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The Stimulus Plan Tracker - 13 months in, it is failing

Oct 15 2019 13:56
Ferial Haffajee

Thirteen months ago, President Cyril Ramaphosa and his Cabinet launched an emergency stimulus plan as the economy and it has failed.

Fin24 has tracked the stimulus plan implementation (see graphic) and found while there is some progress, on the whole implementation is weak and slow. On reading the numbers, six of the 12 ideas have been implemented, signalling a 50% pass or fail, depending on what you regard as adequate. 

And of the six areas not implemented, this includes big-ticket items, so it’s clear why the economy has not been resuscitated at least to a point of basic recovery. 

In designing the stimulus plan, Ramaphosa and his Cabinet sought to unblock long and intractable problems like dealing with uncertainty in mining and agriculture. The threatened land expropriation without compensation laws choked off investment and growth. In the mining sector, South Africa lost out on two consecutive booms because the government and the industry could not pass the mining charter, the bedrock document underpinning policy. Visa reform was a third form of targeted unblocking.

Twinning the concept of unblocking was to find means of public investment that would have stimulus effect like infrastructure investment and the employment tax incentive. In addition to these, the president identified pro-poor methods of bringing ease to the poorest South Africans – these have had some success.

After 13 months, it is clear the plan has not worked, viewed through the lens of macro-economic indicators: growth is still below zero percent – it has continued to flatline. Labour market statistics show absorption is extremely low and among the lowest in the world, yielding still extremely high rates of unemployment.

Stimulus plan tracker

What went wrong?

While the Constitution gives South African presidents tremendous power, the outcome of the stimulus plan reveals that these powers have limits. As much as Ramaphosa wants to unblock economic impediments, he could not do so. While the head of state has taken the burn out of the land debate by putting it into committee (the Presidential Panel on Land Reform and Agriculture), that panel reported in July 2019  but there is no evidence yet that its recommendations are being rapidly implemented. This is because land use and other laws take time to pass and to implement. 

In mining, Ramaphosa promised in September 2018 that the charter would be passed, ending almost a decade of uncertainty, especially on the once-empowered, always empowered law where the industry and government have come unstuck.  This part of the charter pivots on how to define empowerment – at the point of transaction or at the point of measurement.  The problem is that new black shareholders often take the profit and sell out, leaving mines without their empowerment stripes. 

In the growth stimulus areas of data (or connection) and tourism, Ramaphosa promised really quick action on visa reform. But the slow state has meant that both measures are still only in policy and in the pilot. Take spectrum allocation policy: in July, the communications regulator, Icasa, put out a policy paper to guide spectrum release. 

The release of the spectrum which could bring down the cost of data is still a way from being implemented, although Ramaphosa has now insisted that his team draws up a time-table for the auction or distribution of broadband frequency.  In tourism, the president thought it may be possible to quickly introduce visa reform like e-visas, visa-free access and to end the choke on travel that South Africa put on the sector with the unaccompanied minors red tape it wound around prospective visitors. 

Today, (Monday 14 October) Fin24 reports that government will scrap the unaccompanied minors’ laws (which had been moved from mandatory to discretionary to no great effect) and it has introduced visa-free access to four countries since the stimulus plan was announced. But the e-visa process is only now in pilot, with no indication of when it will go to rollout. 

Because Trade and Industry minister Ebrahim Patel is a mover and shaker in Ramaphosa’s Cabinet, his ideas about public infrastructure-driven growth won precedent in the stimulus plan. Last September, Ramaphosa said that a centralised infrastructure fund would be run from the Presidency and he put in place an infrastructure execution team. It would be capitalised with R400bn and draw in private capital, and it would work across 57 priority pilot municipalities.

The work has started. The team is in place and the Khawuleza district development model has been started, but there isn’t R400bn fiscal space to get it going in a way that could revive the beleaguered construction industry. Ramaphosa also promised budgetary measures to cut (or “reprioritise”) spending, which was read as an effort to slim down the 1.3-million staffed state.  That effort has not worked, as Rapport’s Jacob Rooi reported on Sunday that fewer than 3000 civil servants had applied for early retirement – the pivotal idea of how to reduce the state wage bill. The president also promised to review administered prices like those of electricity and water.

With Eskom in a near-permanent crisis, this has not worked and the utility has in fact asked for additional increases from Nersa that could hike electricity prices to 16%  if granted.   

What worked?

The extension of the employment tax incentive for companies who employ young people is working and there is a new national minimum wage is in place. (Although, arguably, these place additional costs on the fiscus through lost revenue which is what an incentive is and the minimum wage laws work against small and medium-size development). 

There is a township and rural entrepreneurship fund and critical health posts are being filled; the VAT exempt basket has been expanded as promised. If you are an optimist, then progress progress can also be tallied in purpose. Things are on track, if on a slow track.

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