South Africa’s economic reform is gaining momentum, but…


The good news is that President Cyril Ramaphosa’s economic reform agenda – the only card South Africa has to grow the economy, create jobs and spur private sector investment – is starting to score some victories.

Two years ago, Ramaphosa launched Operation Vulindlela, a joint initiative between the Presidency and the National Treasury that aims to support and motivate ministries to change the fabric of the economy by implementing a small number of reforms conducive to growth and investment. Since then, out of the 26 measures proposed by Operation Vulindlela, eight have been carried out in network industries, including electricity, water, digital communications and visa/immigration regime.

Individuals and businesses are now allowed to generate electricity for their own needs up to 100 MW, municipalities can source electricity from independent power producers and broadband spectrum worth R14.4 billion was recently auctioned off to telecommunications companies – the first in 18 years.

In other sectors, Operation Vulindlela relaunched the blue and green drop water quality assessment system for the first time since 2014 to expedite the issuance of licenses for water supply to communities. communities; the electronic visa system was revamped to boost the tourism industry; and a list of essential skills was published to attract foreign expertise to South Africa.

These eight measures are essential to facilitate business activity, restore competitiveness and unleash investment and confidence so that the country’s potential growth remains above 3% in the long term.

Although the government is finding its pace in implementing reforms, most of the completed reforms have focused on long-discussed regulatory changes instead of implementing actual reforms. One area where there has been clear implementation of reform is the recent spectrum auction, which injected R14.4 billion into the tax authorities and brings the promise that telecom companies will unlock investment in the next six months to improve the quality of their network and reduce mobile telephony. data costs.

In addition to the eight completed reforms, 11 other measures are on track or in progress, five are delayed and two face serious implementation problems.

Delays in energy reforms

Energy reforms have gone in the wrong direction.

Months after the liberalization of the electricity supply market, megawatts have not been added to the national grid thanks to the energy reforms identified by Operation Vulindlela. Instead, Eskom’s power cuts intensified, with stop-start load shedding.

Eskom’s goal of achieving an energy availability factor (EAF) of 70% – the number of plants in good working order and available to distribute electricity – is becoming out of reach. The Vulindlela operation has also adopted an EAF target of 70%, which is necessary for Eskom’s power plants to operate optimally. Eskom COO Jan Oberholzer revealed that EAF remains “very poor” at around 62%, adding that a target of 70% is unrealistic as EAF’s outlook for the year are likely to decline further.

The process to urgently purchase 6,800 MW from renewable energy players – known as the Risk Mitigation Independent Power Producer Procurement Program, which was first proposed in 2019 – has subject to litigation and administrative delays. Since the procurement program went to market in August 2020, fewer than five of 58 renewable energy projects, mostly from the mining sector, have been registered. The delivery of some of the renewable energy projects is hampered by bureaucracy imposed by the national energy regulator of SA (Nersa), which has onerous registration requirements before energy can be supplied to Eskom and then to the network.

Delays in implementing reforms can be explained by the mandate of Operation Vulindlela. Operation Vulindlela cannot implement reforms or take over government functions. But it monitors the government’s work to mount reforms and provides expertise and technical support to unblock any obstacles to microeconomic reforms.

When Operation Vulindlela was launched, Cabinet ministers were initially reluctant to embrace its intervention, which often led to delays in implementing reforms. Lack of state capacity due to weak leadership and governance, and intense political conflict often led to the abandonment of Operation Vulindlela.

Rudi Dicks, head of the project management unit at the presidency, says Operation Vulindlela now receives overwhelming support. The aim of the initiative is to ensure that the reform agenda moves forward quickly, says Dicks. ” We do not have the time. We have already spent many years not reforming the economy to grow it to create jobs. We have to make sure that we monitor the implementation of the reforms and make sure that they have a real impact. »

Dicks acknowledges that there are delays in implementing energy reforms, saying that the reform of the South African electricity system is complex as it cuts across many government departments (Treasury, Department of Public Enterprises, Mineral Resources and Energy and Environmental Affairs) and Entities (Eskom and Financial Institutions). Often these parties have opposing ideas on how to solve the energy and climate change crisis.

“The energy issue needs to be managed in a way that will ensure the restructuring of the energy market to ensure energy security and cheaper access to electricity for industry and households,” says Dicks.

Critics weigh

Organized businesses welcomed some of the reform progress made so far. But businesses remain skeptical, saying its impact on the economy is limited as many reform measures are still stuck in bureaucracy.

Business Unity SA (Busa) CEO, Cas Coovadia, said: “We welcomed President Cyril Ramaphosa’s announcement to raise the cap to 100 MW. However, private sector power producers are still hampered by inappropriate processes and regulations in Nersa, making it difficult to act on reform. We find similar problems with the essential skills list and other reforms. The problem, therefore, is the capacity and commitment of ministries to eliminate the red tape that prevents companies from taking advantage of the reforms. »

It will be a long time before the positive impact of the reforms is reflected in economic indicators. Economies tend to struggle in the first years of reform implementation because tough economic decisions are made and past bad practices are reversed. This was observed in countries like Brazil, India, Mexico, Argentina and Romania, where attempts were made to lift investment blockages between the late 1990s and early 2000s. .

Dr Lumkile Mondi, a senior lecturer in the School of Economics and Finance at Wits University, says it may take between three and five years before measurable benefits can be achieved from the measures of reform. He says a long period of high unemployment and low growth is here to stay.

The National Treasury’s economic outlook supports Mondi’s views. The economy will be in a downward spiral from 2022: slowing to 2.1% in 2022 (against an expected growth of 4.8% in 2021) and 1.6% in 2023, and record marginal growth of 1.7 % in 2024. DM168

This story first appeared in our weekly newspaper Daily Maverick 168, which is available nationwide for R25.

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