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A NEW MINDSET IS NEEDED TO REALISE SOUTH AFRICA’S DEVELOPMENT AMBITIONS

Ravi Naidoo | 2 March 2023

(Image: iStock)


The results of policy experiments over the past three decades make it clear that South Africa needs to begin to do things differently if it wants different results. We need bold people and institutions to take the initiative and walk through that door.


Aldous Huxley wrote in his classic novel, Doors of Perception, “Experience is not what happens to you; it’s what you do with what happens to you.”


Our country is fast approaching its 30th anniversary as a democracy. This is a long enough time to learn from experience. If Huxley means nothing to you, then perhaps the “probability theory” may offer you another way to come to that same conclusion: if you want to improve your likelihood of success, you need to update your prior beliefs about a hypothesis considering new evidence.


South Africa has nearly three decades of experience and evidence from which to learn.

In December 2021, President Cyril Ramaphosa appointed the third National Planning Commission (NPC), which effectively began its work in February 2022. High on its agenda was the need to consider what has undermined the progress towards achieving the National Development Plan’s Vision 2030 (NDP) — and what to do about it.


As a reminder, the NDP is the long-term blueprint for South Africa’s economic and social development. Its goals are to eliminate poverty and reduce inequality through sustainable economic growth.


The NDP is intended to shape government’s five-year Medium-Term Strategic Framework, which is given financial expression through the three-year Medium-Term Expenditure Framework, as updated by the Minister of Finance each year in his Budget Speech.


Little achieved


When the NDP was adopted in 2012, it postulated that an average economic growth rate of 5.4% would be required to reduce unemployment to 6% by 2030. Instead, as we are all only too aware, South Africa has achieved very little of that economic growth rate in real terms, and factoring in population growth, the economy is smaller per capita now than it was in 2012.


Unless the necessary restructuring and reforms can be put in place to drive up the rates of economic growth, South Africa will not achieve Vision 2030 — or any iteration of that vision in the foreseeable future.


However, we recognise that much progress has been made since 1994.


Whereas 51% of children under 15 years of age were in school in 1994, the figure today is closer to 99%. Access to various basic services is also much higher, with the access levels at 89% for piped water, 82% for improved sanitation facilities, and 90% to grid electricity.


In addition, it is true — despite recent collapses in economic growth — that the economy is still twice what it was in 1994. Unfortunately, that is not enough progress, both in terms of quantity and quality, for a G20-level country.


Most critically, with unemployment rising from 25% in 2012 to 33% today (it’s 43% if you include those who have given up searching), it is evident that South Africa is not on a path to sustainable employment creation.


An inescapable observation is that where development plans were heavily predicated on the state playing a pivotal implementation role, results have been particularly poor.

A capable state would be advantageous to our national interests. However, the underperformance of some state institutions, and the poor ability of the public service to implement effectively, have let the country down.


Much of this implementation quandary was on display in the Minister of Finance’s Budget Speech. The minister pragmatically sought to incentivise private companies and households to do more, while hoping for improved performance from the state.


South Africa’s manufacturing, finance and mining sectors have boosted revenue growth, with mining profiting from strong commodity prices and tax revenues. However, as such commodity prices are not sustainable, this relief is temporary, which means that government must make the most of this limited window.


Despite higher tax revenues, government spending and service delivery quality have been inadequate.


Government debt is expected to reach R5.9-trillion in 2025/6, and debt servicing costs will become the second highest budget item in that same year, reaching R397-billion (16% of annual expenditure).


This year, total government expenditure will be R2.24-trillion, with an expected total expenditure of R7.08-trillion over three years.


This is not an insubstantial amount of taxpayer money.


The biggest portion of these taxpayer funds — 60% or R1.35-trillion — goes towards paying for the social wage. Of this, R457-billion goes to education and training.


Many will question whether this spending is reflected in the outcomes — with reviews finding learners far below par for numeracy and literacy: 78% of South African Grade 4 children were not able to reach the lowest benchmark, compared to 4% internationally.

According to the September 2021 progress reviews of the Department of Performance Monitoring and Evaluation, only 48% of the interventions aimed at building a capable, ethical and developmental state are on track. With regard to the economy and job creation, only 38% of interventions are on track.


Performance improvement


There is, therefore, unquestionably a need to improve the performance of the state.

The NPC contributed to the National Implementation Framework towards the Professionalisation of the Public Service through engagements with the State from early 2020.


Among the requirements for this Framework, adopted by Cabinet in October 2022, is that the public service must be non-partisan and insulated from political parties.

It sets the context for implementing competency assessments and measures to retain and develop high-level skills, including through secondments.


Given the vast scale of the public service and its state of disarray, these changes at best could only be expected to take effect over the longer term.


As the capable state is unlikely to make an appearance in the short term, there is a pragmatic requirement for effective partnership and collaboration with the private sector, through which the national capacity to implement can be bolstered.


Electricity crisis


Such a collaboration is most critical for urgent priorities, such as alleviating rolling blackouts. The state-owned electricity supplier Eskom has been plagued with problems such as ageing infrastructure, corruption scandals and financial mismanagement, leading to rolling blackouts and power outages. This has resulted in significant disruptions to the economy as a whole.


In July 2022, the NPC released an advisory note on rolling blackouts/ energy security, some of whose recommendations were adopted by the President, principally proposing the removal of the 100MW ceiling for private producers (after all, why would we want a ceiling?) and the replacement of the current requirements for Nersa registration with an online process, among various other measures, to fast-track new private capacity onto the grid.


The NPC ventured into the rolling blackouts and energy security debate early on in its new term, because it was quickly apparent that much of the NDP goals and targets cannot be attained under the current conditions of disrupted electricity supply.

It was, therefore, positive that the most material aspects of the Budget Speech were energy-related issues. These included government taking on R254-billion of Eskom’s debt, an important step if the utility is able to use the space to fundamentally restructure its operations and end rolling blackouts.


The other key energy announcements included R4-billion in relief provided for individuals that install solar panels (which, at 25% tax benefit capped at R15,000, is too small to incentivise behaviour and moreover of no benefit to poor households), and R5-billion to companies through an expansion of the renewable energy tax incentive (this 125% tax deduction in one year is a significant benefit).


Development opportunities


Given the limited fiscal space, the Budget was inevitably going to offer only a partial solution to South Africa’s problems. Nonetheless, as a country, we must look to seize development opportunities from the current crisis.


The first opportunity is to look to create new industries that can solve our crises, such as building a leading global solar and renewables industry in response to the Eskom crisis.

Here, government has recognised the importance of renewable energy and has implemented various policies and incentives to promote the uptake of solar rooftop programmes.


Municipalities should be enabled to launch programmes that offer rebates to homeowners who install solar panels on their roofs.


The more obstacles we can remove to municipal procurement of energy from independent power producers (IPPs) and households, the better. This will include enabling wheeling across the grid so that municipalities can procure directly from IPPs and from solar rooftop systems.


Such distributed networks and microgrids are the way of the future.

Apart from alleviating rolling blackouts in municipalities, this will also catalyse a massive amount of SMME activity and jobs through the demand for new solar installations, maintenance and local manufacturing.


Small business


The second opportunity is to unshackle the potential of small businesses and individual talent.


The Budget Speech gave some, but not enough, attention to the role of small-, medium- and micro-enterprises (SMMEs). South Africa has a particularly over-regulated and underdeveloped SMME sector.


Only 16% of South African businesses are small- or micro-enterprises compared with 35% in similar middle-income countries. Yet the NDP projected we will need 90% of all our future employment to be created in SMMEs.


It is, therefore, critical to look for ways to unlock entrepreneurship of individuals — especially the youth.


In general, countries that have succeeded in creating a positive business environment for small businesses have implemented policies that encourage entrepreneurship and innovation (only about 6-7% of South Africans start their own businesses, far below international benchmarks), provide funding and support for startups, and create a supportive regulatory environment.


In particular, there is a need to explore offering a range of exemptions and benefits to SMMEs with a turnover below R50-million to encourage the creation and growth of more SMMEs as potential future national champions.


Collaboration


While we must seek to rebuild state capacity over the next decade, the future success of South Africa’s economy depends on a much more collaborative approach between the state, private sector and individuals.


The National Development Plan is unequivocal that the future of this country is the responsibility of all – as is evidenced by its subtitle, ‘Our Future, Make it Work’ and its basic premise of effective leadership, a capable state and an active citizenry.


Having seen the results of our policy experiments of the last 30 years, we need to do things differently if we want different results.


The President and Minister of Finance, in emphasising the essential need for collaboration, may have unlocked the door to a new development mindset.

Now South Africa needs bold people and institutions to take the initiative and walk through that door.


‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’.




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