Economist Roelof Botha, author of the highly regarded Afrimat construction index, says the government of national unity (GNU) could turn around the ailing construction sector and triple economic growth if interest rates are slashed and ideological constraints on infrastructure delivery “put on the back-burner”.
“I would like to see first and foremost the influence of more common-sense economics, starting at National Treasury. They need to adopt a more Keynesian, growth-orientated approach, post haste.”
South Africa’s 73.9% debt-to-GDP ratio should not deter the Treasury, he says. “Now’s not the time to be overly cautious about the fiscus. They need to appreciate the spontaneous working of multiplier effects in the economy.”
The exorbitant cost of capital is holding back construction, which he says is the most labour intensive sector in the economy. “The dilemma facing construction is that for sizeable projects you need financing. So the biggest single obstacle remains the excessively high interest rates in South Africa.”
If the GNU could accelerate the infrastructure building programme and the neglected maintenance and repair work, it would “slap 1.5-2 percentage points on top of our GDP”.
But to do this the GNU would have to maximise the involvement of the private sector to assist with technical specifications and fast-track tender procedures.
If we can create jobs at pace in South Africa our problems will ultimately disappear like mist before the sun
“We have this wonderful case study in South Africa called the Western Cape, where municipalities are run efficiently and are accountable. There are no potholes. If there is a pothole then in most parts of the Western Cape it gets repaired within 24-48 hours. To roll out that type of expertise would be a big step forward.”
The GNU would have to tackle corruption and incompetence in municipalities by fast-tracking a programme of forensic audits of senior managers ordered by President Cyril Ramaphosa.
With the assistance of the private sector, it needs to substitute cadre deployment with appointments on merit, even at a relatively junior level. Mentors can be brought in from a huge pool of people with appropriate skills who are sitting at home after reaching mandatory retirement age.
“We can fix these things quickly with the right skills,” Botha says.
He points to Brazil, which put skilled retirees back into the economy “and it worked spectacularly well. Brazil will be one of the top five economies in the world within the next decade.”
The GNU needs to look at all state-owned enterprises, determine which are not necessary in terms of their usefulness to society, put redundant employees on pension, and use the extra funds to fix critical infrastructure.
Regarding interest rates, the Reserve Bank’s monetary policy committee (MPC) should comprise three people from the Bank, the director-general and chief economist of the Treasury, the DG and chief economist of the department of trade, industry & competition, and three economists from the private sector with a minimum of 25 years experience and a master’s or PhD.
“If that had been the case today the prime rate would probably be what it was just before Covid, 10%, instead of 175 basis points above that. Inflation is at the same level, what the hell do they think they’re doing?”
It’s costing homeowners with an average bond R4,000 a month more, despite the fact that the country does not have demand inflation, Botha says.
“The MPC must start listening to people like myself and a growing number of economists in South Africa telling them they’ve got it totally wrong”, says Botha, who was economic adviser to PwC, one of the Big Four accounting firms, for 27 years.
He agrees that a smaller, more efficient cabinet with greater policy cohesion, making the right decisions quickly, would bring investment, improve the exchange rate and in time bring down the interest rate.
“What worries me is that the consumer price index has been in the Reserve Bank’s inflation target range for 11 consecutive months, and the cost of capital in South Africa is having a terrible impact on construction.
“We do not need this high interest rate. We’re not the US, they have full employment. We need to create jobs. If we can create jobs at pace in South Africa our problems will ultimately disappear like mist before the sun.”
He’s not suggesting the GNU should “mess with the Reserve Bank’s independence”, he says. “All I’m asking for is that they broaden the composition of the MPC.”
In addition to lower interest rates there's an urgent need for deregulation.
“The GNU needs to have a good look at any legislation that is an obstacle to economic growth. It needs to get all major employer organisations to tell them which pieces of which legislation are preventing them from expanding their business. Because expanding business means job creation, it means broadening the tax base,” Botha says.
We have this wonderful case study in South Africa called the Western Cape, where municipalities are run efficiently and are accountable
He says the fact that the country has lost most of its JSE-listed construction companies doesn't mean the sector lacks capacity.
“A percentage of engineers have emigrated but the majority are still around, running medium-sized companies that are capable of building roads, fixing hospitals, harbours, sewage systems and so on in no time.”
The problem is getting approval for the technical specifications for these projects from incapacitated municipalities. “They don’t understand the technical specifications so they’re forever postponing.”
The latest Afrimat construction index released a week ago is “unbelievable”, he says.
“The value of building plans passed is dropping like a stone. It’s terrible, it shouldn’t be like this. You need a consortium of experts who can advise, assist, help with mentoring, to get building plans out quicker. It is frightening how long many of them just lie around. You can’t wait years to get approval for a project that will create 15 jobs because municipalities don’t have the right skills.
“The GNU will need to put all ideological constraints on the speed of delivery on the back burner,” Botha says.
“If there are not enough qualified black engineers in South Africa that shouldn’t stop us from fixing roads and hospitals and water treatment plants. This is happening, and it’s crazy. BEE needs to be put on the back burner until we fix infrastructure.
“Job creation is what the GNU needs to think about, not BEE. The most effective way to combat poverty and inequality in South Africa is to create a job.”
He believes if the GNU delivers, “South Africa could be en route to a 4% growth rate by 2026, and BEE will die a natural death.”
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