President Cyril Ramaphosa has announced an ambitious economic recovery and reconstruction plan that aims to embark on a mass employment programme, re-industrialise the economy, and secure a reliable energy supply within two years, among other short-to-medium term targets.
“According to the modelling done by the Treasury, the implementation of this plan will raise growth to about 3% on average over the next 10 years. Our recovery will be propelled by swift reforms to unleash the potential of the economy, and supported by an efficient state that is committed to clean governance,” Ramaphosa said during a joint sitting of both houses of parliament on Thursday.
“Large-scale job interventions driven by the state and social partners have proven effective in many countries that have faced devastation from wars and other crises.”
Ramaphosa said the state had committed R100bn over the next three years to create jobs through public and social employment as the labour market recovers. He also emphasised the need to implement necessary reform, remove regulatory barriers that increase costs and create inefficiencies in the economy, secure energy supply and free up digital infrastructure.
The plan has been in the works for several months amid consultations with business and labour, as the government pushes to reignite the economy, which has been battered by the Covid-19 lockdown.
The lockdown, which came into force at the end of March and was widely regarded as one of the most stringent in the world, shut down most economic activity, leading to a sharp drop in output and employment. The GDP figures for the second quarter released in September showed the economy shrank 51% on an annualised basis, or 16.4% if not annualised. SA’s GDP for 2020 is projected to plummet about 8% and recent Stats SA figures show that the country shed 2.2-million jobs during the second quarter, with the expanded unemployment rate increasing to 42% from 39.7%.
Ramaphosa said the recovery and reconstruction plan directly responded to the immediate economic effects of Covid-19 by driving job creation and expanding support for vulnerable households. The government aims to do this primarily through a major infrastructure programme and large-scale employment stimulus, coupled with an intensive localisation drive and industrial expansion.
To support tourism over this peak tourism season, Ramaphosa said the government would shortly be publishing an expanded list of countries from where resumption of international travel would be permitted, which would be supported by targeted marketing in partnership with the private sector. The sector, a key jobs driver and foreign currency earner, was hardest hit by the lockdown.
Touching on the infrastructure build programme, Ramaphosa said focus would be on social infrastructure such as schools, water, sanitation and housing. The programme would also prioritise critical network infrastructure such as ports, roads and rail that are key to our economy’s competitiveness.
On energy security, Ramaphosa said government would be accelerating the implementation of the Integrated Resource Plan to provide a substantial increase in the contribution of renewable energy sources, battery storage and gas technology.
This should bring about 11,800MW of new generation capacity into the system by 2022. More than half of that energy would be generated from renewable sources, he said.
In the immediate term, agreements would be finalised with Independent Power Producers to connect more than 2,000MW of additional capacity from existing projects by June 2021.
“We are taking further steps to enable power generation for own-use,” Ramaphosa said.
Before Covid-19 hit, ratings agencies cited Eskom, which has a huge debt burden approaching R500bn, as a major risk to the sustainability of the nation’s finances.
Eskom could also cripple the economy through load-shedding and power outages. The power utility is in the process of being broken up into three entities, focusing on generation, transmission and distribution.
Ramaphosa said the current regulatory framework would be adapted to facilitate new generation projects while protecting the integrity of the national grid. Applications for own-use generation projects were being urgently fast-tracked.
He said the work of restructuring Eskom into separate entities for generation, transmission and distribution continued and would enhance competition and ensure the sustainability of independent power producers in future.
Ramaphosa also said the turnaround at the SA Revenue Service (Sars) was under way, and significant areas of tax evasion and tax fraud had already been identified.
“Sars is rebuilding its capacity to reverse the decline, improve compliance and recover lost tax revenue. We are working to clamp down on the illegal economy and illicit financial flows, including transfer pricing abuse, profit shifting, VAT and customs duty fraud, underinvoicing of manufactured imports, corruption and other illegal schemes,” Ramaphosa said.
He also talked about the need to promote greater private-sector participation in rail, including through granting third-party access to the core rail network and the revitalisation of branch lines. The government will also establish a single economic regulator in transport as a matter of urgency to promote competition and efficiency.
Ramaphosa said the government would shortly publish the revised list of critical skills, occupations in high demand and priority occupations to enable highly skilled individuals to be speedily recruited, and expedite the issuing of special skills visas to support local firms.
On the pressing issue of government expenditure, Ramaphosa said that in reducing spending, the government would ensure that funds were reprioritised towards poverty alleviation, infrastructure investment, support for economic development and fighting crime and corruption.
The government was also looking to reduce the reliance of state-owned enterprises on the fiscus by intensifying efforts to stabilise strategic companies, accelerating the rationalisation of parastatals and, where appropriate, identifying strategic partners.
“It is clear that implementation is going to be the key in giving effect to this recovery and reconstruction plan. This requires a more effective and efficient state, with greater co-ordination and integration between national, provincial and local government.”
Ramaphosa emphasised that a critical pillar of the recovery plan was the fiscal framework that would be outlined by finance minister Tito Mboweni in the medium-term budget policy statement (MTBPS).
“Among other things, this framework will provide a path of fiscal consolidation, debt reduction and reprioritisation that is supportive of growth and recovery.”
Ratings agencies Moody’s Investors Service and Fitch Ratings had both previously warned that the debt consolidation targets would be difficult to achieve.
Mboweni was due to table the MTBPS on October 21, but has been granted a one-week postponement. It is expected that he will detail further expenditure cuts as the Treasury moves to control the ballooning debt.
However, the cabinet has also committed to funding the rescue of SAA to the tune of R10.5bn which will require additional cuts to other programmes.
With Carol Paton
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