Business for South Africa (B4SA), in existence for only four months, is a powerful business lobby group that has been working to help fix the economy amid the Covid-19 pandemic. Among its efforts it has stepped in to procure essential personal protective equipment. B4SA has launched its proposal to get the South African economy back to growth and has proposed 12 key focus areas which it believes could boost South Africa’s gross domestic product. Its message for South Africa is stark: it could be three years to recover back to pre-Covid-19 levels, if you follow the B4SA plan – or five to six years or more on the present trajectory with the possibility of a sovereign debt crisis and a failed state. South Africa is not only teetering on a cliff, said B4SA; it has already fallen over the cliff. But it can be rescued with the parachute that B4SA is offering. The business lobby has also responded to the ANC’s discussion document for economic recovery and says there are areas of overlap but B4SA does not agree with the idea of tapping into pension funds to rescue Eskom. – Linda van Tilburg
The recovery plan proposed by Business for South Africa will require R3.4 trillion in funding over the next three years, which could push public sector debt to over R6.4 trillion during the period. The vice-president of Business for South Africa, Martin Kingston, told a media conference that the country has reached a fork in the road and that the actions taken by leaders in the immediate future will set the country on one of two paths. The low road could lead to a failed state. The high road would mean a commitment to decisive leadership and bold actions that would take unavoidable, difficult decisions.
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We need to create an immediate uplift in the levels of consumer and business confidence. So, at the same time, we identified those actions that we believe can be taken immediately and which require no policy changes. There are 15 listed. The first is the need for a zero-based reconstruction budget, which we will see being tabled in mid-October in the context of the medium-term budget policy statement. And we believe that is the window of opportunity that is available to us in South Africa to demonstrate these changes, to ensure that we have implemented a new social compact. We can demonstrate that in the spirit of solidarity, that we can work together with social partners in ensuring that there are not just decisions, but aggressive and effective implementation.
The second is, with respect with SMEs ensuring that they’re paid, that they have access to finance, and that we can mobilise immediately the requisite mentorship and support programmes. That we can revitalise the South African construction industry, in particular in the context of sustainable development of infrastructure that we increasingly localise, particularly in the context of COVID-19. There is therefore now a programme that has been launched under our auspices to look at localisation across all sectors; that we can maximise the terms on which finance is available through public private partnerships.
We can complete the spectrum auction and re-energise digital migration. In all these cases that we capacitate accordingly from across society, drawing on resources, experience and expertise within not only the public and private sector, but our social partners more broadly.
The biggest single constraint that we find, of course, is the current economic prospects and fiscal constraints under which we are operating. We already entered the crisis with a recession at our back, exaggerated by the downgrades to sub-investment grade. And COVID-19 has significantly amplified, as you’ve indicated here, the outlook for GDP. Sipho Pityana indicated that we think that it will be between a 8.8 and 10% contraction for 2020 alone, as well as higher budget deficits and debt to GDP levels.
We estimate the aggregate funding for the public and private sector, in other words, for South Africa will be some R3.3 trillion over the next three years, which R2.4 trillion, including SOEs (state-owned enterprises) is in the public sector. The current and traditional sources of funding, including from within South Africa, are inadequate to be able to provide the support that we require.
In that context, we’re going to have to access alternative and other sources of capital in competition with other emerging markets confronted with exactly the same challenges as ourselves.
If we’re going to implement infrastructure projects that are clearly a cornerstone of economic activity, as I said, then we’re going to have to demonstrate fiscal discipline, regulatory certainty and market stability. What we cannot do is carry on along the current trajectory of unsustainable government finances with the cost of capital, and which would render all of these projects unviable and unsustainable and we can only access this capital by working collaboratively the public and private sector, but also with our other social partners.
Our model is, in fact, almost identical to the national treasury model and the Reserve Bank model. We have gone into detailed comparisons with them. As I indicated, we have an expected contraction of about 10 % for the current fiscal year, growing off that lower base by approximately 4% in the subsequent two or three years. That in itself is based upon some very aggressive assumptions that we have zero-based budgeting, that most expenditure items grow at a slower level than inflation, there is indeed a constant reduction in the real wage bill for government over the entire period and that there is a reduction in the funding requirements, both of local government and SOEs with enhanced efficiencies in the public sector at all levels from local government through SOEs to national government.
We indicated the R2.4 trillion of national funding requirements you will see in 2022/2023, but we’re only going to be able to recover, as I said at the outset, to pre-Covid levels of real GDP within three years, if we take all of these steps, failing which we think it could be five years or beyond. Major warning signs are already in place in terms of the size of the budget deficit remaining above 13 % and debt continuing to accelerate to levels where it is actually incapable of being serviced as Minister Mboweni said, then we will have a true financial and debt crisis.
We are of the view that as a country, we need to work together now to ensure this accelerated economic recovery and shared national vision. We’ve wasted an enormous amount of both time and resources over the last decade.
I’m sure, many of you will say that we’ve identified issues that have been long identified. The problem is that almost none of that has been comprehensively and decisively, let alone effectively addressed. We need to work in all areas on ensuring that we operate in the national interest, not just in narrow, specific interest areas. To do that, we need bold and courageous leadership and we need to capacitate the requisite teams and support combining both public and private sector expertise.
And we’ve indicated to our social partners at Nedlac, as well as directly to government and to labour, that is exactly what we are intending and proposing that we should do.
We have suggested that in the current circumstances we have one last opportunity if we’re going to be able to achieve our potential in the foreseeable future. That is that we focus on key areas in terms of sectors, policies, funding options and stabilising the fiscus.
And to do that, that we harmonise and integrate various processes that are working within the country already under the auspices of an economic reconstruction, growth and inclusivity plan, which we would suggest be overseen by the President himself, and that we would support it in ensuring that we can, as quickly as possible, mobilise the requisite resources.
As I indicated in the window that’s available to us before the medium term budget policy statement, to enhance the levels of both consumer and investor confidence is required and demonstrates that social partners, we can actually achieve a new inclusive economic future for the country. Business for South Africa acknowledged that the structural reforms that they are suggesting have been on the agenda for a while, and they will ask why they are confident that their proposals will be acted on by the government now.
The chief executive officer of Business for South Africa, Cas Coovadia, said they were aware that the issues have been raised before and have not been dealt with.
I think we are absolutely cognisant of the fact that a lot of work that is in the document is not new. The reality is that it’s not new because the issues raised in the document are fundamental issues that have not been dealt with, in many ways in the last few years so the issues remain the same.
I think what has changed, you know, in some ways over 19, the pandemic, tragic as it has been, has essentially created a situation where while pre-Covid me might have been at some sort of a crossroads where we had a number of choices, Covid has within the context of the same issues, now created a situation where we’re at a T-junction. We have one of two choices to make. The wrong choice takes us towards a failed state, the correct choice puts us on to a long, hard road to economic recovery, to which we all need to contribute and to which we all need to show brave and consistent and mature leadership to reach every constituency in this country. And I think that’s a difference.
The difference is that we are no longer at the precipice. We have, to a certain extent jumped and we now need to begin to apply these things with urgency to open up some parachutes so that we have a softer landing than we would otherwise have had. And I think that’s the difference. And so we recognise that there’s nothing new here, but these aren’t meant to be anything new. I think we need to emphasise that these are issues that should have been addressed a long time ago. We now don’t have any more choices and we need to now get together to address.
Mr. Kingston said they did not agree with a discussion document on economic growth after Covid-19 that has been put forward by the ANC which targets pension funds.
There are many aspects of it that also focus on common themes, including a new form of social and economic compacts, including infrastructure-led recovery. We do not support a change to regulation 28. We’ve made that clear in the context of the suggestions, both with respect to Eskom and elsewhere. We believe that it compromises the fiduciary responsibilities and the mandates of trustees and pension funds. We think that it impairs the risk adjusted return to those pension funds.
What we have said is that we support the mobilisation of capital from any source provided that we don’t in any way undermine the financial stability of South Africa, of which we are very proud. The same applies to the SARB making resources available to DFIs. We do not support that. We are absolutely aligned with the position that has been articulated by the governor of the South African Reserve Bank as to its remit and its scope of responsibility.
This is Linda van Tilburg for BizNews.
