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Bold plans to ignite SA's economic revival

T

he South African economy has been growing very slowly, certainly not fast enough to create sufficient jobs for citizens, and this has left the country with an unemployment rate of 27.2 percent.

To address this slow economic growth, President Cyril Ramaphosa has unveiled ambitious measures that are set to ignite growth in the South African economy, boost much-needed job creation and restore investor confidence.

Details of the economic stimulus and recovery plan, which was adopted by Cabinet, were announced by the President recently.

In the main, the plan prioritises areas of economic activity that will have the greatest impact on youth, women and small businesses. It arose from government's concern that, for several years, the South African economy has not grown at the pace needed to create enough jobs or lift its people out of poverty.

Added to this are factors such as public finances being constrained, limiting the ability of government to expand its investment in economic and social development, coupled with the twin evil of recent months, which saw structural weaknesses in the country’s economy aggravated by global factors. These included the rising oil price, weakening sentiment towards emerging markets and deteriorating trade relations between the US and other major economies.

PSM spoke to the Director-General of the Department of Trade and Industry, Lionel October, to unpack the importance of the economic stimulus and recovery plan, and how it will impact on the country’s economy.

October said the objective of the plan is to lay the building blocks needed to take the economy to higher levels of growth.

“The first thing that we need to build is investor certainty. People are not spending in this economy; there is lack of demand in the economy. Consumers are not spending because they are under pressure because of high prices. Business is not spending because they are uncertain about the future; government is also not spending sufficiently, and for the economy to grow there must be spending so that we can build more factories, offices and produce more products,” he explained.

In an effort to turn things around and create an environment that would make more investors certain about South Africa’s economy, October said government and business have solved issues related to the mining charter and it has been finalised.

He added that issues that affected the tourism sector such as many restrictions around visa applications have also been resolved to allow more tourists into the country.

“The package [economic stimulus and recovery plan] focuses on restoring investor confidence by addressing policy uncertainty in various sectors including mining, tourism, telecommunications and agriculture among others. The positive effect of addressing policy uncertainty will spread beyond the affected sectors to the economy as a whole,” stressed October.

He said addressing policy uncertainty would grow domestic and foreign investment in the South African economy.

According to President Ramaphosa, the stimulus and recovery plan consists of a range of measures, both financial and non-financial, that will be implemented immediately to ignite economic activity. It will also restore investor confidence and prevent further job losses as well as create new jobs. Another possible outcome will be to address some urgent challenges that affect the conditions faced by vulnerable groups among our people.

The stimulus and recovery plan has the following five broad parts:

• Implementing growth–enhancing economic reforms.

• Reprioritising public spending to support job creation (R50 billion).

• Establishing an Infrastructure Fund.

• Addressing urgent and pressing matters in education and health.

• Investing in municipal social infrastructure improvement.

“The central element of the economic stimulus and recovery plan is the reprioritisation of spending towards activities that have the greatest impact on economic growth, domestic demand and job creation, with a particular emphasis on township and rural economies, women and youth.

“Our government has limited fiscal space to increase spending or borrowing; it is imperative that we make sure that the resources that we do have are used to the greatest effect,” President Ramaphosa said.

The reprioritisation of spending will take place within the current fiscal framework and in line with the normal budgetary process.

“In total, the plan will result in reprioritised expenditure and new project level funding of around R50 billion. The Minister of Finance will provide more detail about the final amounts involved and the specific areas affected during the Medium Term Budget Policy Statement,” said the President.

Government is accelerating the implementation of the following key economic reforms that will unlock investment opportunities, grow the economy and create much-needed jobs. There are also plans to:

• Revise visa requirements to boost tourism and attract highly skilled foreigners.

• Implement the new Mining Charter to revitalise the mining industry and provide certainty to investors while charting a sustainable path towards a transformed and inclusive industry.

• Reduce the cost of doing business by reviewing the price of electricity, as well as port and rail tariffs. This will boost exports and make South African industries more competitive.

• Allocate high-demand radio spectrum to enable licensing that will unlock significant value in the telecommunications sector, increase competition, promote investment and reduce data costs.

• Lower data costs to provide relief for poor households and increase the overall competitiveness of the South African economy.

• Expand procurement from small business and cooperatives, as well as crack down on illegal imports.

• Reprioritise government spending towards activities that have the greatest impact on economic growth, domestic demand and job creation, particularly for township and rural economies, women and youth.

• Support black commercial farmers – through blended finance from the Land Bank, Industrial Development Corporation and commercial banks – to increase their entry into food value chains and access to infrastructure like abattoirs and feedlots.

• Finalise the signing of 30-year leases to enable farmers to mobilise funding for agricultural development.

• Enable the advisory panel on land reform to advise government on the implementation of a fair and equitable land reform process that redresses the injustices of the past, increases agricultural output, promotes economic growth and protects food security.

• Reprioritise three regional and 26 township industrial parks as catalysts for broader economic and industrial development in townships and rural areas.

• Establish a township and rural entrepreneurship fund to provide finance to scale up existing projects or provide start-up capital for new projects.

• Allocate additional funds to address the dire state of sanitation facilities in many public schools and ensure the completion of 1 100 sanitation projects in the current financial year.

• Provide funding to fill 2 200 critical medical posts, including nurses and interns, and also buy beds and linen to address some of the shortages in government hospitals.

• Expand and maintain infrastructure, which has the potential to create jobs and attract investment.

• Establish a South African Infrastructure Fund, in partnership with the private sector, to unlock the potential to create more jobs by rolling out, building and implementing infrastructure projects.

• Establish a dedicated Infrastructure Execution Team (with project management and engineering expertise) in the Presidency to oversee project design, funding and completion.

• Direct infrastructure funding towards provincial and national roads, human settlements, water infrastructure, schools, student accommodation and public transport.

• Unlock infrastructure spending in 57 identified priority pilot municipalities in the short term. This spending will cover, among other things, sewerage purification and reticulation, refuse sites, electricity reticulation and water reservoirs.

• Extend the Employment Tax Incentive for a further 10 years, with a review after five years, to provide greater support for public employment programmes.

October said for the first time there is going to be a strong coordination mechanism from the Presidency, and the main purpose is to start implementing the plan immediately.

“There will be regular monitoring and the President will be seconding expertise from the business sector,” he added.

October pointed out that while government creates the conditions and the environment for the plan, it is the communities and the private sector that are supposed to implement it.

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