THE government’s mooted economic recovery plan, now set to serve before cabinet after being presented to the National Economic Development and Labour Council (Nedlac), is unlikely to take off unless government is prepared to make tough choices and trade-offs, a process which requires political will and taking on vested interests in the short term.
“The overarching goal of any new economic recovery plan for SA must now be to build confidence and place the economy on a path of investment and job-rich growth post-COVID-19,” Professor Raymond Parsons of the North West University Business School told Inside Politics.
“The policies and projects in any such plan must promote a stable macro-economic environment for investors, workers and consumers in the period ahead,” said Parsons.
The first challenge government must address is whether they share the same vision as business. Judging from the ANC’s Economic Transformation Committee Post-COVID-19 economic recovery plan Reconstruction, Growth And Transformation: Building A New, Inclusive Economy as well as Business 4 South Africa’s initial analysis of post-COVID recovery, released at the start of the lockdown, there seemed to be some distance between business and the ruling party.
The problem was that the ANC appeared to be presenting a wish list and some ideas, without a clear plan of how these are to be implemented.
Key among these ideas was the party’s desire to see pension fund assets being used to fund any recovery.
But without a promise of superior returns, or a carrot, or legislation to compel pension funds to invest in infrastructure, a stick, its unclear how the ANC plans to entice pension funds to part with their members money without causing an outcry.
Even National Treasury’s proposal Towards an Economic Strategy for South Africa contains proposals, now set to be implemented by Deputy Finance Minister David Masondo, that require him to win a series of carefully chosen battles between competing interests, especially those of new emerging sectors as well as labour, environmental or “traditional” sectors of the economy
Parsons says whether government chooses to accelerate infrastructural development, encourage small business or eliminate corruption, the proposed plan must have timelines which must be strictly enforced.
“A top priority for sustained economic recovery is security of electricity supply to underpin other reforms,” said Parsons, pointing to the urgent need to fix Eskom.
Parsons also notes that any plan must recognise the extent to which the economy was in dire straits even before the COVID-19 lockdown and now simply faces and an even bigger socioeconomic challenges if a sustained economic recovery is to be achieved.
“A cohesive growth plan must therefore also enable to private sector to strongly play its maximum role in job creation,” said Parsons.
One area that of of agreement is for the need to fix Eskom as being central to reviving growth, what may not be clear is how that is to be achieved.
Eskom is currently saddled with long term debt of R450 billion and owed R31 billion by municipalities and other entities.
The plan to break it up is in place has no time lines to it and the best way government proposes to fix Eskom’s problems is through lifting tariffs, which is regularly turned down by the National Energy Regulator of South Africa (Nersa) and asking Eskom to reduce costs, which may involve cutting jobs, which will be resisted in the current climate
The idea of making tough choices is not new.
When government released the New Growth Path, even before the adoption of the New development Plan, back in 2011, Business Unity South Africa argue then of the need to make tough choices and trade-offs, in some cases between directly competing interest such as Business and labour. Evidence over the past decade suggest that government makes these choices but do so subtly or being forced by markets.
The adoption of minimum wage may favour labour, but the effective limitation of the use of ballot to strike erodes labour gains at the expense of business.
Another tough decision that has already been forced upon government is to choose whether to raise more debt to finance consumption, or fund the budget deficit, or whether to spend on infrastructure.
Loans from the International Monetary Fund and the National Development Bank means that government has chosen consumption over infrastructure, which is required for growth
Nazmeera Moola and Duane Cable, economists at Ninety One Asset Managers also highlight the need for tough choices in a new research note.
The duo cites two examples of tough choices as being the need to abandon the South African Airways rescue plan, currently requiring R10 billion, as well as choosing to abandon coal in favour of renewable energy.
Moola and Cable point out that both choices will cause an outcry in the short term, most notably for labour in the two affected sectors but the decisions are what is required to lift long term growth.
The other big challenge that the plan may face is that government limits itself on the areas that are open for debate.
An example of this is Monetary Policy and the role of the Reserve Bank.
Government has not even raised the path and direction of South Africa’s interest rates or even asked why South Africa sits on R750 billion worth of reserves and cannot use some of these to fund its recovery.
In times of crisis, there should be no holy cows.
(COMPILED BY INSIDE POLITICS STAFF)