Before President Cyril Ramaphosa’s surprise announcement last week that the cap on energy self-generation was to be raised tenfold, and that a private partner had been secured for SAA, it was hard to string together a credible growth story for SA.
Instead, it seemed likely that SA’s deeply embedded structural problems — from fiscal imbalances to sky-high unemployment and yawning inequality — would continue to heat up and spill over into rising discontent.
But the growth and fiscal implications of last week’s reforms could be significant, especially when taken together with the effect of the commodity boom on government revenue and the surprisingly robust recovery being witnessed in the economy — assuming they last.
To break down the good news: the economy grew faster in the first quarter than even the most bullish projections, supported by a surprising resilience in household finances; business confidence is recovering strongly; commodity producers are shooting the lights out; and now a wave of green energy investment is about to be unleashed.
The significance of raising the self-generation cap goes beyond the direct investment of up to R100bn in mainly renewable energy projects now anticipated. It also means companies producing their own power will be able to maintain production when there is load-shedding and reduce the risk of power rationing for everyone else by lessening the demand on Eskom. In 2020, load-shedding cost the economy R80bn-R160bn. Looking ahead, a big chunk of this figure can now be added back to GDP estimates.
Over time, the easing of SA’s energy constraint could also unleash billions of rand in non-energy fixed-investment projects that have been shelved over the past few years because of a lack of certainty over the country’s energy supply. But spurring a resurgence in overall investment will require that investors believe reform momentum is becoming unblocked, that the ball is now rolling, and that the reformists in the presidency and National Treasury are in the ascendancy. This will require that demonstrable progress is made in short order on the spectrum auction and easing the visa regime for scarce skills — the two other main priorities of business.
The evidence for this is tentative, but compared to a year ago it is at least possible to construct a more positive narrative for SA — one in which the edge is taken off load-shedding and the economy grows sustainably above 2% over the medium term, generating per capita growth for the first time in years.
SA’s fiscal picture is also brightening. Faster revenue and nominal GDP growth means SA’s debt and deficit ratios are likely to come in well ahead of target in 2021/2022 and continue to decline faster than expected. This means the pace of the Treasury’s planned fiscal consolidation could be slightly less severe and growth-dampening, and more plausibly achieved, contributing to greater confidence.
In short, SA is doing better than expected — not enough to get the economy growing rapidly over the short term, but enough to allow SA to retreat a few steps from the fiscal cliff and provide a glimpse of a possible way out of the devastation of the past year.
Unfortunately, a few large obstacles could still trip us up: a severe Covid-19 third wave, tighter lockdowns and a glacial vaccine rollout; a resurgence of global and domestic inflation that stokes interest rate fears and pulls the rug out from under the rand; a failure to slash the still-plentiful red tape around energy reform, which slows progress; and the government wilting over the public-sector wage freeze.
This is why Ramaphosa must build urgently on last week’s announcements. For a new narrative to take hold, the government will have to demonstrate it really is lifting its boot off the neck of the private sector.
Real progress has been made. It could even prove game-changing if the reform initiative gains further momentum. Green shoots abound, but let’s not kid ourselves, summer is not here yet.
• Bisseker is a Financial Mail assistant editor.
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