Pulling SA back from its economic crisis remains largely dependent on the government’s ability to implement reforms that will boost growth, without which investment will move elsewhere, business leaders say.
GDP data this week showed the economy had contracted in the third quarter as the National Economic Development and Labour Council (Nedlac) met to discuss the country’s economic recovery plan.
Cas Coovadia, CEO of Business Unity SA, which is part of Nedlac, said in an interview this week: “Our country is in a serious crisis and we don't see any urgency in some economic decisions that need to be taken. We have indicated that outside of Covid-19 the single biggest issue facing the country is to attract investment and grow the economy.
“Our plea is that the government take the lead in this. It is not that we want the government to do everything, [but] with the situation we are in the critical issue is to create an environment for investment, and that lies in the hands of the government.
“We won't improve our GDP until we get economic growth going. If we don't create an environment for investment it will move to other countries that are. We need leadership and some strong, hard decisions taken.”
At the annual Nedlac conference, the government was urged to act swiftly on proposals for economic reforms made by business and labour.
Bheki Ntshalintshali, general secretary of Cosatu, said the government had not given feedback on the performance of the economic reconstruction and recovery plan submitted last year.
Coovadia said there is a need to focus on four or five key projects that will begin to facilitate economic growth. He said Nedlac’s social partners made a number of proposals to the government in September last year that could have been implemented as matter of urgency.
These include clearing the backlog in the issuing of mining exploration licenses, which has been citied as an impediment to investment and competition.
Coovadia said there is also an urgent need to send a team to the Durban port to sort out the inefficiency that has reduced its competitiveness.
We won't improve our GDP until we get economic growth going. If we don't create an environment for investment it will move to other countries that are. We need leadership and some strong, hard decisions taken
— Cas Coovadia, CEO of Business Unity SA
“Some of the proposals can be done pretty quickly, and if we act consistently we can generate confidence from foreign investment,” he said.
The delay in spectrum allocation is also a burning issue. The telecom regulator has committed to finalising the process by March next year.
The International Monetary Fund (IMF) this week called on the government to raise the efficiency of network industries, saying essential services such as electricity, telecommunications and transport are expensive or unreliable.
It said there is a need to ensure energy security, upgrade infrastructure and expedite the long-delayed spectrum auctions to facilitate the digital transition. These reforms, along with cutting red tape, would allow entrepreneurs to set up businesses and create jobs.
On labour, the IMF said the government must increase flexibility in wage bargaining and improve the quality of education and vocational training programmes to enable young people to acquire the skills demanded by employers.
It also called on the government to address weak governance and eradicate corruption, saying this will help channel talent, investment and technology towards their best uses and foster public trust in government institutions.
The National Treasury said the IMF’s concerns are aligned with the government’s programme to stimulate economic growth. It said progress has been made in implementing structural reforms. This includes lifting the licensing threshold for power generation to 100MW, which will enable an increase in private sector investment in electricity generation.
The Transnet National Ports Authority will be corporatised by creating an independent subsidiary with its own board. Work on the restructuring of Eskom, which is on track to meet targets, has also advanced, the Treasury said.
The number of priority infrastructure projects the government is focusing on.
— IN NUMBERS: 62
Infrastructure is one of the key areas that could kick-start economic growth. The Treasury said the government is accelerating investment in 62 priority infrastructure projects.
Mzwanele Ntshwanti, an economist and lecturer at the University of SA, told the Nedlac conference that infrastructure development should also emphasise repurposing and maintaining infrastructure. He said the department of public works should establish a state infrastructure organisation to fund black small and medium-sized enterprises.
Data released this week by Stats SA show the country’s GDP contracted 1.5% in the third quarter, with wholesale, retail, the motor trade and catering and accommodation services the hardest hit.
The third quarter was marred by level 4 lockdown restrictions in response to the third wave of the Covid pandemic and unrest in KwaZulu-Natal and Gauteng.
This was reflected in household consumption, where all the subcomponents contracted except for spending on health care, while private sector fixed investment also fell, said Carmen Nel, economist and macro strategist at Matrix Fund Managers.
Nel said the economic backdrop remains challenging given the US central bank’s taper and renewed travel restrictions on SA. The economy has been under strain for years, worsened by the pandemic that has resulted in millions of jobs lost.
According to the Treasury, GDP growth is expected to recover to 5.1% in 2021 and average 1.7% over the next three years.
A bigger hit to the fourth-quarter growth will come from intermittent energy supply, given the ramp up in rotational load-shedding that we experienced in the fourth quarter relative to the third quarter
— Sanisha Packirisamy
But economists warned that load-shedding posed one of the biggest threats.
Sanisha Packirisamy, economist at Momentum Investments, said: “A bigger hit to the fourth-quarter growth will come from intermittent energy supply, given the ramp up in rotational load-shedding that we experienced in the fourth quarter relative to the third quarter.”
Annabel Bishop, chief economist at Investec, said possible tighter lockdown restrictions during the pandemic's fourth wave would negatively affect most businesses and are a key risk.
Nel said she expects most sectors to rebound and contribute to growth in the fourth quarter. But “elevated uncertainty, the absence of infrastructure implementation and excess supply in housing are very likely to keep a lid on construction activity, posing the risk that the construction sector could again be a drag on overall GDP in Q4”.
Packirisamy said she expects a bounce in agricultural exports now that the disruption to the ports during the riots in the third quarter is over.
Slower global demand for commodities could lead to softer mining output and a three-week strike in the metals and engineering sector in October could lower output in manufacturing, she said.
“We could see local tourism partially offsetting the dip in international tourism, but catering, accommodation and the restaurant and entertainment sectors are likely to experience soft activity levels,” she added.
Coovadia said agriculture and manufacturing have the potential to recover if SA creates the right environment, because the country has the expertise and a lot of work is being done on localisation.
“But at the end of the day we have to show investors that investment will be safe and we can do profitable businesses and we can remove red tape in establishing businesses.”
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