As South Africa had largely exhausted the use of traditional mechanisms to stimulate the fiscus, government now needed to swing its focus to dealing with the internal structural issues that had, thus far, prevented the country from unlocking its true economic value, North West University Business School Professor Raymond Parsons has argued.

Having “rightly” pursued counter-cyclical fiscal policies since 2009, fiscal “space” had now shrunk, which, combined with a long-standing small tax base and recent multiple credit-rating downgrades, limited fiscal flexibility.

He added that, with the world economy slowly recovering, the focus should now fall to elements over which the country, and its institutions, had control, such as its domestic policies.

“There is little room to manoeuvre in terms of the usual methods of stimulation through orthodox monetary and fiscal policies. While global growth will weigh on South Africa, labour instability and energy supply constraints are indeed the main factors preventing the country from meeting its development targets.

“It is also precisely when monetary and fiscal policies might tighten that the emphasis must shift to tackling structural and regulatory issues to create an environment for more profitable investment and productivity improvements,” he said during an address to members of the South Africa–German Chamber of Commerce & Industry on Tuesday.

The economist noted, however, that the existence of the National Development Plan (NDP) offered an integrated framework for such structural solutions, provided that these were sensibly and cohesively implemented.

“This is where economic recovery and reform must converge to build confidence about the future, with the assistance of NDP action plans,” he noted, adding that the plan’s “acid test” was now one of implementation, particularly for a country with “a strong record of procrastination”.

According to Parsons, endless consultation over the NDP was no substitute for implementation and government should now begin the alignment of other policies with the NDP.

“If South Africa wants a policy environment that provides more certainty and predictability, and thus boosts both domestic and foreign investor confidence, this is the way to go,” he asserted.

He further urged business to support the plan, saying it should identify those aspects of the NDP through which it could maximise the essential role assigned to it by the plan and ensure that it was “crowded in” and not “crowded out” during the process of implementation.

Elaborating on his preliminary concerns over the NDP, he noted that much depended on whether or not it was implemented in its entirety.

In addition, as the country moved closer towards implementation, the issue of affordability moved increasingly to the fore.

“Big ticket items”, such as land reform, nuclear power and a national health scheme were already projecting large financing requirements, which would place a “significant strain” on public finances.

“It will be necessary to show how heavy expenditure plans will be reconciled with fiscal constraints in the next Medium-Term Budget Policy Statement in October. The NDP is no free lunch,” he cautioned.

Additionally, there was the question of the efficacy of the civil service and whether or not government institutions had the capacity to deliver on the objectives of the plan.

“Several of the answers to South Africa’s issues are in the pipeline, but they are not going to come out of the other end unless there is a lot of pushing and shoving from stakeholders,” Parsons said.

Looking to the country’s short-term economic performance, he assumed a more pessimistic stance than that of the World Bank and the South African Reserve Bank, which predicted growth for the year of 2% and 1.7% respectively, asserting instead that growth would likely be around 1.5% for the year.

“Although the South African economy will bounce back to some extent in the second half of this year in response to a possible earlier 'technical recession', it is now unlikely to reach 2% growth for 2014 as a whole,” he noted.