Ramaphosa’s stimulus plan: just what the economy ordered
SA’s economic recovery plan removes some obvious blocks to investment but a policy overhaul is needed to sustain rapid growth
President Cyril Ramaphosa’s economic stimulus plan is just what the economy ordered and just what business has been waiting for.
Almost all organised business’s immediate demands were met, including the promise of accelerated infrastructure spending; joint project execution; lower logistics costs; a simplified visa regime that welcomes highly skilled immigrants; and telecoms and mining reform.
These reforms should boost business confidence and stimulate growth and investment if implemented urgently and with vigour.
Not only does the package show the government is finally listening to business, but that it has given up the notion that the state has the capacity to fix the economy on its own. Under former president Jacob Zuma the state regarded business as an irritant; under Ramaphosa the private sector is being embraced as a partner.
To achieve this, R400bn (about half of existing medium-term public infrastructure spending) will be centralised in the presidency in a new SA Infrastructure Fund. The private sector will be invited to enter into partnerships with the government in how this money is spent.
It’s not just more funding the state is looking for but also the expertise to help it address its most glaring deficiency — the lack of capacity to prepare and execute projects.
For Jabu Mabuza, co-convenor of the CEO Initiative, the new infrastructure fund "presents an opportunity to effect tangible change" by allowing the private sector to partner government. He is pleased by the intended reforms to the visa regime, the finalisation of the mining charter and scrapping of the mineral resources bill, the plans to lower data costs by allocating radio spectrum, as well as the review of port, electricity and rail tariffs.
"While many challenges remain, these measures would go a long way towards making our economy more competitive," Mabuza says.
Business has also welcomed Ramaphosa setting up a 10-person advisory panel to help resolve the issue of land expropriation.
Since the panel includes economists, academics, lawyers, farmers and other technical experts, it should tilt the debate away from emotion towards evidence-based research. Its mandate is to advise Ramaphosa on how to execute land reform in a way that redresses past injustices without sacrificing economic growth and food security.
Given how much business stands to gain from the package, it is surprising that its reaction hasn’t been more effusive.
Business Unity SA (Busa) CEO Tanya Cohen welcomes the fact that the government is listening to business’s concerns and is showing an appetite to do things differently but is only "cautiously optimistic" that the plan will get SA into first gear. She notes that the package has prioritised some of the most pressing policy blocks to investment, saying "the planned revisions to the onerous visa regulations and renewed focus on prioritising highly skilled foreign professionals are excellent initiatives that need to be implemented with speed".
In addition, she feels that the focus on infrastructure development could have a positive effect across many industries, including the struggling steel sector.
However, Busa doesn’t expect the package to be a panacea for SA’s economic shortfalls, warning that much more needs to be done to get the economy on a growth course.
Part of the reason for caution over the new plan is it is really just an ad hoc package of headline measures, somewhat light on detail, rather than a deep overhaul of economic policy.
Moreover, there is no new money to stimulate the economy apart from funds that may be leveraged from the private sector and other multilateral institutions for specific infrastructure projects.
The R400bn for infrastructure will come from consolidating existing budgets while the R50bn that will be targeted at agriculture, rural and township economies will be taken away from activities that have less impact. The details of which sectors will lose out will be revealed in the medium-term budget on October 24.
While Ramaphosa’s refusal to breach the expenditure ceiling is as welcome as the package itself, it does mean that any additional economic stimulus to be gained from the infrastructure spending will depend on the extent to which state delivery can be expedited.
"What is encouraging is the implicit acknowledgment that certain policies have damaged the economy and need to be addressed," says Nedbank chief economist Dennis Dykes. "What is unclear is whether the detail in the solutions will actually meet these goals. What was missing was a comprehensive diagnosis of the economy’s structural woes and a broader plan to address these deeper problems."
He warns that the plan provides only "topical medicine" to much deeper structural problems.
"To move to a sustainable higher-growth path, regulatory costs need to be reassessed and addressed and more private sector involvement and business-and investment-friendly policies need to be designed and implemented as soon as possible."