The three Ls that have put SA on the road to hell

Localisation, local government, and load-shedding.  They all begin with an “L” — and they all spell trouble for SA’s future.

Despite decades in power, the ANC is presiding over one of the worst energy crises in the world, while municipal distribution of power, water and other basic services is sending some communities back by centuries, to a time when pit toilets, lanterns and candles, and carrying water from the river, were an accepted part of daily life.

Meanwhile, regular readers of Business Day will be aware of the burning debate over the merits of the department of trade, industry and competition minister Ebrahim Patel’s messianic belief in the localisation of production, regardless of practicality or the economic cost to the consumer. 

Load-shedding

Load-shedding is an innocuous term, which is presumably why Eskom wants us all to use it. These years of underinvestment in SA’s power utility have been a betrayal of the customer, and Eskom’s electrifying indebtedness is a betrayal of the taxpayer.

The power crisis is the biggest brake on SA’s economic development, and it has arisen not because a white man is Eskom’s CEO but because successive ANC governments have turned their backs on the need for sustained and constant investment in power generation.

No modern economy can thrive on unreliable power. It is surely an indictment of our electricity utility that the mining houses have announced they plan to spend R60bn on renewable energy — because they cannot rely on Eskom.

With squabbles inside the cabinet between those who see the need to phase out coal-powered generation and energy minister Gwede Mantashe, who thinks coal should remain king, it is difficult to see the way forward unless our president can conjure up another important “L” — leadership.

Renewables will help if their introduction can be accelerated, and gas — and maybe nuclear — must also play an important part in the interim. We saw at the COP26 meeting that there is plentiful international funding available for the energy transition in SA, and it is to be hoped that these funds can be realised without too large a percentage being siphoned into the back pockets of corrupt cadres.

In the meantime we need more positive signals from government. Why are there such high, discriminatory taxes on electric vehicles when these are clearly the future both in SA and in our vital auto-export markets? Two things are certain: death and taxes. A third certainty is that unless auto taxes are reformed, they will kill one of our highest-value export sectors.

Presidential posing in a new hybrid Toyota during a recent visit to riot-battered Durban won’t help much; making such hybrids, electric vehicles and those powered by fuel cells more affordable would be far more welcomed by those who seek action rather than grins.

Localisation

Protectionism, like Covid-19, is everywhere.  We have seen it for many decades in the agricultural policies of the EU and the Americans, in the hidden barriers to the flow of goods that infest Africa, in the huge tariffs and red tape, which act as a barrier around so many economies. And, whether Patel, our minister for (restricting) trade, likes it or not, localisation at its extreme is just another name for protectionism.

Of course, there are times when it makes sense — no reader of Business Day’s daily letters section can be ignorant of the raging row over poultry products, which the Brazilians, the Europeans and others have been dumping in our market at absurdly low prices, putting our own producers in peril.

In general, agriculture is highly protectionist and subsidised around the world, and we need to look after our own. One or two other sectors may be in the same boat, but one cannot swim against the tide in all sectors. Despite this, government has designated product after product — dozens of categories — which it insists the state must purchase only from local producers. 

Where there are local skills and capacity and the cost disadvantage is not too high, this policy can be defended. However, this is not always the case, and a drive to pressure the private sector along a similar protectionist path to that of state procurement is gathering steam.

Patel and his disciples should be more aware of the consequences — everyone else is tempted by protectionism, which is as addictive as tik, and we cannot expect to send our goods to countries in the volumes we would wish to when we are severing the flow of imports. 

There is a lot of tit-for-tat in trade, and trade flows must go in both directions or the global economy will become unhinged. We won’t be able to sustain an auto industry unless we can continue to sell our vehicles into the European, American and other markets.

One component of SA’s localisation is black economic empowerment (BEE), which often adds to the cost structure of the process. Coal mines supplying Eskom have seen prices increase three times more than export coal in the 14 years of rolling blackouts, and today electricity costs have increased — when there is any electricity — from about 4% of mining costs to about 9%.

During this time Eskom proudly told us that more than 55% of all its purchases were from BEE firms. Of course, our (majority black) households paid for this in the form of high prices, while the country’s per capita income was lower in 2019 than it had been in 2014.

While there is a convincing historic case to be made for BEE, we have seen in the past the corruption it has fostered, and at some stage SA may need to wake up to the danger that the pendulum has swung too far.

Let us laud and celebrate black entrepreneurs who can thrive and flourish in a free market, while watching to ensure that rent-seekers are not driving up costs because the alternative suppliers are judged to be too white.  However beautiful black indisputably is, a rainbow nation’s economy needs many colours.

Local government

Say what you like about our national government, and there is no shortage of things to say, it does work a lot of the time. There have been obvious exceptions with entrenched corruption, wayward ministers, and our past president, who we may not be able to keep in jail but whose enrichment of himself and his cronies has richly earned him a place there.

However, looking around the country, an efficient, effective, well-run and impressive local or municipal government is much more elusive. At their worst, local authorities are depriving citizens of clean water, efficient sewage treatment, electricity distribution — and don’t get us started on pothole repairs and reliable refuse removal.

In those areas where dairies are threatening to move their entire operations elsewhere the danger signals must be noted, and better management must be found. And as for value for money, Eskom CEO Andre de Ruyter told the recent Manufacturing Indaba that electricity markups by municipalities can be as high as 161%.  What a disgrace.

This has driven an increase of 230% in Eskom debt that is three months outstanding. This is even though R181bn has been written off over the last decade. Imagine how much investment in guarding against climate change that sum could have purchased.

With the world’s highest unemployment rate, despicably low education standards and endemic corruption — which we saw most recently in the procurement of life-saving personal protective equipment and other Covid-combating goods, and the dispersal of Temporary Employer Relief Scheme grants for furloughed workers — it is time for our leadership to promise less and deliver more.

Unless the leadership vacuum is addressed, the nation-scarring “Ls” will mean the decline will just continue.

• Schussler is CEO of Economics.co.za. Fraser is a business writer and broadcaster.