SA’s economic recovery looks grim as leaders disagree

The possibility of an economic recovery in South Africa looks grim. At the beginning of March, as the Covid-19 storm appeared on the horizon, the South African economy had slumped into a second recession in consecutive years. Then Covid-19 hit and, with it, the national lockdown. Now, even the best case scenario of a long and hard road back to economic stability is not guaranteed. What is even more frightening is that those responsible to lead our country back to safety are not in agreement regarding the decisions required to do so. Business for South Africa, a powerful business lobby group that has been working to help fix the economy amid the Covid-19 pandemic, recently announced its plan for economic recovery – what they are calling a “parachute” to rescue South Africa (for more on that see this recent article by BizNews contributor Linda van Tilburg). The ANC has also unveiled its own plan for economic recovery post Covid-19, including in it a proposal that pension funds should take over restructured Eskom assets. With South Africans livelihoods hanging in the balance, this lack of consensus violates our already shaking faith in the leaders of this country to lead us back to safety. – Nadya Swart

Conflicting visions emerge for South Africa’s post-virus revival

By Mike Cohen, Roxanne Henderson and Prinesha Naidoo

(Bloomberg) — South Africa is awash with plans on what’s needed for an economy battered by the coronavirus pandemic and power shortages.

 


What’s missing is consensus on which proposals to implement.

Blueprints released last week by Business for South Africa, an alliance of the main business groups, and the ruling party’s economic transformation committee both called for the revival to be underpinned by a massive infrastructure investment drive — an idea the government flighted last month.

But they differ over other key issues, including where the money should come from, and the role of the state. With gross domestic product expected to shrink as much as 10% this year due to a lockdown to curb the spread of Covid-19, a common vision and decisive leadership are needed more urgently than ever, according to Business Unity South Africa, which forms part of B4SA.

The pandemic has placed the country at a crossroads, where prevarication over policy and reform is no longer an option, said Busa Chief Executive Officer Cas Coovadia.“The wrong choice takes us toward a failed state,” he said, “the correct choice puts us onto a long, hard road to economic recovery.”

Differences extend to the upper echelons of the African National Congress, which rules in a coalition with the country’s biggest labor federation and the communist party, and counts multi-millionaires and impoverished township residents among its members. The ANC has formulated six overarching economic plans since taking power after the first multiracial elections in 1994, none of which have been fully implemented.

While President Cyril Ramaphosa, who took office in February 2018, and his Finance Minister Tito Mboweni have advocated curtailing state debt and pro-business reforms, they’ve faced opposition from a faction loosely coalesced around ANC Secretary-General Ace Magashule.

The party wants pension funds and the central bank to provide infrastructure financing and seeks to start a state-owned bank and pharmaceutical company. Its economic transformation committee proposed that retirement funds take over some of the debt-stricken state-owned power company’s assets, although stopped short of advocating for full-blown privatisation — an option opposed by labor unions.

Skills Gap

B4SA is urging the government to fulfill long-standing pledges to make it easier to do business, clamp down on graft and overhaul badly managed state companies. The group opposes tinkering with the central bank’s mandate or threats to its independence and dictating to pension funds how to invest.

Lumkile Mondi, an economics lecturer at University of the Witwatersrand in Johannesburg, said South Africa lacks the structures for the government and interest groups to genuinely engage about what needs to be done or ensure they stick to their commitments.

A lack of skills within the government means there’s no guarantee of follow-through on any measures that are agreed, said Peter Attard Montalto, head of capital markets research at Intellidex.

“The implementation architecture is lacking,” he said. “The problem now is all the plans will be thrown in the social-compacting mixer and out will come the lowest common denominator, without any nod to capacity.”

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