ANTON BAUMANN AND MARK FITZJOHN: Growth, empowerment, capacity, and future opportunities

With SA grappling with a weakened economy and recessionrisks, significant fiscal red flags have been raised in the 2023 World Economic Forum Global Risk Report. The five top threats in the opinion of SA executives and experts who took part in the survey include state collapse, the debt/fiscal crisis, demise of services and public infrastructure, the cost-of-living, and the high unemployment rate.  

These concerns about the state of SA’s economy have resulted in growing calls for black economic empowerment (BEE) to be scrapped due to failure of implementation. Though this is hard to dispute, BEE remains an emotive topic because the need to provide economic redress remains as pressing as ever.  

BEE has experienced an erosion in credibility because of its failure to uplift the policy’s intended beneficiaries. It hasn’t necessarily failed because it’s a bad policy, but because it has been poorly implemented. President Cyril Ramaphosa recently defended the policy, arguing that economic redress can’t be left to the markets and that BEE is still needed to bring black people into the mainstream economy. The BEE policy must be preserved but could do with better checks and balances to its implementation.  

In addition, the private sector could do better in embracing the elements of BEE that support small businesses and grow the middle class, such as through enterprise and supplier development (ESD). The ESD element, which encourages corporates to fund black businesses or procure more from 51% black-owned companies with revenues not exceeding R50m, is critical to growing SA’s middle class and developing small, medium and micro enterprises.  

There are solid international frameworks and successful case studies of nations that corrected historical wrongs and provided economic redress through these types of policies. These frameworks and examples need to be revisited if BEE is to regain credibility. For one, BEE could be considered in the broader context of environmental, social & governance (ESG) considerations.

These have moved beyond being faddish to becoming essential to the global business environment. ESG is now intertwined in financial decisions, brand identities and organisational mission statements. Across Africa we are seeing a rise in ethical investing. The JSE recently delivered climate and sustainability disclosure guidelines and there are several exciting ESG developments happening across the continent.  

At the start of the year Bloomberg asserted that there’s a boon for the data-minded in the climate and energy world. For the past four years climate tech has represented 20%-30% of total venture investment. Climate tech in 2022 saw an 89% increase in year-on-year venture capital, according to HolonIQ, with more than $70bn invested from January to December. That’s quite something given that 2022 was a dismal year for global venture capital funding in general — down 42% in the first 11 months of the year compared to 2021.  

Meanwhile, the EU’s Carbon Border Adjustment Mechanism (CBAM) is awaiting confirmation for adoption before coming into force in October. The coming months will provide some insight into the effect this policy will have on domestic industry and international trade, but because SA is a carbon-intensive economy (due to reliance on coal for power), CBAM puts our export-focused industries in a very vulnerable position.  

CBAM provides further impetus for new investment into the green energy sector. SA has abundant solar and wind resources, as well as 80% of the world’s known platinum metal reserves needed to make green hydrogen. This is an exciting new industry holding significant promise to help meet the reduced-emissions global energy demand. The primary markets for green hydrogen could likely be the EU and the UK, which are already invested in SA through the Just Energy Transition Plan. In June 2021 Germany, through its development bank KfW, launched a €200m (R3.9bn) concessional financing initiative to help develop SA’s green hydrogen industry. This is a space worth watching. 

To realise these opportunities will mean increased capacity building. The private sector has expressed frustration at government’s lacklustre approach to working with it to solve the country’s challenges. Furthermore, Business Unity SA (Busa) CEO Cas Coovadia and Business Leadership SA’s Bonang Mohale have called for increased collaboration for public-private partnerships (PPPs).  

“There are parts of government that still ideologically don’t trust the private sector. There are parts that want to control as much as they can without having the capacity to do anything good and optimal in controlling stuff. And yet the resources and capacity lie in the private sector,” Coovadia recently said.  

There is no doubt that SA’s private sector has the answers, resources and expertise to help fix the current economic issues and catalyse growth for future generations. Like Singapore, which for 40 years focused on driving “meritocracy, pragmatism, honesty”, SA would do well to focus on three similar priorities in the coming decades.  

The good news is that there are signs of policy changes that will help unlock growth in future. According to Intellidex MD Peter Attard Montalto, there were surprising gems in the National Treasury’s 23/24 budget. He sees National Treasury’s push to establish a PPP mechanism for energy transmission as the single most important part of the budget because transmission is the major constraint to ridding SA of load-shedding.

In addition, the announcement that the Treasury is planning legislation to remove regulation 16 of the Public Finance Management Act (PFMA), which governs PPPs, and replace it with a risk-based framework (depending on deal size) is good news for the private sector. This may well assist in transforming capacity problems at all levels of government to move infrastructure development forward far faster. 

Greater partnership and collaboration between all sectors of society would make it possible for SA to move from fighting fires and just surviving to thriving. The Basic Income Grant (BIG) — and current discussions on the shape and form it will take — are important considerations as the nation looks to the future. A BIG is a worthy aim for a caring and sustainable society, but it must be underpinned by economic growth.   

Government may well decide on a BIG, or a variation of it, as a policy choice and goal. The risk lies in putting spending before more sustainable revenue growth is achieved through reform-intensive growth. As such, a BIG might only be sustainable over the longer term where the proceeds of such reform-led growth can be progressively shared with those most in need. 

There is widespread support for the BIG, even among opposition parties, but with the caveat that it must be underpinned by economic growth and tighter border controls. With the rapid advancement of technology, particularly artificial intelligence (AI), it is possible to deploy digital self-sovereign identities to help thwart corruption and ensure only legal citizens have access to a BIG. The BIG could also be used to encourage responsible citizenship if it is linked to certain conditions such as volunteering, study programmes and completing secondary education.  

The Treasury has sounded a warning about the fiscal risks of replacing the Covid-19 social relief of distress (SRD) grant with an unaffordable alternative, which would affect the sustainability of public finances. The Treasury has allocated an extra R36bn to maintain the SRD grant in the 2023/2024 fiscal year, but the grant size is unchanged, meaning inflation will eat into its purchasing power. 

“Doing good” in financial terms doesn’t have to be unsustainable. There are strategic ways in which sustainable and socially impactful investments (in the private sector) and regulations and government policies (in the public sector) can be structured to encourage growth, multiply further development and produce great returns. We believe it’s not only a responsible avenue, but one of the few avenues available that boost economic growth. 

• The authors are executive directors of Empowerment Capital.