Economic Reconstruction and Recovery Plan: show us the money

Economists liked what President Cyril Ramaphosa said in parliament on Thursday about stopping corruption and doing business with government, but felt that he did not give enough deadlines and goals to reach.

Nicky Weimar, chief economist at Nedbank, says the big question is how the South African Economic Reconstruction and Recovery Plan will be financed. She also expressed concern about projects that have started already.

“Where are these projects and what are they doing?”

She thinks the most important and positive announcement is the fact that government employees and their families will not be allowed to do business with government anymore.

“This should have been done long ago. It is like competitions: people who work at the company and their friends and family are not allowed to enter. That is just how it is.”

Weimar believes that government does not even need to do as much as described in the plan.

“They must deal with corruption and reinstall discipline, and then the private sector will do the rest. When they spend money, they must ensure that it delivers. We do not need random economic policies – they must just get the basics right.”

The fact that things seemed to be happening about accountability and that nobody is above the law is another positive, she says.

Paul Marais, managing director of NFB Asset Management, says the real question is how much of the R500 billion relief package is actually in circulation? He also believes that although the South African Reserve Bank acted swiftly to support the economy and protect the financial system by reducing interest rates, these mildly positive real interest rates may not stimulate the economy aggressively enough.

He also has some questions about the modelling done by National Treasury that indicates that the plan will raise growth to around 3% on average over the next 10 years.

“Government forecasts GDP (gross domestic product) growth over the next 10 years to be 3% per annum with the reconstruction and recovery plan contributing more than 50% of this figure. Is that too ambitious?

“What has not been factored in is population growth over the next decade. Will GDP per capita improve once population growth has been factored in?”

Marais says South Africa currently imports around R1.1 trillion of goods each year.

“The president said if we were to manufacture just 10% of those goods locally, we could add two percentage points to our annual GDP. How realistic this is remains to be seen. This idea has hopefully been carefully thought through because a 2% increase in GDP is more than 100% of the current rate of GDP growth.”

Mike van der Westhuizen, portfolio manager at Citadel, says job creation through infrastructure development, reindustrialising the economy, accelerating economic reforms, fighting crime and corruption and improving the capability of the state are all linked to the NDP.

Read more: Ramaphosa’s economic recovery plan: here are the basics

“It is another good plan to try to unlock R1 trillion in infrastructure investment over the next four years, create 800 000 jobs and reduce data costs to generate an additional 1.7% of economic growth to reach 3% economic growth, although this is a bold target. However, government’s current track record of implementation does not generate much confidence about follow through.”

Van der Westhuizen says although some projects in infrastructure and the energy sector have been started, we need to see the ability to do so on scale as this is still under question.

“The signs are there, but on a small scale. We can say that we are heading in the right direction, but building and maintaining momentum will, however, be crucial. Unfortunately actions will have to speak louder than words … again.”

He says funding is always going to be an issue, given the already strained fiscus and we will need to still see buy-in from the private sector regarding financing avenues.

“We saw no movement in the bond market this afternoon. The market is still waiting for evidence and we also need to get through the MTBPS [Medium-Term Budget Policy Statement] to see what [Finance] Minister Mboweni has to say about reprioritisation of budget surrounding this.”

Andiswa Bata, regional head for FNB Business Gauteng South West, says with job creation and reindustrialisation of the economy as some of the main focus areas the outlook for SMEs (small and medium-sized enterprises) is good.

“The rollout of various large infrastructure projects typically has a positive knock-on effect on SMEs that are suppliers to big projects and their ecosystem.”

He was also happy with the extension of the Covid-grant by a further three months, which will help households stay afloat and he hopes that part of that money will go towards supporting local businesses. Bata also likes the push to buy local and the simplification of visa processes and expansion of the list of countries permitted for leisure travel to SA.

“The reconstruction and recovery plan will depend on deliberate and swift implementation and execution. If successful, it will be of great help to the country’s almost 3.5 million SMEs,” he says.

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