Last week a business group, which brings together the bosses of the country’s largest private corporations, came up with a “Reform Tracker” to keep an eye on the government’s implementation of economic reform.
In principle, the Business Leadership South Africa (BLSA) Tracker is a good idea, as it could act as a form of mild pressure on the government to meet its commitment to adopt policies that would grow the economy. But the Tracker’s great flaw is that it falls in line with the ANC narrative about economic reform and neglects what is really needed to boost the economy.
None of the reforms that BLSA is tracking, alone or collectively, would result in big-bang changes which would allow the country to change its investment story and put a rocket behind our growth. While concessioning off state assets like ports is included in Operation Vulindlela, the government’s reform programme, wholesale privatisation, is not even mentioned. Bad and poorly executed investment decisions and the decay of their assets are reasons why our rates of productivity and growth are so low.
While the government claims its reform programme, Operation Vulindlela, is about “structural change”, it is really about trying to turn around the failing state enterprises and keep them in state hands. The other part of Vulindlela is about trying to make government more efficient, which has also proved to be slow and difficult. BLSA accepts this narrow definition of reform.
Greatest strangleholds
Transnet, one of the greatest strangleholds on our growth rate, is unique. It is the only state-owned utility in the world which runs such a diverse portfolio of companies, from ports to railways to pipelines. It has proved to be unmanageable. Best of all would be to privatise the lot and allow the companies to be well-run.
Also not on the reform tracker is the need to move away from Black Economic Empowerment, the laws and industry charters laying down ownership and employment race quotas. There is nothing in the Tracker that addresses the damage inflicted on the economy by the premium we have had to pay, in the form of Black Economic Empowerment.
By not raising privatisation or empowerment issues, BLSA is neglecting the interests of its membership. Many of SA’s big corporations are sitting on gigantic hoards of cash, rather than heavily investing. Bottlenecks on the railways and at the ports, power cuts (albeit now occasional), as well as lack of confidence due to poor public security and urban decay mean that big companies are wary about investing.
The results of the Reform Tracker’s first quarterly report would be a resounding F if a privatisation programme and an end to BEE were included. But it is prepared to go along only with what is on the government’s agenda, rather than what the agenda should be. That is giving up a lot.
Change investment story
A convincing changed investment story would make us the emerging market darling of all sorts of investors.
The bottom-line assessment of BLSA is that while there has been progress in ending power cuts, allowing the private sector to produce increasing amounts of electricity, and marginally improving the operation of ports, there is little of great significance to report.
“Critical reforms like port concessions are moving too slowly, creating systemic risks to the entire economy,” the BLSA says.
The BLSA Tracker covers the Operation Vulindlela reforms but adds others. It groups the 240 individual policy areas it tracks into three areas: Criminal Justice Policy Initiatives, Governance, and the Economy. One of three ratings is given to implementation: green – indicating the policy initiative is on track; orange, which indicates policy initiatives have started but blockages remain; and red, which shows significant blockages.
The Criminal Justice policy area shows three areas as green and four as orange. Governance shows two greens, four oranges and one red. A red is given to the task of reducing the size of government, crucial to controlling the fiscal deficit and public debt. The Economy ratings show seven greens, five oranges and one red. The red is the disaster area of passenger rail, which the ANC has been saying for many years it wants to improve.
An F in my book
It seems that the overall reform effort, with 12 greens, 13 oranges, and two reds, means the number of greens is below those of the orange and red ratings combined. That is an F in my book.
The BLSA tracker covers the Operation Vulindlela, Phase I and II reforms of energy, freight logistics, water use, telecoms, and visa reform, as well as local government, housing, and digital public infrastructure. But it also includes further visa system reforms and those needed to improve the business environment.
The original idea behind Operation Vulindlela was based on a report written by then Minister of Finance, the late Tito Mboweni, six years ago. Mboweni argued that the country needed to turn around its network industries – including electricity, water, transport and digital communications.
Yes, there has been some progress on the Operation Vulindlela goals, but a great deal still needs to be done, and it is all taking a very long time. We now have fewer electricity cuts, due to Eskom bringing in consultants from the original equipment manufacturers to manage power stations, and private producers being allowed to contribute power.
New threats to growth
Any credible reform programme should address the new threats to growth that are not even considered by the BLSA Tracker or Vulindlela.
There is the threat, albeit not immediate, of Expropriation Without Compensation. While the government says it would be a last resort, it is available to use, and this makes potential investors nervous.
Despite the boasts from the government about rising investor interest due to Operation Vulindlela, we still have not seen any compromising on BEE regulations, to allow Elon Musk’s Starlink to invest in SA. A gun placed on the table in the first Act is used by the third.
And even with reform supposedly high on the agenda of the ANC, the new Mineral Resources Bill was unveiled in late May. The mining industry has expressed considerable outrage at the Bill and, if passed, it would stamp a seal saying ‘closed’ on further investment in this sector in SA.
Constant need
The Bill doubles down on racial transformation. It paves the way for the constant need for new BEE investors if the original empowerment investors sell. Other features detrimental to foreign investment, which is very often crucial to mining investment projects, include the restriction of some licenses to black people only, and the application of racial requirements when prospecting licenses are issued.
The Bill is one clear sign that the ANC is now rejecting the “strategic compromise” with business in the years after 1994. It is intent on seriously pushing ahead with its National Democratic Revolution, even in a government of national unity.
The Tracker should be noting that.
[Image: Gerd Altmann from Pixabay]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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