SA currently on 73% deficit on economic reform progress – GHL

DA MP says Economic Structural Reform Tracker is the first step to hold the President accountable

DA’s Economic Structural Reform Tracker shows that South Africa is currently on a 73% deficit on economic reform progress

13 October 2020

Note to Editors: The following statement was delivered during a press conference on the launch of the DA’s Economic Structural Reform Tracker.

Please find attached a soundbite by Geordin Hill-Lewis MP.

Today marks exactly 508 days since President Cyril Ramaphosa delivered his Presidential inauguration speech at the Union Buildings in which he called for an economic compact to drive growth and economic opportunity. Since then, however, the economy has continued its downward trajectory, with the unemployment rate reaching an unprecedented all-time high.

When Covid-19 hit our shores early this year, it delivered the final blow to an economy that was already in deep crisis due to years of policy inertia and entrenched structural problems. The 51% annualised quarter-on-quarter GDP contraction of the economy, announced by StatsSA, was a wake-up call to the undeniable fact that we can no longer afford to delay the implementation of the much-needed economic structural reforms.

The economic devastation brought about by the Covid-19 hard lockdown, has forced the government’s hand. A programme of economic structural reform has become imperative, not to grow the economy, but to save it from destruction.

Several warnings have been issued by bodies such as the International Monetary Fund (IMF) and rating agencies that unless South Africa embarks on an urgent programme, the country’s economic crisis will only worsen. A draft Economic Recovery Action Plan, worked out by President Cyril Ramaphosa and NEDLAC, has been touted as a blue print to ‘fast track urgent structural reforms” and stimulate economic growth.

The DA has taken the first step to hold the President accountable to this commitment by introducing an Economic Reform Tracker. The tracker’s primary purpose will be to act as a progress assessment tool for economic reforms. In times past, the government’s approach to reform has been replete with numerous plans and rhetoric with zero implementation. The reform tracker is a tool that shines the spotlight on the implementation deficit that has so far characterised the government’s approach to reform.

The Economic Structural Reform Tracker can be accessed online at: content.voteda.org/economic-structural-reform-tracker/

The tracker will use a 5 key score weighting system, with 1 representing the lowest score on economic structural reform and 5 representing the highest score, where a structural reform policy has been adopted and its impact measured.

Using this weighting system, the tracker will measure progress on economic structural reform on 5 thematic areas, namely, Public Finance Reform, Energy Sector Reform, State-Owned Enterprise Reform, Reducing Corruption, Labour Market Reform and Sectoral Reforms.

Using this tracker’s methodology, the DA’s initial assessment has shown that out of the 15 reform areas being tracked, 73% of these are still yet to move beyond the rhetoric or conceptualisation stage. This means that the plethora of commitments by various government functionaries to pursue a sustained programme of economic reform has not been met with a corresponding plan of action.

1. PUBLIC FINANCE: Reform Progress: 20%

National debt stabilisation

The process to stabilise national debt should be guided by a clear plan that lays out a clear roadmap of how it will be achieved. National Treasury and the Minister of Finance have, on several occasions, raised alarm on how South Africa’s public finances have become “dangerously overstretched”. However, they have fallen short of committing to specific intervention to addressing this fiscal challenge.

DA action plan: The DA has initiated a Parliamentary process to introduce a Private Members Bill, in terms of Section 73(2) of the Constitution, titled the Fiscal Responsibility Bill [B_2020]. The Fiscal Responsibility Bill (FRB) will ensure that debt levels and debt service costs are kept under control by setting legislative limits on how much the government can borrow each year.

Rationalisation of the Public Sector Wage bill

In the February 2020 budget, the Minister of Finance, Tito Mboweni, committed to cut R160 billion over the next three years from the public sector wage bill to rationalise government expenditure. However, this has been contested ever since by Public Sector Unions which argue that government should honour it previously agreed to wage agreement.

DA action plan: The DA still stands by its position that:

Government should grant inflation-linked increases for all frontline service delivery heroes, while freezing the salaries of all managers and administrators and reducing the 29 000 millionaire managers in the public service by a third.

Enforcing reductions and a hiring freeze on all managerial positions (non-OSD levels 11 to 16) until the number of managers is reduced by a third.

Freezing the wages of the 33.7% of public servants not covered by the Occupation Specific Dispensation (OSD) (including the likes of highly paid head office managers and supervisors).

2. ENERGY SECTOR REFORM: Reform progress: 40%

Independent Power Producers (IPPs)

It is encouraging that the government has gazetted s34 determinations which will allow the procurement of 11 813 MW of electricity and storage from independent power producers (IPPs). The s34 determination will enable the procurement of 6 800 MW of solar and wind generation, 3 000 MW of gas generation, 1 500 MW of coal generation and 513 MW of storage. It creates an implementing framework for the Integrated Resource Plan, adopted a year ago.

It is now critical that the IPP Office works to speedily issue the necessary requests for proposals and open the next bid window for renewables.

DA action plan: The DA will use the oversight avenues at our disposal to ensure that the Energy Department begins the process to immediately sign permissions for Independent Power Producers to provide additional power to the grid via qualifying municipalities, in terms of Section 34 of the Electricity Regulation Act.

Eskom Reform

While Eskom’s CEO has initiated a process to facilitate the unbundling of the entity, in June 2020 he told Parliament that Eskom may miss its target to split into three separate units by 2022 due to legal processes. The recently published NEDLAC Economic Recovery Action Plan seeks to achieve energy security through:

Fast track the implementation of self-generation projects above 1 MW through shortening approvals and NERSA licences;

Ensure new and affordable generation capacity by accelerating the implementation of the Integrated Resource Plan (IRP), including the release of RFPs for the next bid window of the Independent Power Producer Programme (IPPP) by January 2021.

DA action plan: The DA will review the six-weekly/two-months implementation reports of the Presidential Working Committee (PWC) set up to track progress on the implementation of the NEDLAC economic recovery plan.

Incentivising power generation by private citizens

Immediate steps should be taken to provide income tax incentives to individuals to enable them to generate electricity at their private residences for their own consumption. Despite the continuing energy crisis, the government still does not have a national policy on power generation by private individuals at household level.

DA action plan: The DA proposed an Emergency Solar Rebate (ESR) that would offer tax rebates for solar systems installed at residential properties. The Emergency Solar Rebate would be available for three years only, designed to alleviate our current energy crisis, and would work as follows:

100% tax deduction for the cost of installed solar equipment, up to a maximum of R75 000.

The purchaser would fund the cost of installation upfront, and would claim the cost against their taxable income at time of submitting their ordinary annual returns.

3. STATE OWNED ENTERPRISE REFORM: Reform progress: 20%

Transparency and accountability in SOE management

SOEs must become more transparent in order to minimise the opportunity for corruption. A major reason for the corruption is the lack of clear and transparent procurement of contracts and tenders for politically connected parties which have hampered service delivery.

DA action plan: The Public Finance Management Amendment Bill, introduced by the DA, was tabled in Parliament in July 2020. Its proposals will go a long way in promoting transparency in financial reporting by SOEs. The bill aims to “provide for additional measures in instances where the executive authority fails to table an annual report and financial statements of a department or a public entity, and the audit report on those statements, in the National Assembly or the relevant legislature”. The bill also proposes that the annual report, financial statements, and the audit report on such statements referred to in section 65 of the Public Finance Management Act be tabled within 60 days after a written explanation has been tabled.

Public-private partnerships

Government must accelerate the process of restructuring ownership. This requires the government to look at the partial or full privatisation of a number of SOEs by bringing in private equity partners and disinvesting from non-core SOEs urgently. Privatisation which can stimulate a more dynamic industrial infrastructure; provide SOEs with the fiscal discipline of the marketplace; and bring in vital cash injections, skills, systems and expertise.

South African Airways (SAA) liquidation or sell

The government-sponsored business rescue process at SAA is one clear example which shows that the ANC led government is not concerned about rising levels of public expenditure, debt and budget deficits. Despite Treasury warnings that the fiscus will not be able to shoulder another bailout for the airline, a R10,5 billion bailout has been approved. The DA has consistently held the position that SAA should either be liquidated or sold to private investors. There is no prospect of the re-imagined airline ever being able to turn a profit in 3 years as suggested by the BRPs. The global airline industry is in deep crisis due to Covid-19 and it will take a while before a return to profits is achieved.

DA Action Plan: The DA will oppose an Appropriation Bill that may be drawn up to fund the SAA bailout. We will encourage South Africans to make submissions to Parliament to oppose the abuse of their taxpayer money to fund a defunct business entity such as SAA.

4. REDUCING CORRUPTION: Reform progress: 20%

Consequence management in Public Finance Management

Wasteful and fruitless expenditure has remained a perennial problem in successive Auditor General reports. When corruption is unearthed, whether at national, provincial or local government level, rarely is anyone ever held accountable. Consequence management in Public Finance has remained weak and any attempts to address this have not been deterrent enough, as the scourge of corruption has continued to increase. It remains to be seen whether the recently amended Public Audit Act, which empowers the Auditor General to recover monies lost through financial mismanagement and corruption through a referral of fraud and irregularities to relevant agencies for investigation, will lead to a reduction in mismanagement of public funds.

State procurement reform

The Covid-19 procurement scandal has brought into sharp focus questions about what needs to be done to insulate the state procurement system against corruption. At the centre of this problem is the issue of lack of transparency around tender processes. ‘Pre-qualifying criteria’ often misused in requests for tender to arrive at a predetermined winning bidder are a site of massive abuse and should probably be scrapped. In addition, there should be a clear legal prohibition on family members of politicians or civil servants doing business with the state. It is imperative that the draft Public Procurement Bill is passed into law as it will enable effective, efficient and transparent procurement of goods and services while insulating the system from corruption.

DA action plan: The Public Procurement Bill introduced by national Treasury, while designed to promote transparency and accountability in the public procurement process, has some grey areas which could affect its effectiveness in stamping out corruption. The DA will not support the Bill in its current form because:

The proposed office of the Public Procurement Regulator is not independent in the true sense of the word. Its location within national Treasury could render it incapable of exercising its authority without fear or favour.

Section 95(2)(b) allows for undue interference in local government by Provincial treasuries as it empowers the latter to determine whether a local government procurement is urgent or not.

5. LABOUR MARKET REFORM: Reform progress: 20%

Removing barriers to employment creation

In the South African context, sectoral minimum wages are key to save and create more jobs. Sectoral Minimum Wages are important to ensure the rights of working South Africans are protected and to guard against the abuse of the most vulnerable members of our society. The government has however chosen to push for erroneous labour legislation that shuts millions of South Africans out of the labour market. The recently introduced Employment Equity (EE) Amendment Bill will empower the Minister of Employment and Labour to set numerical EE targets for any national economic sector. This confers upon the Minister a degree of coercive racial control that is completely incompatible with the principles of a market-based economy.

DA action plan: The DA will be opposing the EE Amendment Bill in its entirety. Instead, we will propose the establishment of an independent panel – that cannot be unduly influenced by politicians, big business or big labour unions – mandated to set minimum wages for each sector, taking into consideration all relevant factors, including the need to create jobs. This approach would allow, in some sectors, the setting of a minimum wage higher than that proposed, while protecting the vulnerable in our economy.

Improving youth access to the labour market

South Africa’s 29,1% unemployment rate disproportionately affects the youth more than any other working demographic in the country. Stats SA indicates that there 20.6 million people between 15 and 34, of whom 34.1% are categorised as NEET — neither employed nor in any form of educational institution or training facility. The recently revised National Youth Policy does not offer any new ideas of how to overcome the unemployment scourge. It simply regurgitates the proposals that were contained in the previous version. It is a reflection of the policy lethargy that currently exists in government on the key question of how to build an inclusive economy that creates opportunities for the youth.

DA action plan: There are simply not enough voluntary programme or internship opportunities to absorb young secondary school graduates who decide not to pursue tertiary education. The government can play an important function in providing young South Africans with work experience and an opportunity to serve their country through a Voluntary National Civilian Service Year, gaining transferable skills and experience to meet labour force demands. Every matriculant who does not qualify for tertiary education will be offered this programme and paid a stipend for the opportunity to serve their country or community in return for valuable work experience. This experience will be in strategic public sector areas such as the police, education and healthcare and the programme will serve as a platform for further opportunities in young peoples’ chosen sector.

6. SECTORAL REFORMS: Reform progress: 20%

Auctioning spectrum

Auctioning digital spectrum to individual Electronic Communication Network Services (iECNS) license holders would raise R5 billion. Successive Ministers in the Communication portfolio have either failed to facilitate the auction of digital spectrum or have been the stumbling block in expediting the process. The recently published NEDLAC economic recovery plan has provided new impetus digital spectrum auction. It has committed to releasing high demand spectrum to iECNS by December 2020.

DA Action Plan: The DA will review the six-weekly/two-months implementation reports of the Presidential Working Committee (PWC) set up to track progress on the implementation of the NEDLAC economic recovery plan.

Ease of doing business

The Ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operation stronger protections of property rights. Economies with a high rank (1 to 20) have simpler and more friendly regulations for businesses. South Africa is ranked 84 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of South Africa deteriorated to 84 in 2019 from 82 in 2018.

South Africa’s last highest ranking was in 2008 when it stood at 32 on the ranking list. Since then, the country’s regression on the ease of doing business has been met with a corresponding decline in the economy. The Ease of Doing Business Report indicates that South Africa implemented one single reform in 2019 and only four in the past five years.

Individual rankings have slipped to even lower levels than before. For example:

Starting a Business 2019 – 134 to 2020 – 139

Paying Taxes 2019 – 46 to 2020 – 54

Registering Property 2019 – 106 to 2020 – 108

Trading Across Borders 2019 – 143 to 2020 – 145

Dealing with Construction Permits 2019 – 96 to 2020 – 98

Through a working group collaboration with the World Bank, the Department of Trade and Industry has set itself targets to improve South Africa’s ranking on the ease of doing business.

DA Action Plan: The DA will use its presence on the Parliament Portfolio Committee on Trade and Industry, together with the reports from Presidential Working Committee (PWC), to monitor the progress of policy reforms actions on starting a business, paying taxes, registering properties, cross border trade and infrastructure permits.

Mining regulation

South Africa’s mining industry shrank during the commodities boom of the early 2000s largely due to investor forbidding mining laws. The National Development Plan called this “an opportunity lost” and called for mining laws that were ‘predictable, competitive and stable’. Even with this realisation, the industry still remains highly regulated punctuated by persistent regulatory and policy uncertainty.

Proposed amendments to the Mineral and Petroleum Resources Development Act will stifle investment in the sector as it places onerous requirements on labour relations and empowerment which could hinder employment creation. In addition, the proposed guidelines for the resettlement of communities surrounding mines ignores the rights of actual communities located in the vicinity of mining operations.

The Mining Charter still remains an area of contestation between government and industry players. Even if it only relates to existing mining rights, the ‘once empowered always empowered’ clause means that if an application is made to renew a mining right, an existing economic empowerment strategy will have to be restructured to align with the new levels. Minerals Council of South Africa is fighting this proposed clause, arguing that a renewed mining right should not require new or additional expectations.

DA Action Plan: DA MPs on the Mineral Resources and Energy committee will oppose the proposed job killing amendments to the Mineral and Petroleum Resources Development Act. The DA will instead propose progressive amendment to the Act that recognise the need to balance an investor friendly labour regime with employment creation. The DA opposes the ‘once empowered, always empowered’ clause in the Mining Charter and strongly believes that it should be removed completely. We will petition and have direct engagements with the Minister to ensure that this clause is not only removed but the Charter inspires confidence among mining investors.

Issued by Geordin Hill-Lewis, DA Shadow Minister of Finance, 13 October 2020