On Friday President Cyril Ramaphosa announced the highly anticipated economic stimulus and recovery plan, which is government’s strategy to spark economic activity; to restore investor confidence; to curb job losses and create new jobs and to address socio-economic challenges of the most vulnerable groups in the country.
The plan comes at the backdrop of high unemployment, wide ranging poverty, growing inequality and an economy that is in a technical recession.
According to a government statement the Cabinet has noticed “ the structural weaknesses in our economy have been made worse by global factors such as a rising oil price, weakening sentiment towards emerging markets and deteriorating trade relations between the US and other major economies. “ Cabinet’s economic stimulus and recovery plan is based on five legs, i.e. implementation of growth enhancing economic reforms ; reprioritisation of public spending to support job creation; the establishment of an Infrastructure Fund ; addressing urgent and pressing matters in education and health; investing in municipal social infrastructure improvement.
The elusive 6% growth in GDP that will result in job creation seems to be more difficult to achieve, bearing in mind the latest socio-economic figures, for example the 27% unemployment, VAT increase of 1%, an unprecedented fuel price and a producer price inflation of 6.1 % in July of this year, which is the highest in 18 months
According to the statement amendments will be made to regulations regarding the travel of minors, the list of countries requiring visas to enter South Africa will be reviewed, an e-visas pilot will be implemented, and the visa requirements for highly skilled foreigners will be revised. These measures are meant to enhance tourism and to encourage business travel.
Cabinet also approved the revised Mining Charter following consultation with the mining industry, communities, labour and government. “It is imperative that South Africa restores investment and exploration levels in the mining sector as mining and mineral beneficiation activities have significant potential to drive long term growth, exports and job growth. This will revitalise the mining industry and provide certainty to investors while charting a sustainable path towards a transformed and inclusive industry.” President Ramaphosa observed.
Government will also consider cutting the “administered prices” of electricity, port and rail tariffs to reduce the cost of doing business and to boost exports that should ultimately result in a more competitive South African industry. The long overdue process of allocation of high-demand radio spectrum t will be kick started in the next few months which will reveal significant value in the telecommunications sector, increase competition, promote investment and reduce data costs.
President Ramaphosa said that the core element of the plan is the reprioritisation of spending in favour of 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. In this regard re-prioritised funding will be directed towards investments in agriculture and economic activity in townships and rural areas. Black commercial farmers will benefit from a “package of support measures” that is intended to ensure that they enter the food value chain by assisting them with access to infrastructure like abattoirs and feedlots. The Land Bank, Industrial Development Corporation and commercial banks will be approached to finance the initiatives and to generally make agricultural financing easier. In a significant move as part of the plan, government will finalise the signing of 30 years leases to enable farmers to mobilise funding for agricultural development.
Reprioritised funding will also be re-directed to spark economic activity in townships and rural areas, which will result in 3 regional and 26 township industrial parks being revitalised. Additionally a township and rural entrepreneurship fund will be established to provide finance to either expand existing projects or provide start-up capital for new projects.
The public health and education sectors will benefit from resources that will be redirected to deal with the calamitous state of toilets in many public schools thus ensuring the completion of 1100 sanitation projects in the current financial year. Beds and linen will be sourced immediately for hospitals where these are needed urgently, while the National Health Council will immediately fill 2200 critical medical posts, including nurses and interns. The reprioritisation of expenditure and new project level funding is believed to be around R50 billion.
The stimulus and recovery plan has identified infrastructure spending as a critical driver of economic activity and has placed it as one component to create jobs on a large scale, attract investment and lay a foundation for sustainable economic expansion. Cabinet intends to establish a South Africa Infrastructure Fund which according to the President will “fundamentally transform the approach to the rollout, building and implementation of infrastructure projects.
The lessons we learnt in the 2010 World Cup infrastructure rollout will stand us in good stead as we set out this fund.”
Government will contribute R400 billion to the fund over the medium-term expenditure framework period while it anticipates additional funding to be leveraged from developmental finance institutions, multilateral development banks, and private lenders and investors. In attempt to prevent corruption and inefficiency a dedicated Infrastructure Execution Team in the Presidency that has extensive project management and engineering expertise will assist with project design and oversee implementation. “As part of the reprioritisation of spending, additional infrastructure funding will be directed towards provincial and national roads, human settlements, water infrastructure, schools, student accommodation and public transport” Ramaphosa mentioned.
Also included in the plan is the reprioritised funding for 57 priority pilot municipalities in order to unlock infrastructure spending in the short term that is intended for sewerage purification and reticulation, refuse sites, electricity reticulation and water reservoirs.
Labour Federation COSATU cautiously welcomed the plan according to a statement released on Sunday. Sizwe Pamla, the Federation’s National Spokesperson said that while they support the initiatives outlined in the plan, more needs to be done such as filling all 149 000 vacancies in the public sector and intervening to stop planned retrenchments in SAA, SABC and ESKOM. COSATU is also concerned about the lack of details in the plan and is hopeful that National Treasury will provide more detail of how funds will be shifted around. “Whilst we applaud and support the President’s efforts, too many of his ministers, premiers, mayors, SOE executives and DG’s are simply incapable of resuscitating this economy. The sooner something is done about bureaucratic arrogance, incompetence and mediocrity the better.” Pamla concluded.