Q: How would you assess the health of South Africa’s economy today, compared with 12 months ago?
A: Overall, the South African economy is in good, fighting shape. The levels of economic activity are not quite where we want them to be yet, but we are also seeing some of the economic reforms gaining traction and making an impact on our long-term prospects.
Considering that 12 months ago we had just seen the largest economic contraction on record, the recovery to growth of 4.9% in 2021 was certainly encouraging.
Following two consecutive quarters of growth, the economy contracted by 0.7% in the second quarter of 2022. This was mainly down to the impact of the floods in KwaZulu-Natal, the frequent periods of load shedding, rising inflationary pressures and escalating global pressures.
Q: What is the outlook for the remainder of this year and into 2023?
A: It is difficult to say what the final two quarters of the year will deliver in terms of economic growth. As the International Monetary Fund has said in its most recent World Economic Outlook in July, uncertainty has increased. Geopolitical risks, especially the Russia-Ukraine war, present serious threats to the growth outlook, through rising energy prices, higher inflation, rising cost of borrowing and slower global growth.
We are, however, confident that the economic and structural reforms we are implementing will help our economy weather the storm. There are also green shoots, opportunities that are specific to South Africa, such as increased demand for mineral and agricultural commodities like coal and maize. Our reforms in the freight rail, port and network industries are specifically targeted at making it easier to get exports to market faster.
Q: It has been two years since the announcement of the Economic Reconstruction and Recovery Plan (ERRP). What have been the main success of the plan so far, and what are the priorities for the remainder of the year and into 2023?
A: Our plan is to tackle the structural constraints to economic growth through the ongoing implementation of the ERRP and Operation Vulindlela — a joint initiative between the national treasury and the presidency. The key areas we are focused on are energy, telecommunication, transport and visa reform.
The overarching aim is to raise productivity and competitiveness in the economy, to enable the country to compete in key export markets, and rapidly bring down unemployment, poverty and inequality.
We’re also placing a particular focus on energy availability. It is quite clear that the lack of reliable electricity supply has been a major constraint to growth and will continue to be, in the near and long term. You could say that some of the European and North American countries are beginning to face a similar situation, and it is clear that any solution must involve government, the private sector, as well as citizens.
I am happy to say that Operation Vulindlela has also achieved some key milestones in energy sector reform. We’ve raised the licensing threshold for embedded generation from one megawatt to 100 megawatts, unlocking private investment with an estimated 80 projects in the pipeline.
it is quite clear that the lack of reliable electricity supply has been a major constraint to growth and will continue to be
The clean energy projects approved under Bid Window 5 of the Renewable Energy Independent Power Producer Procurement (REIPPP) programme are expected to close in September, and request for proposals for Bid Window 6 have been released under REIPPP to procure additional private generation.
We have also made some progress in regulatory reforms. Municipalities are now allowed to procure new generation capacity. The restructuring of state power firm Eskom into three entities — for transmission, generation and distribution — is underway.
A National Energy Crisis Committee has been established to provide overall political coordination of the responses to the energy crisis. The Committee is chaired by the President and includes ministers in the presidency, mineral resources and energy, forestry, fisheries and the environment, public enterprises, finance and trade, industry and competition. This is a reflection of the urgency with which we are addressing the electricity crisis.
Q: You’ve spoken recently about the shortfall in infrastructure investment during the past years. What have been the main causes of the shortfall, and how is the government planning to boost investment?
A: The ERRP rightly places infrastructure at the heart of our goal to achieve a faster and labour-intensive rate of economic growth. Our stated goal is that total investment should be at least at 30% of GDP. Currently we’re struggling to reach even half of that.
There are four main issues that have obstacles to investment in infrastructure: the government’s own investment levels have not been sufficient, and this includes underspending of conventional infrastructure budgets by various arms of the state. There has also been under-provision of maintenance budgets.
Governance is a third issue. There has been considerable waste and corruption in the selection and execution of infrastructure projects. Sadly, we’ve also experienced a steep decline in the delivery of Public Private Partnerships.
That’s why, in 2020, we established Infrastructure South Africa as a facility to overcome hurdles in project preparation. We have capitalised the Infrastructure fund to the tune of R 100 billion over the next five years. We are walking the talk.
Additionally, in the budget in February we raised allocations to public infrastructure by 30% to R812 billion for the current three-year medium-term expenditure framework. We are getting to the roots of underspending by government institutions and we are working with a number of stakeholders to create a viable pipeline of infrastructure projects.
Q: Corruption was recently flagged (along with jobs) as the key concern among the South African youth. What measures are being taken to tackle corruption?
A: One example of the interventions we are implementing to tackle crime and corruption is the Procurement Bill. The Zondo Commission of Inquiry into Allegations of State Capture highlighted in painful detail the abuses in state procurement. We are currently revising the Procurement Bill to take account of the issues raised. The revised Bill will be served before Parliament before the end of this fiscal year.
In terms of funding, in the 2022 Budget we also allocated additional funds to the National Director of Public Prosecutions to employ more prosecutors to strengthen its ability to deal with high-profile corruption cases.
Q: South Africa is due to find out early next year whether it will be put on the Financial Action Task Force’s (FATF’s) list of jurisdictions under increased monitoring. What measures have been taken to avoid such a move and what still needs to be done?
A: We are painfully aware of the need to act quickly to avoid falling foul of international norms and standards aimed at preventing financial crimes. Law, order and due process are a pillar of our financial and constitutional architecture and how we interact with the world, so we do not take this issue and the impact it could have on our economy and our ability to attract investment, lightly.
We’ve taken a number of steps to avoid “greylisting”, as a department and government as a whole. The recently completed Zondo Commission of Inquiry into Allegations of Corruption and the publication of its final report perhaps best captures the spirit of how we intend to tackle the underlying governance issues at the heart of the deficiencies identified by FATF. There are few places in the world where you will find such thorough and systematic investigation of corruption. However, we know that this alone is not sufficient.
That is why, on August 17, the cabinet approved the tabling of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill in parliament, demonstrating its commitment to the fight corruption, money laundering and terrorism financing.
It signifies a significant step towards addressing the deficiencies identified by the FATF’s October 2021 Mutual Evaluation Report of South Africa. When enacted into law, it will improve South Africa’s adherence to international best practices in combating financial crimes and corruption.
The national treasury has been working closely with officials from the departments of justice and constitutional development, trade, industry and competition, and social development, the Financial Intelligence Centre, the Companies and Intellectual Property Commission and the South African Revenue Service, through an interdepartmental and interagency committee on anti-money laundering/combating terrorism financing chaired by the director-general of the national treasury in preparing an action plan to prevent greylisting, including the development of the draft bill.
