ANALYSIS: From spectrum to energy, Treasury's growth plan sees a bigger role for the private sector | Fin24
 
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ANALYSIS: From spectrum to energy, Treasury's growth plan sees a bigger role for the private sector

Aug 28 2019 20:51
Ferial Haffajee

The National Treasury’s growth plan to boost employment by one million and move the needle on growth by two to three percent says spectrum should be released by auction with only a small set-aside for government.

It also recommends that renewable forms of energy make up a far bigger part of energy planning and says that if Eskom sold off its coal-fired power stations, it could clear debt.

The Eskom restructuring document is being finalised for release over the next week; Icasa released a spectrum auction plan in July and this one forms part of that compendium.

If anything, the hook for the release may be next week’s World Economic Forum on Africa meeting in Cape Town, where SA wants to put on a good show for the global multinationals and rest of Africa’s leaders, who will gather in the Mother City.

Another reason is that Ramaphosa will soon mark 100 days in office, and he is preparing a report to the nation.

Spectrum changes

The spectrum auction which will free up broadband (and bring down the costs of data) and boost growth differs from a policy paper released by the regulator Icasa (Independent Communications Authority of South Africa), which provides for a much bigger state-owned network.

"Government should release spectrum through an auction with a small set-aside for a government-controlled network, and competition should be allowed in Telkom’s infrastructure that connects the local exchange to residential homes and businesses," says Treasury’s growth paper, released on Tuesday evening. Telkom and government have long resisted the liberalisation of the last loop of the network, as it is the most valuable.

Electricity supply

"In energy planning, the base case of the Integrated Resource Plan (IRP) should be unconstrained so that all policy options can be compared relative to the least cost option," it adds.

"An independent transmission company, to be created from the unbundling of Eskom, should buy electricity transparently from independent power producers."

Trade unions at Eskom are opposed to any private sector participation or outright privatisation of any part of the electricity value chain.

Icasa independence

In addition, Treasury has recommended that Icasa be given more independence. There have been problems where the regulator’s funding has been withheld when the Department of Communications did not approve of its strategy.

"The Independent Communications Authority of South Africa’s (Icasa's) proposed economic regulation component should be independent of line departments and directly funded from industry levies, as per international best practice. The state should leverage private-sector expertise in the broadband roll-out, rather than relying exclusively on state-owned companies (SOCs)."

Monopolies and competition

While the growth paper (it’s not a policy or a Cabinet statement) is more business-friendly than successive ANC run governments have been, it is also tough on monopoly practices. For example, the paper recommends that exclusive leases where retailers win exclusive leases in malls be ended.

"Addressing exclusive leases is critical to creating more competition among supermarkets," says the Treasury.

And it says that the SA Reserve Bank should make switching between banks easier for consumers.

"Switching costs could be reduced by instituting a regulated switching process with mandatory timelines in banking and telecommunications. The South African Reserve Bank should exempt consumers from interest, penalty fees, and other charges incurred due to delays in switching bank accounts," says the paper.

So what's the plan, really?

The Treasury paper is the outcome of symposiums of leading local and global economists brought together by Finance Minister Tito Mboweni. It is a remarkably honest document, but it is also odd in that it sounds as if Treasury is not part of the government.

"South Africa’s current economic trajectory is unsustainable: economic growth has stagnated, unemployment is rising, and inequality remains high. The government should urgently implement a series of reforms that can boost South Africa’s growth in the short term, while also creating the conditions for higher long-term sustainable growth," it says.

"Delivering a capable state supported by a new compact between the government, private sector and other social partners," is envisaged as the delivery method of the plan.

"Network industries such as energy, transport, and telecommunications provide essential services that underpin the growth, productivity, and competitiveness of an economy. South African network industries face some challenges including the absence of efficient economic regulation, old and poorly maintained infrastructure, a lack of access to quality services, and poorly managed state-owned companies," adds the document, which also says that Transnet should be restructured so that it is easier to track the effectiveness of transport subsidies and incentives to boost exports.

"A 10 per cent increase in fixed broadband penetration leads to a 1.35 per cent increase in GDP growth in developing countries and a 1.19 per cent increase in developed economies A one-day reduction in inland transport times in Sub-Saharan Africa can lead to a 7 per cent increase in exports," the Treasury’s paper finds, citing various research papers.

In addition to the focus on network industries, the paper makes recommendations on how to tweak industrialisation plans which it agrees is a key economic stimulus.

"Rationalising the Industrial Policy Action Plan (IPAP) to improve its efficacy: the latest iteration of IPAP focuses on thirteen sectoral areas with numerous interventions under each (in addition, there are eight transversal focus areas)." The paper recommends streamlining the number of sectoral areas to fewer.

It also says that tourism is a growth driver and that tourism support agencies (like SA Tourism) need bigger and better budgets.

The third focus area of the paper is on the need to grow the small and medium-sized sector of the economy, which has the greatest potential for both growth and employment, but it is being choked in red tape.

"While large businesses have the resources to navigate their way in a variety of circumstances, the combination of impediments such as a high regulatory burden, inflexible labour markets, and high levels of concentration present significant obstacles for small business," says the paper.

While analysts say the paper is a throw-down to the government by the Treasury, this may not be so. The paper is one of many documents which undergird the reform initiative of President Cyril Ramaphosa and which are now being released.

economy  |  economic policy  |  growth
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