Nicky Weimar, the Chief Economist at Nedbank, identifies five actions for government to prioritise to potentially change the outcome for South Africa and put the country on a better footing to stage a strong recovery. These actions would also prove to local and global investors that South Africa is serious about restructuring.
1: Root out corruption and restore accountability
Corruption has flourished and funds have been siphoned off for the benefit of a few politically connected individuals for more than a decade. This has done an enormous amount of damage to our institutions and SOEs, which provide the bulk of our economic infrastructure. The result is a long-term burden for a very narrow base of taxpayers with an economically destructive outcome. The first deliverable is for government to reform the tender system. No relative of a government employee or politician should be allowed to do business with the government and tenders must be awarded based on price, quality and capacity. The second deliverable is for the NPA to act on the evidence of the State Capture Commission. The hard work has been done and we must take those responsible for a decade of grand theft to court.
2: Deregulate the energy market
If we want to grow, we have to fix the electricity situation. Our economy is probably going to contract by 8%, the steepest contraction we’ve experienced since the Great Depression. We face an increased likelihood of Eskom stage 2 loadshedding until late 2021, which eliminates any possibility of a convincing recovery. Reliable and cost effective electricity is a critical enabler for growth, fixed investment and job creation. If we don’t create jobs, we don’t create taxpayers. The solution is to stop protecting monopolies and open up the sector to competition.
3: Provide absolute certainty on private property rights and land reform
The notion of expropriation without compensation (EWC) has undermined confidence in the South African economy both domestically and globally. Property is probably cheaper than it’s ever been and interest rates are at near record lows, so the property sector should be taking off. Yet this is not happening. Uncertainty around the implications of EWC is hindering responses to low interest rates and price signals.
4: Stare down the public sector unions
Government’s finances have deteriorated dramatically. Level 5 lockdown, which was the strictest in the world, resulted in devastating consequences for government and the economy. The outcome is that government revenue will implode and result in a sharp acceleration of government expenditure and will be the challenge in the years ahead. Government will have to bring the budget back in line with the size of the economy. The deficit is going to be just more than 15% of GDP in 2020 and around the 10% level for the next two years. Government needs to grow the economy and cut government spending starting by bringing the public sector wage bill under control. It will require facing down the unions and will be something they have to win.
5: Minimize the unintended consequences of regulation and legislation
We also need to re-look our regulations. It’s been one of the most damaging elements of the South Africa economy. Red tape regulations are very onerous. Compliance costs alone are very expensive and a lot of our regulations have unintended consequences. It either raises the cost of investing in South Africa or adds to the risk, undermining confidence in the economy. The key questions for regulators include: Does it serve a purpose? Does it carry any costs, such as distorting prices, raising barriers to entry, facilitating corruption, raising the cost of investment to the private sector or adding to the risk and deterring investment? If the benefits outweigh the costs, try to minimize the costs and if the costs outweigh the benefits, scrap the regulation quickly.