“The ANC should lead South Africa in a new programme of Growth & Reconstruction.…In addition to the spatial transformation of the apartheid geography and ensuring the schooling and higher education programmes recover from the impact of COVID-19, the Growth & Reconstruction programme should articulate specific and accelerated plans aimed at overcoming growth-impediments in key sectors…”
By Kenneth Creamer (Jeannette Schoon ANC Branch, Ward 87 Johannesburg)
The COVID-19 pandemic is without doubt, the biggest and most significant health and economic shock of our lifetime and in the life of our nation.
All around the world COVID-19 has triggered a health emergency and to try and limit the spread of the virus economic activity has largely been brought to a stop with the exception of the food and health sectors and certain other essential services. In South Africa, COVID-19 has re-exposed the unfair contours of the world’s most unequal society and the weak state of many of the country’s public services, particularly for the poor and marginalised.
How will COVID-19 impact on the ANC’s vision and praxis for the radical social and economic transformation of South Africa? In answering this question there are three subsidiary questions that we should consider.
- How will the COVID-19 pandemic impact on South Africa’s economy and on the ANC’s programme of economic transformation?
- In the short-run, what must be done in response to COVID-19?
- In the longer-run, what must be done to stimulate inclusive economic growth and build a capable developmental state?
The impact of COVID-19 on economic transformation
The COVID-19 pandemic occurs in the context of a South African economy which, for a number of years, has been experiencing persistent low growth, rising unemployment, poverty, de-industrialisation, poorly performing state-owned companies and an ever-upward national debt trajectory.
The ANC’s programme of economic transformation, to build a developmental state, to promote industrialisation, to boost longer term social and economic investment and to overcome the economy’s deep structural inequalities of race, gender and class has not been as effective as it could have been. This failing has come at high cost to the African, Indian and Coloured working class and marginalised communities, who are the ANC’s core constituency.
Before COVID-19 the ANC identified a renewed emphasis on policies to promote inclusive growth. These were considered a very high priority and a wide range of initiatives throughout the country and across various sectors were being put into place to improve the performance of the economy. Unfortunately, whatever challenges we faced before COVID-19, the pandemic has made it that much more difficult to strengthen and rebuild our programme of economic transformation.
The economy has had to be locked-down in response to the virus. This has placed people’s incomes and business operations at risk. Inevitably this will mean that lower tax revenues will be collected by the state, which in turn will lead to an increased budget deficit, acceleration of our national debt and a reduction in public resources available for service delivery and economic transformation.
Immediate responses to COVID-19
In the immediate term, public finances must be mobilised to fund a massive health response and income and food support must be given to key sectors and to the most vulnerable. The increase in existing old aged pension and child support grants payments will ensure that a number of those from poor and vulnerable households will have access to basic incomes. Programmes, such as food distribution, aimed specifically at those who fall through the cracks of South Africa’s social grants system will also be critical.
South Africa’s Unemployment Insurance Fund (UIF) has been reconfigured to assist workers laid off due to COVID-19. Industrial capacity, severely limited by the closing off of international trade exemplified by the temporary closure of many of South Africa’s automotive plants, has been mobilised towards the production of essential items like ventilators and personal protective equipment, for health workers in particular.
Competition policy instruments, instead of pre-COVID-19 concerns with regulating mergers and acquisitions, has sought to prevent price-gouging by unscrupulous operators who might seek to unfairly push up the prices of crucial items during the lockdown.
The agricultural and food sectors put in place a policy framework aimed at ensuring food security and the operation of the food supply chain both domestically and via imports and exports. Through donations, social solidarity measures were put into place with the aim of providing food and care to the most vulnerable, for whom there is no social safety net.
Such interventions should be outlined as new and unexpected items in our country’s budget. Like all countries in the world implementing programmes in response to COVID-19, these interventions will entail a significant expansion of the country’s budget deficit. Due to changing circumstances, a rising budget deficit, which would have been inadvisable before COVID-19, because of the implication of high debt-repayments now and in the future, has become inevitable in the current emergency situation, for the sake of people’s lives and livelihoods.
Similarly, monetary policy, which previously would have been primarily concerned with growth-enhancing price stability, is forced by change of circumstances to play a new role. To properly support expanded government spending and borrowing, the South African Reserve Bank has not only cut interest rates, but has had to begin to actively intervene in capital markets – for example by buying government bonds – in order to boost capital market liquidity and to ensure that government can continue borrowing sufficient funds, and at not too high a price, in order to be able to properly respond to the crisis.
It is important to keep the balance right. If the Reserve Bank, during crisis times, assists capital market liquidity by buying government bonds this can be very useful in supporting fiscal expansion. But if the Reserve Bank does this excessively it has the potential to do serious damage to our currency and financial system. It will impact negatively on South Africa’s ability to implement a sovereignly-determined programme of economic transformation if through monetary policy missteps the gets Rand damaged to the extent that we lose our ability to borrow in capital markets in our own currency. We will then be forced to borrow in dollars, and other so-called ‘hard’ currencies. And if we then have difficulty repaying hard currency debts and buying imports in hard currencies, our programmes will face major funding constraints.
A plan for Growth & Reconstruction post-COVID-19
In the longer run, South Africa should plan to pay for the programmes and financial bridge put in place to carry the country though the COVID-19 pandemic through the growth and expansion of the real economy. If we do not expand the economy after the COVID-19 then the negative effects of the pandemic – in the of form of higher levels of unemployment and poverty and crippling debt repayments – will continue to haunt South Africa and limit economic progress for many years to come.
The ANC should lead South Africa in a new programme of Growth & Reconstruction. The objective of this programme would be to as rapidly as possible stimulate investment, economic growth and job creation in order to pay off the debts incurred during the response to COVID-19 and in order to shape a more inclusive growth path for the South African economy.
In addition to the spatial transformation of the apartheid geography and ensuring the schooling and higher education programmes recover from the impact of COVID-19, the Growth & Reconstruction programme should articulate specific and accelerated plans aimed at overcoming growth-impediments in key sectors including: energy & industry, water infrastructure, telecommunications, mining and tourism & hospitality.
Energy & industry: ‘Green’ energy industrialisation will be facilitated by the accelerated implementation of South Africa’s Integrated Resource Plan, which though the Independent Power Procurement (IPP) Office-managed bidding process will see a large-scale, competitive build programme for wind and solar power. Re-regulation will also enable South African businesses to build their own generation capacity. Upstream, South Africa should create certainty for, and incentivise, the localised production of wind and solar plant components. Downstream, new green industrial sectors should be nurtured, such as, green fuels and electric vehicles.
Reliable lower cost energy, together with efficient transport and logistics infrastructure, is key to South Africa’s re-industrialisation efforts. Such infrastructure also assists in ensuring the competitiveness of South Africa’s exports, such as, in the automotive sector – in which South Africa continues to play a significant role in global supply chains – and in the export of agricultural and food products into Africa and the rest of the world.
Eskom’s restructuring will facilitate South Africa’s energy transition and the programme of green energy industrialisation. International and domestic finance should be secured that conditionally links the resolution of Eskom’s debt crisis with the entity’s restructuring and the broader just transition in the country’s energy sector. The closure and repurposing of old coal power stations in Mpumalanga should be linked with efforts to create new employment in the region linked to the energy transition.
Water infrastructure: South Africa needs to invest massively in water infrastructure to improve water security. It must extend water infrastructure and sanitation services to communities, schools and businesses around the county. Increased collaboration is needed among scientists and government and private sector entities to ensure expanded investment in South Africa’s water infrastructure.
Telecommunications: The auction of electromagnetic spectrum should be accelerated to ensure technological advancements, such as 5G rollout, and create conditions for lower data costs for South African businesses, consumers and the education sector. These objectives should be based on an auction design which will require that telecommunications companies that secure the new bandwidth are required to fulfil certain widened access and low pricing criteria to the benefit of the broader economy. Lingering uncertainties as to the role of the proposed publicly-owned part of spectrum should be removed decisively.
Mining: South Africa’s mining sector can play a significant role in investment and economic growth in the post-COVID19 era and the sector has a particular role to play in bringing export earnings into the country. Conditional on removing regulatory obstacles and policy uncertainties, the mining sector should commit to an expanded investment programme and the support of local industry and labour in the fulfilment of such an expansion programme.
Tourism & hospitality: South Africa’s tourism and hospitality sector has significant growth, investment and job creation potential, but will need to be rapidly restored post-COVID-19. Bridging finance may be required to ensure that key tourism assets and enterprises are retained. Such support should be conditional on a carefully designed and coordinated programme of low-cost domestic and international tourism offerings to boost tourism numbers, in a globally competitive market, as soon as possible once travel restrictions are lifted.
To be able to lead such a Growth & Reconstruction Programme, the ANC will need to move from words to actions in building a capable developmental state. Paradoxically, the developmental state will need to be built in an era of financial weakness, yet will need to be incorruptible and attract the best minds to provide leadership, insight and direction. Public sector pay scales, which currently are bottom heavy, will need to be recalibrated to ensure that the state is able to attract the right kind of skills into public service.
Another key feature of building a post-COVID-19 developmental state in South Africa is that given the weak state of public finances, private sector balance sheets will have to be utilised more than ever to build South Africa’s social and economic infrastructure, therefore dramatically improved alignment between the private and public sectors – probably through various forms of social compacting – will be required to ensure that public policy goals can be achieved in this context.
To transform the lives of South Africa’s people, the ANCs vison of economic transformation requires, by way of precondition, that there be an effective and sovereign state machinery. In our response to COVID-19 we must be careful to avoid the kind of serious policy errors which will weaken, or even destroy, our ability to implement our economic transformation programme.
Ever rising national debt is a serious threat to our country’s policy sovereignty as it means that we are increasingly dependent on borrowing money to pay for government service delivery. It is imperative that we undertake the kinds of reforms that will stimulate growth and increase tax revenues, or we will have to borrow more and cut back on government spending, both of which alternatives will put serious limits on the ANC’s vision of social and economic transformation