Let’s start with a few known facts.

Since the 2007/8 global economic crisis, South Africa’s economy has not been growing. Failure to grow the economy leads to high rates of unemployment and low tax revenue, thus making it difficult for government to carry out its functions.

There is agreement among a broad and diverse range of constituencies that current levels of poverty, unemployment and inequality are both morally unacceptable and are an instability that presents an existential threat to South Africa’s democratic constitutional order. There is therefore also agreement that fundamental reforms are needed to revive economic growth and development.

Operation Vulindlela, a joint initiative of the Presidency and National Treasury established some two years ago is an intervention intended to address this mammoth task through accelerated implementation of structural reforms as a basis for transformation and change in the way that our economy works.

Well then, if so, what are some of Operation Vulindlela’s successes?

The energy sector is a prime example. Appreciative that the energy shortfall represents a binding constraint on growth, we are now witnessing a rapid transformation of the sector in a short space of time. The process of restructuring Eskom into separate entities for generation, transmission and distribution has gathered pace since the Eskom Roadmap was announced in 2019. This will be further supported by the resolution of Eskom’s unsustainable debt burden.

The published Electricity Regulation Amendment Bill will establish an independent transmission, system and market operator and enable the emergence of a competitive electricity market for the first time. While the transmission network will remain state-owned and Eskom will continue to play a key role in generation, this reform will allow multiple generators to compete on a level playing field as is already the case in most other economies.

In the meantime, regulatory reforms have already unlocked a massive pipeline of private investment in electricity generation. Private participation in energy does not mean price liberalisation. Energy prices, like administered prices, will still be regulated by Nersa.

Since the President’s announcement about raising the licensing threshold for generation projects to 100MW, this pipeline has grown to 98 confirmed projects with a total capacity of 8,465MW, including over 2,600MW that will connect to the grid by 2024.

To put it into context — this represents more than double the total wind and solar capacity that exists in South Africa today. The procurement of new generation capacity, mostly from solar, wind and battery storage, has been accelerated with the doubling of capacity for Bid Window 6 and a new Ministerial Determination to procure over 18,000MW of new power.

All of these changes will fundamentally transform the energy sector. Indeed, the sector will look completely different in just a few years’ time.  These will also drive a sustained increase in private fixed investment in years to come and be the leading edge of economic growth over the next decade.

We also need to pay close attention to climate-friendly industrialisation as part of structural reform in a manner that will increase the manufacturing contribution to South Africa’s GDP. This industrialisation of the 21st century should also produce the necessary inputs for the generation of new sources of energy such as renewables and solar.  Macroeconomic and social policies should be subordinated to this industrialisation programme.

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Another important reform underway, albeit slower, is in the transport sector. Transnet is allowing private rail operators to utilise its network for the first time. A fully transparent regime for regulated third-party access will be established once the Economic Regulation of Transport Bill takes effect. 

In simple terms, this means private operators will be investing in new trains and wagons, increasing the volume of goods that can be transported by rail instead of road, and contributing to improved efficiency. In turn, our exports will become more competitive and the cost of our imports lower.

Transnet is also moving towards private sector participation in our two major container terminals at the Ports of Durban and Ngqura and will have private partnerships in place by the first half of next year.

The logic of these reforms is that while infrastructure such as ports, rail network and electricity grid remain a public asset, owned by the people of South Africa, we are also able to crowd in private investment and expertise to improve operations.

In the water sector, the establishment of a National Water Resources Infrastructure Agency as a “Sanral for water” will enable much greater investment in our bulk water resources, including through new partnership models that are not possible in the current system. 

And in telecommunications, the success of the spectrum auctions this year after a 10-year delay together with the completion of digital migration will expand network reach and reduce the cost of data.

Structural reforms do not only focus on infrastructure and network industries. Some of the most important reforms aim to attract skills by updating our work visa regime, so that companies can recruit skilled foreign nationals to expand their operations and enhance productivity. Modelling suggests that this could provide a substantial boost to growth, comparable only to relieving the energy constraint.

Taken together, these reforms are about reducing the cost of doing business and making South African exports more competitive with the rest of the world. They are about ending monopolies and increasing competition in the economy, thus reducing the cost of production and living in South Africa.

In every case, they are about improving the quality of services for ordinary South Africans — whether by bringing an end to rolling blackouts, expanding access to the internet, or ensuring a safe and reliable water supply.

The key point is that we will not end economic stagnation without following through on bold and ambitious economic reforms. South Africa has been stuck in a low-growth equilibrium for more than a decade, which we will only escape by applying shock treatment to the economy.

The impact of these reforms will be felt over time, requiring a different attitude to typical tendencies of seeking an immediate solution to current challenges. Understandably though, it is difficult to speak about the transformation of the energy sector when you are in the midst of rolling blackouts.

Of course, we need to act with much greater urgency and resolve to accelerate these reforms. The main question, however, is whether we will run out of patience before the reform agenda takes its full effect.

What we do need is to focus on building a strong consensus around economic reform and rallying society to support the reform agenda.

We need our Deng Xiaoping moment in South Africa! This is a moment in which Deng Xiaoping replaced Mao’s economic production (the 1958-1961 Great Leap Forward and 1966-197 Cultural Revolution) through “political demand”, with the market — albeit regulated in producer goods such as energy and steel.

This attracted private capital along with technology which generated massive economic growth making contemporary China the world’s second-largest economy. DM