Business News 11.5.2016 01:35 pm

Measures to kick-start growth divisive

Image courtesy stock.xchnge

Image courtesy stock.xchnge

Calls for more concrete plans from government, labour and business.

The five measures to boost economic growth – agreed upon by government, labour and business – have drawn mixed responses from stakeholders in the economy.

The initiatives announced by President Jacob Zuma, who ‘convened a meeting of chief executive officers of major companies and captains of industry to discuss ways in which we can work together to reignite economic growth and create jobs’, include:

  • The establishment of a joint private and public sector fund for small business support
  • Initiatives to scale up investments, based on lessons learnt from the Independent Power Producers programme
  • The expansion of government and private sector co-investment in infrastructure
  • Exploring mechanisms to strengthen state owned enterprises in order to reduce their risk to the fiscus and allow them to play a stronger role in development
  • A credit ratings workstream, which will identify potential areas of reform and interventions to avert further credit ratings downgrades

Business Unity South Africa (Busa) and the Black Business Council, both among the participants in the initiative to kick start growth, have pledged their support for the measures.

‘It is an excellent attempt by business, working with government and which will include labour going forward, to persuade the ratings agencies that all hands are on deck to address the concerns that they have about South Africa’s economy,’ said Sandile Zungu, vice-president of the Black Business Council.

Iraj Abedian, CEO of Pan African Advisory Services said the measures appear more symbolic than concrete. ‘All of that should have been done already’, he said of the intent to ‘explore’ ideas – announced three months after the February meeting. ‘The urgency of the economic and social situation doesn’t come across. That requires a completely different mind-set, multi-billion rand investments, time bound, content bound and properly scaled interventions,” he said.

For some, the lack of a new approach in tackling the problems vexing the economy was also problematic. Ian Cruickshanks, chief economist at the South African Institute of Race Relations, likened the measures to ‘trying to paint over the cracks that are threatening to pull the building down’ and failed to see ‘a big practical impact’ coming off them.

According to Peter Attard Montalto, an executive director and senior emerging markets economist with Nomura International, the new details on the small business fund, while important, align with the work already being done by Minister of Small Business Development Lindiwe Zulu. “But talking about greater policy certainty, at the same time there is the new mining charter creating mass uncertainty [and] talking about [strengthening] state-owned enterprises with South African Airways not being resolved means most of [the announcement] unfortunately was spin,” he said via email. Zuma ruled out selling the airline, which has been surviving on government guaranteed loans, last week.

However, the measures announced should not be viewed in isolation, urged Busa CEO Khanyisile Kwenyama. ‘They must be viewed in the context of the National Development Plan, which is already in place. These measures pick up the low hanging fruit that can be implemented relatively quickly,” she said.

At the same time, Investec chief economist Annabel Bishop described the initiatives, particularly the credit ratings workstream, as very positive. She said the loss of South Africa’s investment grade credit rating, which according to ratings agencies would take seven years to overcome, ‘would have a very deleterious effect on the economy and would place a heavy burden on government finances, already battling against headwinds, making fiscal consolidation even more difficult’. She also stressed the need for ‘a very close, ongoing, persistent working relationship’ among business, government and labour in order for the country to turn around its slow growth narrative’.

Although they partnered to devise these measures to kick start economic growth, Montalto called for real and concrete plans. “Business and government may well be working together but the outcome is not what is required to boost potential growth in the medium run. Where this might be successful is in unlocking a little short run growth through sentiment but that is not the same as boosting the medium run growth trajectory… SA is still on the same path towards junk if long run potential isn’t increased,” he said.

Kwenyama said reversing South Africa’s growth prospects would be a ‘long-haul’ and the momentum created through co-operation between business, government and labour must be maintained.

 

 

 

 

 

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