THE long-awaited Economic Recovery Plan unveiled by President Cyril Ramaphosa leaves a feeling that it will be good for the country, if it can be successfully implemented, yet even then may prove to be inadequate.
The first limitation it suffers from is its impact on growth.
This Economic Recovery Plan will, apparently, bring our economic growth up by 3% per annum in the next 10 years. But as the National Development Plan (NDP) notes, South Africa needs growth of between 5% and 7% to make a difference to its mountain of unemployment.
Yet under the circumstances, any growth will be welcome.
Ramaphosa notes that government looked at 54 areas of possible intervention, which were then narrowed down to the eight that were presented to Cabinet Lekgotla and whittled down to the four that were announced.
The first area is infrastructure, which represents the best pillar and the best hope for a way out for South Africa.
Ramaphosa announced that there will be R1 trillion invested in infrastructure over the next four years.
In June this year, at the launch of the Sustainable Infrastructure Development Symposium (SIDS), government announced there were 276 infrastructure projects that are under development.
The projects were gazzetted with an investment value of R340 billion in July.
Housing alone accounts for R130 billion of the amount and the investment will see the delivery of 190 000 housing units from projects such as the recently launched Mooikloof project launched in Tshwane.
The President also announced that highways, rail, and major roads – include the N1 Polokwane and N1 Musina – will undergo a R1.3 billion modernisation upgrade.
The R1 trillion investment will mobilised through SIDS, located in the Presidency, as well as the Infrastructure Fund, located in the Development Bank of Southern Africa (DBSA), which is to spend R 100 billion over the next few years to unlock private sector investment.
The problem with South Africa’s infrastructure investments is that it has moderated in its ambition.
We no longer take on mega projects of R100 billion such as the Medupi Power Station, as if we have been put off by the cost overrun and design problems that have seen the power station fail to fully come on stream even now.
In the five years since spending on Medupi has tapered off, government contribution to investment or gross fixed capital formation has almost collapsed, with private sector investment surprisingly holding steady in the period.
This week, the Public Protector Busisiwe Mkhwebane announced that her office is to start investigating the Moloto Rai Project, a project that has inexplicably stalled over the years, leaving commuters to use the notorious Moloto Road.
The second area is electricity generation with the country SA is looking to increase renewable energy capacity by 11 800 MW to its grid.
Government aims to connect an extra 2 000 MW to the grid by June 2021 and another 2 000MW of emergency supply to be added in 12 months.
South Africa’s pursuit of the renewable energy risks locking the country on a higher cost energy path, with Eskom locked to Independent Power Producer (IRP) contracts at prices higher than it produced electrify from coal.
The third area of intervention Ramaphosa has vowed to create 800 000 work opportunities in the next few years, using R100 billion.
This includes 60 000 new positions in construction.
More than 6 000 jobs will be created for community health workers and nursing assistants.
Ramaphosa revealed that the government will create 300 000 opportunities for young people to work as education and school assistants, helping teachers with basic schoolwork at 23 000 schools in SA.
In reality, the R100 billion fund is being used to create jobs similar to the Expanded Public Works Programme (EPWP).
The 800 000 jobs being touted will not even replace the 2.2 million lost over the past quarter and they are essentially job opportunities, defined as a minimum of four hours of work per day, temporary in nature and with no benefits.
Hardly what the ANC would consider a decent job.
There is also an ambition to buy local, including 40% procurement spend on township business as well as on women owned business. South Africa has had a Proudly South African campaign to encourage localised purchased for well over a decade, and what it has shown is that spending on local produced goods is driven by price, quality and service rather than sentiment and once again, government will ned to demonstrate what it will do differently.
The third area of intervention is the boost to industrial growth.
“This is in the context of a steady decline of our manufacturing base over many years,” Ramaphosa said.
“To place our economy on a new trajectory, we are going to support a massive growth in local production and make South African exports much more competitive. We will build on the work that was being done in several areas before the pandemic struck.”
It is not clear what government aims to do differently now The Industrial Policy Action Plan, launched in 2009 by former Trade and Industry Minister Rob Davies has now gone through ten iterations and from an initial four identified sectors, it has since evolved to cover virtually every industrial sector and apart from the incentive driven automotive sector programme, it has little to show in manufacturing jobs created or sustained.
One of the disappointing, in fact shameful, aspects of the COVID-19 countering strategy has been the R200 billion loan guarantee scheme announced as part of the R500 billion rescue package.
Ramaphosa confirmed that only R 16.4 billion of that amount has been lent out and he has had strong words with leadership of banks that he believes they can and should have done more.
The scheme now feels like a scam, with a design flaw which ensured that most businesses which needed assistance would not qualify for it.
Banks have insisted on helping businesses which are in good standing and were self-sufficient before the pandemic. What this means is that the money ended up reaching people who would have qualified even if the scheme had not been put in place.
The SA Reserve Bank tweaked the criteria to remove the revenue threshold from R300 million revenue to unlimited to increasing the payment holiday from three to six months.
But even that has not been enough to broaden the beneficiary base, and banks point out that the Reserve Bank simply stated hat if they lend to high risk clients that guarantee will not be covered.
So the R200 million of the R500 million has barely been touched, of the remaining R300 billion, about half or R160 billion is from reprioritised spending, which means only R140 billion is new money.
Of that, R2 billion was flushed down the drain in PPE tender corruption.
There really was no help for the SA economy.
Yet Ramaphosa took time off to praise the Reserve Bank for its “swift action” during the pandemic for its 275 basis points rates cut and purchase of government bonds.
Yet the Reserve Bank is sitting on a 3,5% cushion for further cuts and its bond programme was at its strongest in April and has since petered out.
And the bank is sitting on R900 billion in reserves unused.
What it now feels like Ramaphosa should have done is instead of approaching International donors to assist with COVID emergency spending, Ramaphosa should have sought to raise R1 trillion and pledge the country’s reserves as security and use the money spend on infrastructure and turn South Africa into the Sub Saharan Africa’s export and growth anchor, generating sufficient growth to pay bac the money over twenty years.
The biggest risk with that approach would have been the amount lost to corruption or a failure to properly implement reforms, which would leave South Africa a poor highly indebted country.
That is an alternative we cannot afford.
(COMPILED BY INSIDE POLITICS STAFF)