South Africa: In His Policy Paper, Mboweni Demands Urgent Action to Improve and Grow Economy
By Marianne Merten
Finance Minister Tito Mboweni’s economic policy document has a snappy 30-word summary of where the country finds itself:
“South Africa’s current economic trajectory is unsustainable: economic growth has stagnated, unemployment is rising, and inequality remains high”.
What to do about it takes up most of the 75-page paper headed Economic transformation, inclusive growth, and competitiveness: Towards an economic strategy for South Africa that Mboweni released on Tuesday for public comment by mid-September 2019. That’s about five weeks before the Medium-Term Budget Policy Statement (MTBPS), or mini-Budget, on 23 October.
But it’s the politics behind the paper’s release that is more intriguing than the proposals, most of which have been previously bandied about in one form or another. Few, if any, of the proposals would be unfamiliar to those who have followed Mboweni’s economic commentary, including critiquing poor education outcomes, as recently as his Budget vote debate speech on 11 July.
Instead, Tuesday’s release for the economic strategy and reform paper is about politics — and behind-the-scenes contestation at the highest levels in the governing ANC.
Daily Maverick has learnt the final decision to release this paper was taken just a few hours before it was released.
It’s a decision that came five days after Minister in the Presidency Jackson Mthembu had told reporters that Cabinet, at its next meeting in two weeks, would discuss a special paper on Eskom by Public Enterprises — and a paper by National Treasury on the economy:
“Yes, there will be a paper on Eskom. Yes, there will be a paper on the economy, inclusive of public finances. All these things will come as a package for discussion,” said Mthembu on 22 August during the briefing on the Cabinet meeting a day before.
The finance minister is understood not to regard that National Treasury paper necessarily as a Cabinet “secret”, but rather a matter that should be discussed by all South Africans, given the precarious state of the economy.
Tensions simmered over who was producing what paper. At the heart of this was Eskom, which with its R450-billion debt is described as the biggest risk to South Africa’s economy. In early July, National Treasury indicated it was ready with a special paper to accompany the Eskom Special Appropriation Bill that would have allocated another R59-billion over two years to the troubled power utility. That did not happen when Mboweni introduced the bill in the House on 23 July.
Neither on that day did the announcement come on Eskom’s chief restructuring officer (CRO), promised since February’s State of the Nation Address, as Mboweni had indicated in introducing the bill to the House. The announcement was finally made a week later by Public Enterprises Minister Pravin Gordhan at the official release of Eskom’s financial results, including a R21-billion loss.
In recent months Mboweni and Gordhan did not always seem to be on the same page. And the release of the National Treasury paper is another twist in what appears to be an intra-Cabinet disagreement.
“Incendiary, but marvellously evidence-based” was how Intellidex analyst Peter Attard Montalto described the paper.
“The fact that it has been published a week before it was due to be presented to Cabinet is the main signal here. National Treasury is clearly fed up with the slow movement on reform…”
Over 62 pages — the other pages are references, indicating pernickety research — the economic reform discussion paper sets out key interventions, broadly speaking in boosting network industries — water, transport, telecommunications and electricity — lowering the barriers of entry and the cost of doing business, prioritising labour-intensive sectors such as tourism and agriculture, more flexible industrial policy and greater export competitiveness, also to make better use of regional opportunities.
The “core assumptions” define short- medium- and long-term over two years, four years and seven years for interventions to have an impact. The discussion paper is using the language of “shocks” to indicate effective, transformative interventions impacts.
Short-term interventions that could add an additional 0.5 percentage points to projected growth rates are:
Tourism, via boosting visitor numbers by changing the visa regime and relaunching the SAPS tourism safety programme;
Agricultural growth through better marketing and exports; and
Telecoms reforms such as the release of additional broadband spectrum.
The medium-term centres on transport reforms such as improving public transport driven by local government level:
“Local governments should take responsibility for the integration of public transport and land use planning,”
the paper says — and third-party access to the rail network and transport regulations. Further telecommunication interventions would boost growth potential based on, among other measures, reduced prices that in turn would impact education to improve outcomes there.
Or as the paper puts it in that inter-connected policy cohesiveness throughout:
“Expanded and affordable access to information and educational resources is expected to lead to some improvement in the quality and throughput of secondary- and tertiary-educated labour, but not enough to address the skills constraint”.
More needs to be done on that front.
Over the long term, agriculture continues to play a key job- and growth-boosting role on the back of innovative financing for farmers, both existing and emerging, as well as innovative insurance products. Key to this would be tenure security — the paper is critical of traditional leaders, who act like “election brokers” — and the need to explore joint ventures in areas such as agro-processes, but also opening up rural markets.
Not all reform proposals are slotted into a time frame, but it would make sense to pursue them as speedily as possible. This would, for example, cover concrete proposals to lower the cost of doing business. The paper raises reforms, from making development finance more readily accessible to new entrepreneurs, to better communication about available government incentive programmes, to legislation such as the reintroduction of the Red Tape Impact Assessment Bill that would require all departments to reduce red tape by 25% over five years.
Not all, or even most of proposed reforms are out-of-the-box new. Leveraging the state’s procurement spend and talk about lowering the cost of doing business have been around for some time.
The document echoes sentiments by Mboweni, who in his maiden Budget raised the prickly question of whether SOEs that were not performing should be kept. His July Budget debate vote also emphasised the need for policy certainty from the government, security of electricity supply, getting state-owned entities (SOEs) properly managed and streamlining government services, while making it easier to do business in South Africa.
But seldom has government put proposals so succinctly into policy language, including the job-creation potential of independent power producers, the possibility of private households that went off-grid due to high electricity tariffs to sell any spare power back to the grid, and the requirement for a regularly updated Integrated Resource Plan (IRP). Coincidentally, the latest IRP draft, dated 2018, has yet to be approved by Cabinet; the whole plan already is effectively some three years out of date.
And in emphasising the need for Eskom’s restructuring, the paper also proposed
“government could take a decision that Eskom should sell coal-fired power stations, possibly through a series of auctions…”
The paper does not mince its words over the requirement for policy cohesiveness, co-ordination and the need for the state to reverse pursuing its own policies lackadaisically. This includes the 30% small, medium and micro (SMME) enterprises contracting, never mind paying suppliers, particularly small business, within 30 days.
Right at the start, the paper situates its reform proposal within the National Development Plan (NDP), South Africa’s blueprint to reduce poverty, joblessness and inequality by 2030, but none more so than in its demand for a capable state — and a genuine social compact between government, labour and the private sector.
“Government’s commitment to the compact must prioritise strengthening the capability of the public sector and SOEs as well as achieving the right balance between policy progress and certainty to ensure the economy is able to attract investment.”
The paper situates interventions and reforms firmly within a social justice perspective, even if National Treasury doesn’t use this terminology.
“A growth-oriented policy agenda must be accompanied by interventions that change how the benefits of growth are distributed and fundamentally transform the systems and patterns of ownership and control that govern our economy,” says the discussion paper, adding later:
“…(A)t the heart of our economic policy must be a concurrent emphasis on economic transformation, inclusive growth and competitiveness as this offers the most sensible strategy to address the challenges of unemployment, poverty, and inequality”.
Or more bluntly:
“Economic transformation refers to a rapid and fundamental change in the systems and patterns of ownership and control that govern the economy. The primary aim of this change in economic relations must be the creation of opportunities for all South Africans to live productive, prosperous, and dignified lives.”
Mboweni may be frustrated by interminable discussions in the ANC National Executive Committee (NEC), whose public statements may say it is focusing on the economy when in fact it struggles to move beyond the 2017 Nasrec ANC resolution to nationalise the South African Reserve Bank. And he may be frustrated by the snail’s pace of government amid carefully guarded turf.
With this paper, and in the manner it was released, the maverick finance minister that Mboweni is has thrown down the gauntlet to his own team, the governing ANC, to finally act. Not just talk.