Enoch Godongwana and the Reformation – Jonathan Katzenellenbogen


Aside from the Covid-19, the South African economy has been at the center of a whirlwind. Unemployment is at an all time high, while proposed policies such as national health insurance and expropriation without compensation continue to sow fear among potential investors here and abroad. As freelance journalist Jonathan Katzenellenbogen writes, our new Minister of Finance, Enoch Godongwana, “spoke in favor of prescribed assets, the idea of ​​forcing savers to invest part in government bonds.” Apart from that, Katzenellenbogen notes that as a senior member of the party he was close to the decisions “giving the green light to the Expropriation Bill without Compensation”. However, in his new role, he must reassure the markets in order to help the government to borrow. Due to the negative factors plaguing our economy, businesses in South Africa need reassurance. The financial journalist notes that “the government has made great strides in reform and the business climate has been depressed.” – Jarryd Neves

Godongwana and the reform?

Finance Minister Enoch Godongwana spoke forcefully last week on the urgent need for major structural reforms to boost growth.

The appointment two months ago as finance minister of the radical trade unionist and head of the ANC’s Economic Transformation Subcommittee was not a move that could inspire investor confidence. Godongwana spoke in favor of prescribed assets, the idea of ​​forcing savers to partially invest in government bonds. And being in a leadership position of the party, he has clearly been close to the decisions giving the green light to the expropriation bill without compensation. In his new job, he must help the government to borrow and must therefore reassure the markets.

In recent months, companies have urgently needed reassurance. The government has made great strides in reform and the business climate has deteriorated. Godongwana’s comments were an attempt to raise sentiment and possibly also to respond to “billionaire” Rob Hersov’s blunt rhetoric that South Africa is “non-investable”.

At Sunday opening hours At the investment conference last week, we heard words from Godongwana, among his first in public since his appointment, which seemed to increase the chances of deep structural reforms for growth. Godongwana’s five reform areas are the need for a “paradigm shift on Eskom”, freeing up broadband spectrum that could enable lower cost internet services, reducing the country’s emissions, sorting out logistics and changing the environment for doing business by reducing bureaucracy.

Most of them were in the National Treasury’s proposals for boosting growth, launched by then-finance minister Tito Mboweni in 2019, and now managed jointly under the Operation Vulindlela program with the presidency. These reforms have been on the agenda for at least a decade, if not more.

Little real progress

The government appears to be showing an inability, even in the most urgent of circumstances, to move forward even with some of the least costly politically expensive reforms. There has been little real progress on just a few of Operation Vulindlela’s 19 policy reforms that the government says are needed to transform network industries, including electricity, water, transportation and utilities. digital communications.

A glaring gap in Godongwana’s and Operation Vulindlela’s agenda is the need to change labor laws to give the unemployed at least a chance to find work. The other big flaw is that no mention is made of the depressing impact on investment of the demands of empowerment. The government denies the need for reform in these areas, and the big organized companies it talks to about politics seem not to raise these issues. They just don’t want to be too confrontational. And this despite one of the highest unemployment rates in the world. Using the expanded definition, which includes discouraged job seekers, it rose to over 44 percent in the second quarter. And empowerment laws are just a problem for investors, who very rarely want partners who don’t add clear value.

Structural reform without addressing labor laws and the impact of empowerment demands on investor appetites will far from providing the country with a good growth story.

Vulindlela’s types of reforms are “structural reforms aimed at reducing input costs, lowering barriers to entry and increasing competition,” according to a summary released by the presidency.

Among Vulindlela’s reforms, the increased role of independent power producers has certainly been an area of ​​progress, but Eskom remains in trouble and load shedding continues. The precariousness of the country’s electricity supply remains a constraint for the economy and investment. The water supply is in dire straits as many municipal facilities are poorly managed and maintained. Transnet remains plagued by the problems of public enterprises, ports are constrained, road networks generally poorly maintained, passenger rail services are dilapidated and trucks remain in danger on certain highways.

Fat

As stated in Business day, Godongwana’s statements last week were bold. He said the government wanted to “remove all barriers that impact” on the ability of businesses to invest.

His words about Eskom were encouraging and may well show a new way of thinking about government. He pointed out that the government had spent 13 years trying to fix Eskom. “We need a paradigm shift. What should be the goal is to repair the electricity supply. Let’s not talk about Eskom, let’s talk about security of supply.

If the focus is indeed on securing the electricity supply, privatization or allowing independent generators to generate increasing amounts beyond the current cap of 2000 MW is the solution. It might be difficult to sell the current aging fleet of dirty coal plants to international investors, but the private sector could build a new nuclear or gas fleet. As they are brought into service, Eskom’s existing fleet could be withdrawn and Eskom, if necessary, simply left in charge of transmission.

While Godongwana’s short period in treasury could have sparked his ideological shift, it is unclear whether he has the support of the rest of the government.

The second area of ​​Godongwana reform is the urgent release of broadband spectrum. It is not in the hands of the government, but in the hands of the regulator, the Independent Communications Authority of South Africa (ICASA), which has sat on this issue for years. Forced broadband protects large existing operators by giving them greater pricing power. The additional allocation of broadband spectrum is expected to improve the quality of Internet services and lower prices. A series of deadlines have passed for further allocations, but there appears to be no recourse against ICASA.

Godongwana’s other areas of reform – reducing the country’s emissions, sorting out logistics, and changing the business environment by reducing bureaucracy – have also been on the table for years. A significant reduction in emissions is probably impossible without addressing the Eskom mess, shutting down aging power plants and switching to other energy sources, including nuclear.

The mess of logistics

Repairing the logistical mess of poorly maintained road and rail infrastructure and insufficient capacity in ports has been on the agenda since 1994. This will require massive funding and can only really be done once the government has brought order. in his finances.

Finally, it is very difficult to cut red tape in a country where the state is for job creation rather than good governance, and a mass of bureaucrats have a vested interest in filling out forms.

All of these reforms are in line with Operation Vulindlela’s objective: to reduce input costs, lower barriers to entry, increase competition and stimulate growth. But false starts as well as delays and omissions in the agenda show the limits of what the ruling party can accomplish.

There is no apparent tendency to even think of export processing zones under which the deafening hand of labor laws and empowerment regulations could be lifted on an experimental basis. This could be a useful stepping stone to broader reform efforts. As global supply chains change in the wake of the lifting of international lockdowns, we risk re-isolating ourselves detrimentally from the global economy due to sheer intransigence.

  • The writer’s opinions are not necessarily those of the Daily Friend or the IRR
  • If you like what you just read, support the Daily Friend
  • Jonathan Katzenellenbogen is a Johannesburg-based freelance financial journalist. His articles have been published on DefenseWeb, Politicsweb, as well as in a number of foreign publications. Jonathan has also worked for Business Day and as a journalist and TV and radio presenter.

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