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Ramaphosa deploys R400bn economic cannon

Sep 23 2018 06:59
Lesetja Malope And Dewald Van Rensburg
President Cyril Ramaphosa

President Cyril Ramaphosa laughs as he listens to questions from journalists during a press conference outlining measures to stimulate the economy on September 21. (Phill Magakoe / AFP)

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A massive, centralised infrastructure fund, run by experts in the presidency and using private sector managers, is at the heart of President Cyril Ramaphosa’s stimulus package, announced on Friday.

Like other key announcements in the president’s speech, this, however, seems to echo previous announcements by former minister of finance Malusi Gigaba, including a “budget facility for infrastructure”.

Ramaphosa’s fund will receive R400bn from the state over the medium-term expenditure framework period, meaning the next three fiscal years, the president said.

In practice, this seems to mean that all state capital expenditure is going to be centralised.

The existing medium-term budget for infrastructure spending by all spheres of government, excluding state-owned companies and independent public entities, is almost exactly the R400bn Ramaphosa cited.

The budget review of February this year estimated that the three spheres of government would spend R414.2bn on infrastructure in the three fiscal years starting in March 2019.

State-owned enterprises are expected to spend another R368.2bn over the same period.

The fund would be managed by a yet-to-be-announced team of executives based in the presidency, Ramaphosa said at a press conference at the Union Buildings in Pretoria.

It would be used to lure investment from the private sector, and pension funds as well as developmental finance institutions.

Ramaphosa said the fund would draw in private capital through various instruments.

“It is going to be a blended type of fund. It will have equity, quasi-equity, it will have debt, it will be the type where we can structure bonds into it,” he said.

The fund would “fundamentally transform our approach to the rollout, building and implementation of infrastructure projects”, promised the president.

Treasury director-general Dondo Mogajane said the R400bn was a springboard that government would be using, adding that no target had been set on how big the fund should be.

A new Infrastructure Execution Team in the presidency would “assist with project design and oversee implementation”, said Ramaphosa.

“The team will identify and quantify ‘shovel ready’ public sector projects and engage the private sector to manage delivery,” he said.

Speaking to City Press, presidential economic adviser Trudi Makhaya said the delivery of the initiative was what was key, and the real value of the fund lay in attracting investment as prospective investors needed something to pour money into.

“It’s the delivery that is the real game-changer here,” she said.

Makhaya said the fund was meant to lure more funds rather than to duplicate infrastructure functions in other government entities, including the department of public works.

“Where there is duplication, one would have to make a call to say if this is the kind of strategic role that belongs in a presidential unit, or if it is a management operation that belongs in public works.”

NDP TARGET NOW ‘IMPOSSIBLE’

A new report produced by the National Planning Commission to evaluate progress against the National Development Plan (NDP) has declared the NDP employment target to be impossible to meet.

The NDP’s target was full employment by 2030.

The new report, dated September 14 but still unreleased, says: “We no longer believe this can be achieved by 2030.”

Instead, the absolute best possible scenario sees unemployment in South Africa fall to 14% by 2030.

This is if the state’s many governance issues are fully revolved in 2018; South Africa experiences a “growth spurt”; the electricity sector is reformed; digital migration is fully implemented; and economic growth averages 4% from 2020 onwards.

Even the confluence of all these, and more positive developments cannot eliminate unemployment, reads the report, which calls for a national “revitalisation summit”.

PROOF IS IN THE PUDDING

The government has been promoting larger public-private partnerships for years – and the private sector has been professing its willingness to participate for just as long.

Cas Coovadia, director of the Banking Association of SA, said the important thing would be to see how projects get structured for private participation.

“If the plan is just to concentrate the spending in one place, that is fine, that is just a mechanism,” he told City Press.

“The critical issue is to identify and structure the projects – and policy certainty.”

Coovadia pointed to the massive Renewable Energy Independent Power Producer Procurement (Reippp) programme that Ramaphosa has in the past punted as a model for all major infrastructure procurement.

“The Reippp was a success,” he said.

“The financial sector is ready and willing to fund infrastructure if the projects are ready.”

One of the major funders of the Reippp, Absa, recently told City Press that the strength of the Reippp was precisely that there was a single buyer for the electricity – Eskom, backed with Treasury guarantees and certain income from consumers.

Water infrastructure is often held up as another perfect candidate for Reippp-type financing.

BUDGET REALLOCATIONS

Finance Minister Nhlanhla Nene said the plan was clearly crafted in a way that did not expose government to more liabilities.

“We want to make sure that we improve the quality of our spending and ensure that it goes where we get the best returns,” Nene said.

Ramaphosa said the “central element” of the stimulus plan was the reprioritisation of spending.

Altogether, R50bn will be reallocated inside the budget, but details will only be given in the medium-term budget policy statement next month.

It is not yet clear which departments and programmes will lose funding, but the ones getting additional money are health, education and sanitation.

Rumours of massive civil service job cuts aside, Ramaphosa pledged to “immediately” fill 2 200 medical posts.

“Reprioritised funding will be directed towards investments in agriculture and economic activity in townships and rural areas,” Ramaphosa said.

A “township and rural entrepreneurship fund” was also in the works, said the president.

Ramaphosa also gave updates on a number of eagerly anticipated regulatory changes, most of which had already been announced before.

A plan to ease South Africa’s visa rules was announced early this month and the plan to introduce electronic visas was made public in March in Parliament.

Ramaphosa reiterated the scrapping of the amendments to the Mineral and Petroleum Resources Development Act, which included controversial “free carry” stakes for government in oil and gas.

He also announced that the youth wage subsidy, formally known as the Employment Tax Incentive, would be extended for 10 years.

REACTION

Ramaphosa used the language of stimulus, but he did not actually announce any real stimulus, said economist Duma Gqubule.

“There is no new money ... this just isn’t a stimulus. Nothing here will promote growth in the short term,” he told City Press.

“The only plan they have is to tick the boxes the ratings agencies want.

“It was well delivered, and for the first time in a decade we have a head of state who looks good,” he added.

“Ramaphoria 2.0 will be brief once people unpack this thing. It is old salad tossed with new dressing.”

Gqubule pointed out that many points emphasised by Ramaphosa were also in Gigaba’s 15-point plan from last year, including radio spectrum reallocation and visa regime reform.

Gregory Mofokeng, chief executive of the Black Business Council in the Built Environment, said the R400bn infrastructure fund was a very good start.

“We are waiting for more details on where the money will be coming from and the type of projects it will be invested in. Where the industry is and where the country is, we are looking for more resources from the private sector and the public sector to get the economy going,” he said.

Matthew Parks, parliamentary coordinator for labour federation Cosatu, said the federation welcomed the plan even though it was thin on details.

Parks said the real difference between this stimulus package and its predecessor under Zuma was the people in charge.

“The difference is that this time we have a president that does not steal and the team will include people who are from the private sector,” Parks said.

“The economic recovery plan can be welcomed,” said AgriSA’s head of economics and trade, Requier Wait.

“The focus on agriculture and support measures for black commercial farmers can be welcomed. Support towards farmers affected by the longer-term impact of droughts should also be considered. The initiatives focused on agriculture should be based on collaboration between government and organised agriculture,” he said.

Business Unity SA CEO Tanya Cohen said the plan showed that Ramaphosa recognised that business “has a long-term investment horizon”.

“Business welcomes the shift in approach from the government,” she said.

She added that the stimulus “must be funded within the current fiscal envelope” and that the plan cannot be “a panacea for all the country’s economic shortfalls”.

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