MARSHALL PLAN FOR TURNAROUND
CYRIL RAMAPHOSA: Future hinges on balancing demand stimulus with public-finance control
Steps must be taken to restore confidence and remove obstacles to investment to pave way for job creation
As SA works to turn its economy around, it should balance two potentially competing objectives: it should stimulate demand to increase economic activity and bring its public finances under control to avoid a debt trap and the related loss of policy sovereignty.
If the country can boost demand in the economy, through restoring confidence and removing obstacles to investment, it will begin to create more jobs, improve consumer confidence and lay fertile ground for further investments. SA should also increase the number of foreign tourists and expand the quantity and quality of exports to a wider range of trading partners.
It should stabilise its public finances by cutting back on expenditure and increasing certain taxes. This process of fiscal consolidation will have the undesirable effect of damping demand in an economy that is already suffering the effects of a prolonged period of low growth.
The surest way to counter the effect on growth of fiscal consolidation is to stimulate new sources of demand through boosting private sector investment. SA should take active steps to ensure that, over the next few years, it brings much-needed dynamism to the economy by unleashing a large new wave of private sector investment.
This will require SA to act boldly to remove political and policy uncertainties, root out corruption and reassert the positive, long-term fundamental strengths of the economy.
This macroeconomic vision for SA will be more readily fulfilled if the country undertakes a range of complementary microeconomic reforms. These reforms will be best identified, discussed and agreed to by social partners from the government, labour, business and communities. They should form part of a new deal capable of unleashing the country’s competitive and entrepreneurial energies.
SA urgently needs to break the ongoing deadlock over the regulation and transformation of the mining sector. The country enjoys world-class mineral resources, but these resources are not being properly utilised.
It is imperative that the country begins to achieve increased levels of mining exploration and investment, as this will assist it in creating jobs and boosting export revenues.
After years of de-industrialisation, the manufacturing sector needs specific support measures. The country should improve its tax incentives for research and development, energy efficiency, small manufacturing enterprises and special economic zones.
SA must seek to boost manufacturing exports through better management of port tariffs and through plans that integrate manufacturers into global production processes. Efforts must be made to emulate the industrial policy success of the motor industry in other industries, while expanding the number of black industrialists producing high-value manufactured products for domestic and international customers.
To boost demand for manufactured products, SA must strengthen its "buy and build local" campaign through strict adherence to government local procurement policies and by placing positive pressure on businesses and consumers to be more proudly South African in their choices.
Within the rules of the World Trade Organisation, SA must use the government’s procurement muscle to bolster manufacturing, while targeting specific items where the country can replace imports with locally produced goods.
SA will need to review all regulatory requirements on start-ups to encourage entrepreneurship, increase innovation and accelerate growth. Similarly, the country must reduce the cost of doing business for all enterprises, especially for smaller firms and township businesses.
Land redistribution has to be accelerated, in combination with systems that improve land productivity and support for farming activity by black commercial farmers.
Greater investment is required in irrigation, and support needs to be given to small-scale farmers to assist them in gaining profitable access to markets for their products.
SA’s tourism potential is world-class. The country must strive to increase the number of visiting tourists by millions each year.
To unlock the country’s vast tourism potential, visa requirements should be simplified, marketing efforts should be expanded and the safety and security of tourists must be regarded as paramount. It is critically important that more black South Africans are empowered to participate fully in owning and managing tourism assets.
SA’s services sector — including financial, consulting and professional services — enjoys very strong capabilities. Vast potential exists to grow this sector both internally and through expansion into other countries, particularly the rest of Africa.
Continued expansion of the services sector — as well as building stronger links to the productive sectors of farming, construction, mining and manufacturing — is a priority, as is the transformation of this sector to ensure growth opportunities for black South Africans.
The uncertainty hanging over the country’s solar and wind projects must be removed. SA has world-class renewable energy resources, which means that the country can be positioned aggressively for energy-intensive investments based on its green energy advantage.
Good governance must be urgently restored at all state-owned companies, whose networks and services are crucial investment enablers. An immediate task is the appointment of boards and executives who are skilled and experienced in a mix of relevant disciplines, have impeccable credentials, are incorruptible and are committed to public service and transformation.
Where needed, state-owned companies must be restructured and more effectively regulated in order to take pressure off the fiscus and improve efficiency, competition and social outcomes.
Attention should be focused on improving the delivery of public services.
Recent statistics on the reading competencies of young pupils are most troubling, providing a clear signal that the standard of basic education should be urgently improved. Similarly, the quality of public health services needs to be tackled urgently.
Unless the functioning of the developmental state is repaired, the country will not be able to transform the lives of its people.
The public sector cannot, on its own, lift investment to the National Development Plan target of 30% of GDP. Rather, the public sector must shift much of its focus to creating an investor-friendly environment and installing infrastructure that will crowd in a large increase in private sector investments.
It is within the country’s powers to rebuild confidence, particularly because much of the prevailing negativity is the result of political and policy uncertainty. A restoration of confidence is the quickest and cheapest form of stimulus available, especially in light of fiscal constraints.
The country’s history requires many decades of corrective action to transform its society and ensure greater race, class and gender equality.
Once effective and clean governance is restored, SA will be better placed to implement a reform programme that will stimulate growth and investment, create jobs and accelerate the transformation of its society.
• Ramaphosa is deputy president of the ANC and SA and an ANC presidential candidate.