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Business welcomes recovery plan, but urges swift implementation

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Business welcomes recovery plan, but urges swift implementation

President Cyril Ramaphosa

16th October 2020

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Organised business formations have responded to the Reconstruction and Recovery Plan released by President Cyril Ramaphosa on October 15. On the whole, business has welcomed the plan, including the fact that it embraces many of the recommendations made to government by the social partners through the National Economic Development and Labour Council. There are lingering concerns, however, over implementation, as well as warnings that some of the initiatives cannot be implemented immediately. Below are the statements from Business for South Africa (B4SA), Business Unity South Africa (BUSA), Business Leadership South Africa (BLSA), the South African Chamber of Commerce and Industry (SACCI) and the Minerals Council South Africa.

 

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B4SA WELCOMES RECOVERY PLAN, CALLS FOR IMMEDIATE IMPLEMENTATION

“We shall not rest until we have built a new economy based on fairness, justice and equality. This is the task of our generation - to renew, to repair, to rebuild,”  President Cyril Ramaphosa, 15 October 2020

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Business for South Africa (B4SA), the alliance of volunteers formed to support the national response to combat and recover from the Covid-19 pandemic, welcomes President Cyril Ramaphosa’s announcement of far-reaching plans for economic reconstruction and recovery. 

B4SA has spent a considerable time formulating an accelerated economic recovery strategy for South Africa, particularly in view of the impact caused by the Covid-19 pandemic. B4SA’s Steering Committee Chairman, Martin Kingston, said: “We are pleased to see that our recommendations have significantly informed and contributed to the social partners’ discussions at Nedlac, and appropriately referenced in today’s Reconstruction and Recovery Plan presented by the President. We continue to believe that we need to live within our limited means and are firmly of the view that this recovery plan needs to be read in the light of the forthcoming Medium-Term Budget Policy Statement, scheduled for release later this month.”

The business sector has repeatedly emphasised the need to prioritise the critical interventions that must be implemented in the short and medium term, and all social partners must work together and harness all available resources to reinforce state capacity.  

Kingston added: “We welcome and agree with the President’s focus on jobs, growth, debt reduction and the essential participation by the private sector. An effective, ethical, responsive and viable state, working with social partners – including business – is vital for South Africa to recover from Covid-19 and build an inclusive, transformed and growing economy.  We now need to urgently implement the recovery plan, give effect to the structural reforms that have been outlined, continue addressing corruption in the public and private sectors and rapidly increase state capacity.   All of this is required if South Africa is to attract the necessary investment, create sustainable jobs as well as reignite and maintain meaningful and inclusive economic growth.”

The four pillars are aligned with the discussions held between all social partners, facilitated by Nedlac: massive infrastructure investment; expanding energy generation with meaningful private sector participation; large-scale employment stimulus; and industrial growth helped by a buy-local campaign. Business is committed to supporting these plans if implemented efficiently and transparently. 

B4SA agrees that many deep and pre-defined structural reforms are required to support economic recovery and reconstruction.  The necessary restructuring of network infrastructure and state-owned entities is welcomed and long overdue. We support the accepted priorities centered around the infrastructural investment programme, the strategic localisation and re-industrialisation initiatives, as well as enabling conditions for a supportive policy environment.  

Kingston said: “As a country we now need to immediately move into implementation.  The principles of collaboration, simplicity and effectiveness, clear timelines, defined responsibilities and avoiding duplication are all accepted, and are at the heart of our approach.  We have mobilised teams of available resources, focused on these and other priority sectors, and stand ready to work with all partners to roll-out these critically important initiatives.” 

B4SA supports and encourages the need to strengthen empowerment, transform ownership patterns in the economy including participation of women, vulnerable groups and further reinforce the role of small business and cooperatives. Boosting employment, while enhancing education and skills development, are acknowledged as non-negotiables.  The support indicated for small- to medium-sized enterprises is a critical prerequisite to inclusiveness and sustainable, accelerated growth.  

“This disastrous pandemic,” concluded Kingston, “demands that we continue to adjust our behavior to curtail the spread of the virus, to find new ways of working safely and responsibly, while maintaining employment wherever possible.  We must continue to provide support to the most vulnerable in our society and, at the same time, collectively drive the nation’s economic restructuring and recovery plan”.

 


BUSA MEDIA RELEASE ON ANNOUNCEMENT OF ECONOMIC RECOVERY AND RECONSTRUCTION PLAN BY PRESIDENT CYRIL RAMAPHOSA

BUSA welcomes the release of an Economic Recovery and Reconstruction Plan (the plan) by President Cyril Ramaphosa at a joint sitting of Parliament and the National Council of Provinces on 15th October 2020. We commit to continue engaging government and working with social partners to do what we can do encourage government to urgently implement critical areas of the plan that can be actioned immediately! These include the issuing of an RFP for the 5th tranche of renewable energy projects, the release of spectrum, intervention at the Durban port to increase efficiencies and resolving licensing issues for mining exploration. Urgent action on these, and others, will begin to create the environment for the private sector to invest and kick-start economic growth!

BUSA has been a central part of the engagement at Nedlac to produce a document, presented to the President on 15th September, that identified the critical immediately actionable areas. We are now appealing to government to work with social partners to resume these engagements, so that we can jointly track progress in implementation of the plan and, very critically, engage on the fundamental structural economic reforms necessary to enable investment, profitable business growth, ease of doing business and improving our competitiveness. These are critical elements to put our country onto a sustained and inclusive economic growth trajectory. We are also keen on resuming the engagements so that we can address our severe fiscal crisis.

The President made several commitments in the plan, but there is no indication of how these commitments will be funded. Our economy was in recession pre-Covid and SARS had forecasted a R 200 billion shortfall in tax revenues for the 2020 fiscal year. The Covid crisis has exacerbated our economic situation and the revenue shortfall is significantly bigger. We are also rated as a sub-investment grade country. We will thus have difficulty raising funds in capital markets and will be competing for these funds with other emerging countries also seeking to rebuild their economies. The engagements on the fiscal crisis will also have to take tough decisions on reductions in government expenditure.

Our country has come together to manage the social, health and economic impacts of Covid-19 and a compact of sorts has taken shape. We need to continue working together to now re-purpose our economy to be inclusive, competitive, and business and investment friendly. These are the recipes for sustained growth, which must include the majority of our people in the fruits of such economic growth.

We welcome the plan, but the issues raised above are critical and urgent! We have run out of time and further delays in implementing the short-term actions and resolving the structural and fiscal conundrums will make the rebuilding of our economy exponentially more difficult!

We urge the President to lead the country on this critical path. We urge government to continue engaging with, and consulting, social partners, but, we also urge that government takes decisions urgently after such consultations and acts decisively to create the environment for investment, growth and fiscal discipline, all critical to sustained inclusive socio-economic growth!

BUSA CEO Cas Coovadia

 


BUSINESS LEADERSHIP SOUTH AFRICA: RECOVERY PLAN IS POSITIVE BUT HAS SOME UNREALISTIC EXPECTATIONS

There are lots of positive elements in President Cyril Ramaphosa’s economic recovery plan. However, it must be seen as more as a starting point. Having a concrete plan of action to get the country’s economic recovery started is encouraging and there are lots of positive elements in it. Unfortunately though, the plan announced today by President Cyril Ramaphosa has to be seen more as a starting point. Much of it can’t be implemented immediately, which is what we need, while it lacks specifics in some areas and is based on unrealistic assumptions in others.

We consider the president’s plan in its six focus areas.

Energy

The goal is to achieve sufficient, reliable energy supply within two years. This is a central issue for our economic recovery. But while the two-year timeframe is positive, we believe it is unrealistic given the logistics of procuring new power, working with the energy regulator Nersa on licensing and with Eskom on connecting that new power to the grid. Ramaphosa said government would accelerate implementation of the 2019 Integrated Resource Plan (IRP) to provide a substantial increase in the contribution of renewable energy sources, battery storage and gas technology.

This should bring around 11,800MW of new generation capacity into the system by 2022. More than half of this energy will be generated from renewable sources. Prior to that, agreements will be finalised with independent power producers to connect over 2,000MW of additional capacity from existing renewable energy plants by June 2021. The Risk Mitigation Power Procurement Programme, gazetted in July, aims to unlock a further 2,000MW of emergency supply within 12 months from projects that are “near ready”.

Finally, the process to implement bid window 5 of the renewable energy programme has begun.

What the president failed to mention is that we need a new IRP to be drawn up because the 2019 version underestimated the gap in supply to come, which was based on unrealistic assumptions from Eskom on the energy availability factor.

Neither did the president mention any specifics regarding the liberalisation of entire energy sector, which is extremely disappointing.

BLSA strongly supports all efforts to address the energy crisis, but we believe that it is important to liberalise the sector so that everyone from businesses to households can generate and contribute energy to the grid. This would rapidly lead to increases in supply.

Infrastructure

Here the goal is to unlock R1-trillion in infrastructure investment over the next four years. Infrastructure has immense potential to stimulate investment and growth, to develop other economic sectors and create sustainable employment both, directly and indirectly.

To ensure that there is active implementation of the infrastructure build programme, the presidency has established Infrastructure SA and the Infrastructure Fund, with the capacity to prepare and package projects. Some private investors are on board to help government build capability for infrastructure delivery within the state and to develop blended financing models.

The Infrastructure Fund will facilitate R100bn in catalytic finance over the next decade, with the aim of leveraging as much as R1-trillion in new investment for strategic infrastructure projects.

These projects are in various phases, with some currently under construction. However, many appear quite early in the development cycle, with some not having completed feasibility hurdles.

We are particularly encouraged by the president’s stated goal of mobilising the private sector to finance public infrastructure. We believe there is significant appetite for the right kinds of projects as they have a low-risk and long-term investment profile that meets the liquidity needs of some kinds of many large institutional investors. The president also referenced the importance of public-private partnerships as part of the mechanism to mobilise private sector finance. This is critical and has not received the focus it needs in the infrastructure debate.

The documents with today’s speech recognise that amendments are needed to the Municipal Finance Management Act and the Public Finance Management Act in order to enable PPPs that will mobilise private sector funding. We welcome the recognition that PPPs must play a central role in infrastructure delivery and that amendments are needed to create a world-class PPP delivery capability in government.

Mass employment stimulus

The employment stimulus aims to create jobs and support livelihoods, in response to the massive job losses caused by Covid-19. This is important in providing rapid, temporary relief, to those left unemployed by the crisis as well as others who have been unable to find work before it. However, it is not in itself a long-term solution that will create sustainable employment.

The presidency has committed R100bn over the next three years to create 800,000 employment opportunities through public and social employment as the labour market recovers. This is an adjustment from the five-year time frame first set out in the president’s youth employment intervention.

Such measures can only provide temporary relief. It is only through economic growth and policies to stimulate employment in the private sector that quality sustainable jobs can be created. We are concerned that a public works programme can become a substitute for the policies that stimulate employment in the private sector. Sustainable employment comes from a productive business sector that is competitive. This is the only long-term sustainable solution to our employment crisis. Unfortunately, the economic recovery plan has little to say about how to stimulate greater employment in the private sector. Given the crisis has made 2-million unemployed so far, the public sector cannot on its own solve the crisis.

The mass employment plan is a positive step, especially because it is reliably feasible, given that a component of it is scaling up existing projects within the government’s expanded public works programme. Many of the jobs will not be permanent or full time, however, but will serve as a bridge to out-of-work people to begin accessing employment. However, it will be hugely challenging for government to roll these plans out at municipal level while managing the process centrally.

Industrial growth (i): reforms to reduce barriers to entry

The president made positive announcements on ending long-running policy uncertainty that has stifled investment including:

  • Timeframes for mining, water and environmental licences will be cut by at least 50% to facilitate new investment. This is a hugely positive step and long overdue, we feel;
  • The Petroleum Resources Development Bill will be finalised to unlock “enormous” untapped potential in upstream oil and gas reserves;

Numerous steps were announced to resuscitate the tourism sector, which has been devastated by lockdown and travel restrictions. These include:

  • Measures to relax visa regulations. These have been previously announced by the president but we have not seen action in implementing them. We hope this happens quickly.
  • Implementing an efficient e-visa system and extending visa waivers to new tourism markets.
  • Expanded the list of countries from where resumption of international travel will be permitted, which will be supported by targeted marketing in partnership with the private sector.
  • Publishing the revised list of critical skills, occupations in high demand and priority occupations to enable highly skilled individuals to be speedily recruited, and expediting the issuing of special skills visas to support local firms; and
  • The release of high-frequency spectrum by March 2021 and the completion of digital migration to reduce data costs for firms and households. This is a key headline reform and BLSA welcomes the target date being established.

In transport there were some major – and very welcome – announcements. First, government will promote private sector investment in rail infrastructure. It will promote greater private sector participation in rail, including through granting third-party access to the core rail network and the revitalisation of branch lines. This is unprecedented and it will be supplemented by the establishment of a single economic regulator in transport as a matter of urgency to promote competition and efficiency.

Industrial growth (ii): promote local content manufacturing

Social partners at Nedlac, Ramaphosa said, had agreed to support a massive “buy local” campaign for this festive season, with a particular call to support women-owned enterprises, small businesses and township enterprises.

Additionally, government would enforce policies to ensure that all public infrastructure projects use locally made materials, including steel products, cement, bricks and other components.

Business and labour will soon be publishing localisation targets for goods in areas such as agro-processing, health care, basic consumer goods, industrial equipment, construction materials and transport rolling stock.

The aim of the local content policy is to reverse the decline of the local manufacturing sector and promote reindustrialisation through deeper levels of localisation and exports. It is right to focus on this area because it is jobs-intensive and the key will be industrialisation related to the just energy transition from coal to renewable energy sources.

BLSA hopes, however, that this will lead to a focus on the underlying causes of the deterioration of local manufacturing which need to be addressed. Increasing local content requirements will certainly not increase the sector’s competitiveness.

Ultimately, our industrial sector will only be sustainable if it is globally competitive. Our focus should be on creating export-oriented industries that can supply a global marketplace at scale. Localisation can at best stablise local manufacturing, but it is only by serving the global market that we can create major industrial champions of the future.

 


SACCI RESPONSE TO ECONOMIC RECONSTRUCTION AND RECOVERY PLAN

SACCI welcomes the Economic Reconstruction and Recovery Plan as announced by President Ramaphosa.

We appreciate the President’s acknowledgement of the challenges faced by the economy, together with the elements that need urgent attention to set the economy on a positive trajectory.

The elements of Infrastructure development, Energy Security, Human Capital optimization, SME prioritization, smart financing and domestic Manufacturing have always been the hallmarks of SACCI's engagement with the government at various levels and the economic cluster in particular.

These plans will depend on the ability of the state to execute. Planning alone will not be adequate. In our view, many of the ideas proposed by the President are good, but will be constrained in taking off, without fixing the human capital equation.

Japan, Taiwan, South Korea, Singapore, old Hong Kong, Russia, Australia, and Israel are 8 of the non-western countries that have, in the last 100 years, managed to move their countries from “developing” to “developed” economies. By doing that, they managed to lift millions of their people out of poverty and high unemployment.

The one visible distinguishing common denominator in the success of these countries has been the culture of not compromising on building a meritocracy. The majority are not endowed with natural resources as South Africa is.

The South African Chamber of Commerce and Industry calls upon the President to take the bold step of commissioning an independent, professional and deep audit, assessment and evaluation of the current skills-set in the public sector managerial cohort. 

This, to check for fit and purpose, in line with the template for delivery.

This independent professional assessment should also include an honest evaluation of the senior level public sector compensation structure, both extrinsic and intrinsic, its competitiveness and alignment with the ability to attract the right skills required to drive this recovery and reconstruction

In addition to this, the public sector should embark on a clear, well defined and codified values and culture programme, to drive the high-performance ethos that is a condition precedent to any sustainable successful turnaround. It is culture and the values that are at the centre of any successful organizational renewal. Right skills, Right Culture and Right Values.

It is common cause, that the biggest weakness the state has shown to date is its lack of capability, in selection, recruitment and the retention of the right people, performance management and the creation and maintenance of the right enabling high performance culture to drive sustainable delivery.

Additionally, the apparent lack of effective  leadership development and training of cabinet ministers, premiers, MECs, Mayors, and top level senior servants, is another critical area to improve on, as it creates the big lacuna, with the challenges, responsibilities and performance expectations the top leadership carry. 

As the most representative business formation, The South African Chamber of Commerce and Industry is looking forward to engaging and working together with government at all levels as well as other social partners,  in delivering the vision of a successful and prosperous South Africa.

 


MINERALS COUNCIL SOUTH AFRICA NOTES THE PRESIDENT’S ECONOMIC RECONSTRUCTION AND RECOVERY PLAN

The Minerals Council South Africa notes the South African Economic Reconstruction and Recovery Plan presented by President Ramaphosa on 15 October 2020 to a Joint Hybrid Sitting of Parliament. The plan does capture a number of the agreed points from the NEDLAC discussions, but it does not go far enough on the areas where South Africa needs to improve its global competitiveness(which is the key to raising investment and inclusive growth).

The business inputs in NEDLAC focused on measures to raise investor and business confidence, improve the nation’s competitiveness and to raise private sector investment and inclusive growth. Only by increasing the country’s competitiveness will we be able to unlock the economic potential of the country, and only then will investment(local and foreign)flow.

Minerals Council President Mxolisi Mgojo notes: “South Africa is at a precipice. While we have managed to claw back from the precipice before, it has only been through decisive action that recognises that pain comes before gain –across the board –that we can set our nation back on a road to prosperity. That means that hard economic decisions need to be taken, and soon.

“The South African economy was in a crisis before the outbreak of the COVID-19 pandemic, performing well below its potential for the past decade. COVID-19 has further exacerbated the situation resulting in 2.2 million South Africans losing their livelihoods during the second quarter of 2020,with the country’s fiscal deficit ballooning to 15% of GDP and GDP likely to shrink by 9%.”

The government plan, while a positive contribution to stabilising the economy, appears to centre on what government can do in a massive infrastructure programme, promoting greater local procurement for industrialisation and on public and social job creation processes. But, the plan does not adequately address in detail the issues that drive competitiveness and investment, including foreign investment. The tough choices on structural reforms that would allow much greater private sector participation and investment are mostly absent or are only mentioned in passing.

Business believes that these structural reforms should include much greater private sector participation and competition in infrastructure (electricity, ports, pipelines, rail);a much more sustainable fiscal policy and balanced budgets; and institutional reforms (a smaller, more efficient and more capable state). While there is agreement in the President’s NEDLAC process that a more detailed process must be undertaken to discuss the key structural and institutional reforms, the Minerals Council believes that this process must be accelerated on an urgent basis.

The Minerals Council welcomes the inclusion of interventions related to mining aimed at:

  • Ensuring electricity energy security, and in particular, the fast-tracking of applications for self-generation of energy supply; the separation and unbundling of Eskom to address structural challenges; and improving the operational and financial stability of the power utility;
  • The proposed halving of turnaround times for mining and prospecting licences in order to improve investor confidence;
  • Addressing crime and corruption, and the mismanagement and waste of state resources and stopping the hijacking of businesses and mines for nefarious purposes; and
  • The mention of modernising and reforming network industries such as electricity, road, rail and ports, and the SOEs responsible for delivering these services.

Minerals Council CEO, Roger Baxter noted: “We fully agree with President Ramaphosa that we need to take extraordinary measures towards a speedy and sustainable economic recovery. This will require active public-private engagement. If the COVID-19 pandemic has showed us anything, it is that various segments of our society can come together in service of a greater goal. But it is critical that we have a frank conversation on the real structural and institutional issues impeding competitiveness and growth at the national level  and to develop detailed plans on how to unlock these constraints.”

Baxter says that at the specific mining sector level, the Minerals Council is currently engaged in intensive and frank conversations with the Department of Mineral Resources and Energy (DMRE) to identify solutions to constraints to unlock the potential of the exploration and mining sectors.

Concludes Baxter, “We firmly believe that –with the right interventions –we could grow exploration to 3% of global expenditure within five years and mining could contribute upwards of 10% to South Africa’s GDP, and in so doing, grow GDP overall and help lead the economic recovery. This is a view that Minister Mantashe also shares. With that would come investment, jobs, export earnings and taxes to the fiscus. But, at the heart of our potential recovery as a nation is the need for improving our national competitiveness and we need to focus much more on this issue.”

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