Question: With so many economic priorities, what do you think the top three should be for our country?

Answer: We have learned from experience that producing long “to-do” lists does not lead to meaningful results. The top priorities should help the economy regain its productive base, and to escape from the middle-income trap which manifests itself in deindustrialisation, catastrophic levels of unemployment, economic exclusion and falling global competitiveness.

The many studies and plans that have been produced over time point to about four bold missions that can reorient this economy: i) infrastructure investment and delivery, ii) pursuing a just transition towards a green economy, iii) deepening regional integration with our SADC neighbours and the continent and iv) creating meaningful public employment that builds communities. If we can galvanise private and public resources around a small set of national missions, we would be able to build new productive capacity.

On the first mission, the case for infrastructure investment is well understood. Our existing base needs serious maintenance; many communities lack infrastructure and new investments in network industries would lift the economy’s efficiency.

The green economy, the second mission, represents both opportunities to adapt our economy to climate change but also to create new industries. Our excessive carbon dependence deepens the triple challenge as it is poor, black, women who bear most of the brunt of air and water pollution, extreme weather events like drought and the destruction of ecosystems.

When we talk of the green economy, there’s a lot of focus placed on renewable energy, but this is only part of the story. We should be thinking of how we move from import dependence on ‘fast fashion’ to build a clothing industry based on circular principles of efficient resource usage, sustainable materials and local production. We should be transitioning towards bio-plastics. We should be pursuing the full range of opportunities from ecotourism to energy storage, and we should do so with an eye to tapping the growing pools of international financiers looking for projects with both commercial and sustainable development returns.

The third mission locates our reindustrialisation effort within a $2.5-trillion dollar market. The continent, as a whole, wants to transcend its positioning in low value-added activities. It’s not enough to think each African country should industrialise to meet its domestic needs: even markets with large populations like Nigeria or Ethiopia have small economies by global standards. The rest of the world won’t suddenly make room for our value-added goods; we need to begin by trading with each other, and the African Continental Free Trade Agreement sets us on this path.

We also have to recognise that rebuilding our economy will not happen overnight. Yet we have many people whose livelihoods have been disrupted. Even before accounting for the impact of Covid-19, unemployment is dangerously high. Scaling meaningful public employment, building on successes of initiatives such as fire management, will provide a safety net for the most vulnerable households, whilst also helping to build infrastructure and provide services in the community.

We will know that we have nailed it if any businesswoman or schoolboy can tell you, these are the three or four bold things we are all going to push to change our economic fortunes. Anyone should be able to say we are developing our infrastructure, greening our economy, trading with our continent and rebuilding our communities. Or something like that. The prevailing “10-point plan” approach, with numerous conceptually unrelated goals lumped together, leads to confusion and dissipation of effort.

The key missions would be very few, national and cross-cutting, with action plans developed by social partners. But every sector in the economy needs to craft a multi-stakeholder plan that addresses its specific needs. The sectoral plan must be backed by government, labour, business and civil society. Sectoral initiatives are already well reflected in government’s five-year plan (the medium-term strategic framework) and many of them are driven through “Master Plans” developed in partnership with the relevant industry’s stakeholders. Where plans exist, stakeholders will have to re-examine them in a Covid-19 context.

The “national missions” and sectoral plans will not succeed if they are not underpinned by structural transformation reforms. Many have already been identified in the Economic Transformation, Inclusive Growth and Competitiveness paper adopted by Cabinet in 2019, following work that began as early as 2016 and included in various national budgets since then.

Q. How low do you predict it will go? That is GDP, unemployment and any A. other metrics you think relevant?

A. We engage with all credible forecasts that are produced within and outside the state. These have been changing as new information comes to light. The bottom line is that we are facing an economic crisis of a character and severity that we have not seen in our lifetime.

Q. Do you think we have or are likely to have a sovereign debt crisis?  

A. The supplementary budget makes it clear that government is committed to pursuing a fiscal and economic strategy that delivers manageable debt service costs. The national executive is also well aware of the fiscal risks that have been articulated within government for some time now, mostly related to the financial position of SOEs, the public sector wage bill, corruption and implementation risks on growth-enhancing reforms.

The Medium Term Budget Policy Statement will articulate the elements of the fiscal strategy. There is no magical pool of funds that will solve our problems. It’s going to take expenditure reviews, reprioritisation, clean spending, tackling illicit financial flows, fixing SOE finances, renegotiations, tapping concessional financing including financiers looking for SDG-aligned projects, asset-based financing and tax revenue measures to get us off the cliff. An analogy that comes to mind is that of a chef who brings various ingredients together into a delicious stew. And the chef sometimes has to share harsh truths – we might desire fresh oysters but for now, we have to make the most of the tinned fish in the pantry.

Q. What are the quick wins necessary to ensure a shorter contraction and a faster upswing?

A. Sharpening the implementation of the R500bn package (including improving take-up of the (public-private banks/government) loan guarantee scheme); working with social partners to manage the ongoing safe resumption of economic activity; getting a few large infrastructure projects going, and using public employment to keep people engaged and earning an income are important short term actions.

On implementation, we have to begin by making credible commitments. We need to improve state capacity, but we can do a whole lot more with the capacity that is in place.

A quick win is to clear the backlog of outstanding decisions. For example, the national executive could agree on a list of the top 10 to 15 outstanding decisions that have stalled economic activity, and over a period of six months, hold a series of special meetings focused on accelerating reform. The list of issues could be published upfront and at the end of the period, there’s an open reflection on progress. Many of the actions to kickstart the missions I discussed above are not financial, but require decisions.

Regular and structured engagement with the public is also important. We don’t do enough to take stock of progress. Public discourse concentrates on announcements of new initiatives or the early stages of policy processes, but not as much on progress and impact. This causes frustration on both ends: society thinks not much is being done; government feels progress is not acknowledged. I imagine the media landscape could accommodate a monthly question-and-answer session between journalists and the economics cluster to bridge this gap. We saw how regular media engagement by ministers to unpack issues has been useful during the Covid-19 crisis. A monthly Q&A on matters such as the economic recovery package, economic reforms underway and response to headline economic indicators such as unemployment and growth released in that month would help to build a common vision for the economy across society.

Q. One of my favourite annual events is your investment conference.  Could you give me an update on where the (investment promises) book is and how Covid-19 may have been impacted? I was interested (saddened) to read that both Consol Glass and SAB-Inbev have placed their potential investments on ice.

A. In April 2018 President Cyril Ramaphosa announced an intention to generate R1.2-trillion of new investment in South Africa over a period of five years. These would be mostly private sector investments. But in setting this goal, government was committing itself to remove barriers to investment and to create enabling conditions for that investment. It was a goal informed by the understanding that fixed investment, by domestic and international investors, has been too low. At the time, there was little meaningful engagement between business and government.

Following many interactions with local and international investors, and two successful investment conferences, this “investment drive” has generated some R660-billion in investment commitments. Government’s influence on this pipeline is through its policy actions and through service delivery. When companies slow down the pace of implementation of pledges, government actions are a factor, but so are company and industry-specific variables, and exogenous shocks such as the pandemic.

Notwithstanding the serious impact of Covid-19, the majority of companies are making progress in implementing their capital investments. Almost three-quarters of commitments made in 2018 are already under construction, whereas the 2019 commitments are at an earlier stage of implementation. 

Invest SA, working with the Infrastructure and Investment Office in the Presidency, keeps sight of the pipeline and ensures that any challenges within government’s control are attended to. Fixed capital investments are by their nature long term, and while the pandemic and lockdown will delay implementation, we will work with industry to salvage as much fixed investment as possible. 

Government will give a full update on progress in November. DM