnating economic growth, rising unemployment and high inequality.
SA has been experiencing low GDP growth rates for most of the past decade. In the first quarter of 2019, the economy contracted by 3.2%, the largest quarter-on-quarter drop in a decade. Stats SA is set to announce SA’s GDP growth figures for the second quarter on next week. If the economy again contracts, SA will enter its second recession within two years.
While the National Development Plan calls for sustained economic growth of 5% to decrease inequality, the country’s projected growth rate for 2019 has been repeatedly downgraded to around 0.7%.
“The bulk of the interventions are realistically executable in the medium term, and include reforms in the telecommunications, agriculture, services, and transport industries. Short-term interventions are important as they lay a foundation for other reforms, while long-term interventions address competitiveness,” the report said. Over time, the combined effects of the interventions could create over one million job opportunities, states Treasury.
Sell coal-fired power plants?
The report called for the modernisation of network industries such as energy, transport, and telecommunications to make them more competitive.
While these industries underpin the economic health of a country, the paper argues that a lack of competition, tardy government action, poor regulation and outdated infrastructure mean they have become impediments to economic growth.
The paper argues that debt-laden power utility Eskom – facing a declining pool of customers and rising tariffs – should consider selling coal-fired power stations to raise R450bn, roughly the size of its debt. The stations would then sell electricity back to the power utility at a predefined tariff.
“Restructuring the electricity sector will limit the fiscal and economic risk that Eskom poses and support economic transformation through more entrants into the electricity space,” states the paper.
The paper also calls for an easing of regulations governing who can sell electricity to the grid. “Consideration should be given to regulations and legislation to enable households and firms to sell the excess electricity they generate through rooftop solar PV systems”.
In the ICT sector, the paper argues that spectrum should be allocated through an auction, “with provisions for effective rivals, conditions for universal service and access, and a small set-aside for a wholesale open access network”. It also calls for the roll-out of broadband to underserved areas via a more competitive telecoms sector and lower data prices.
Barriers to entry, reducing red tape
The document states that large and established firms are continuing to dominate SA’s economy and the country’s employment dynamics, creating barriers to entry to new players.
“New firm entry and effective rivalry among existing firms can generate significant consumer welfare benefits,” it states.
Treasury has called for reducing red tape, boosting access to development financing for small businesses, and possibly exempting small businesses from the extension of collective bargaining agreements.
“The Red Tape Impact Assessment Bill, which was rejected by parliament on procedural grounds, could be revisited,” it states. “The proposed bill requires all departments and self-regulatory agencies to reduce red tape by 25 per cent over five years”.
To ensure that the state pays suppliers on time, the paper suggests that late payments to small business could possibly have interest added.
Transforming agriculture, boosting tourism
The paper states that SA’s agriculture sector receives less government support than those of global peers, and calls on government to implement policies to help unlock “inclusive, labour-intensive economic growth” in agriculture.
Proposed policies including better agricultural insurance, the upgrading of state extension services, making land tenure rights secure, and enabling easier access to finance and export markets.
If successfully implemented, these policies could help smallholders and emerging farmers “transition to higher-value agricultural commodities and can play a major role in reducing poverty and strengthening rural development”.
The paper also calls for a loosening of SA’s visa regulations, saying these should be amended to ensure a “better balance between security concerns and the growth of the tourism sector”.