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Illustrative image | Source: Gallo Images / Bloomberg / Waldo Swiegers
Details remain vague, but a cabinet-approved draft of the economic recovery plan obtained by Business Maverick focuses on structural reforms, including the divestiture of the state power company Eskom. Much of the “wish list” includes goals that the ANC-led government has long aspired to but never achieved.
President Cyril Ramaphosa is expected to release the final draft of the plan on Thursday, October 15. The draft, dated October 7, is titled “South Africa’s Economic Recovery and Reconstruction Plan,” a new acronym (ERRP) that follows a path pioneered by GEAR and RDP and the like. The “recovery” part clearly refers to the aftermath of the economic ruin caused by the Covid-19 pandemic. But it’s also about recovering from the ruins of years of ANC political folly, shoddy governance, and state capture.
“Failure to implement the economic recovery and reconstruction plan could lead to loss of economic capacity, including a collapse in supply capacity, consumer and business confidence, the labor market, and increased vulnerability of the poor. The general plan aims to mitigate these risks ”, says the document.
Economic capacity has already been lost, consumer and business confidence has already been shattered, unemployment is widespread and the poor are more vulnerable than ever. This is largely due to the failure to implement previous plans, among other things. Reversing these trends is critical now, and a “final action plan” is still being finalized, according to the document. The purpose of the plan is “to provide economic interventions that raise the overall economic performance of the country by leading South Africa to generate inclusive growth.”
“Inclusive growth” is one of those fuzzy buzzwords that mean bringing the benefits of growth to the poor and marginalized. But South Africa’s economy probably won’t grow back to its 2019 levels until the end of 2022, so there is no real growth on the immediate horizon, let alone of the “inclusive” kind.
The plan also aims to: “Breaking the cycle of low economic performance, weak production and poor labor market results by using infrastructure, localization and reindustrialization as levers to stimulate economic activity and raise living standards. in marginalized communities. ”
“Reindustrialization” has been a feature of ANC political thought for years and has long been a dream of command-style economists at the Department of Commerce and Industry. Sadly, industrialization requires a reliable power supply, so until that happens it just isn’t going to happen. On that front, the plan generally pays off.
Under the heading “Ensuring energy security”, Phase 1 talks about “enabling generation for own use”, while Phase 2 focuses on “Separation and unbundling of Eskom and (the) implementation of the PIR to ensure diversification of resources “. So, in the face of stiff union resistance, the government remains committed to separating from the Goliath that is Eskom. This will split Eskom into three more agile units (power transmission, generation and distribution) that should provide opportunities for the private sector to supply the grid.
Then there are also the grandiose dreams, to which the plan gives some credit. “Phase 3” refers to “Conversion of gas to liquids”, but also to preparations for the “Nuclear Construction Program” that the Treasury cannot afford at this time. An infrastructure-focused “Mass Public Employment Program” is also in the offing, which in many cases would mean paying a lot of people low wages to do heavy, unskilled work filling potholes and that sort of thing. This is not a new concept and it is unclear where the money is coming from with the debt levels that will skyrocket.
The plan differs in one crucial respect from its predecessors: It has a large “implementation” section, including a column on required funding, implementation period, and responsible institutions. The new focus on implementation is clearly a reaction to concerns about poor government implementation in the past, and perhaps also an over-supply of plans and an under-supply of facts.
Nothing illustrates this better than the release of additional digital spectrum, which is once again included in the document after stretching for more than a decade and being the responsibility of a staggering 11 different ministers.
“We see markets deeply skeptical of this plan …” Intellidex economist Peter Attard Montalto said of the draft in a note to clients.
“All the right ideas are on the table,” but the government is distracted and the draft looks like “a hodgepodge of ideas without a central agenda. The credibility of the implementation is the only thing that matters. “
At first glance, the plan doesn’t seem to offer much to the ANC’s Radical Economic Transformation faction, although there is a nod to regionalization and black economic empowerment appears as usual.
However, the plan also doesn’t give companies much to work with, outside of infrastructure development and restructuring of state-owned companies, and only mentions “confidence-building measures” in passing.
In tax matters, mention is made of the extension of the Tax Incentive to employment, as well as a “review of the progressivity of VAT focused on food security and vulnerable households” and tax relief for people and companies in trouble. Similarly, the green economy has a no, but primarily in relation to recycling waste rather than the broader problem of power generation.
In general, the plan reflects a State that is called upon to do a lot in a crisis situation but which, in reality, does not have the capacity to implement much. Trying to resolve that contradiction will be the central issue facing President Ramaphosa when he addresses parliament on Thursday, October 15.
The draft is available here. BM / DM
