How to convince the private sector to invest in SA

First Published in Business Day on   October 28th, 2021   |   by   Isaah Mhlanga

How to convince the private sector to invest in SA

Skills shortages, e-tolls, Eskom — all these problems must be tackled with gusto or we will sink

In a country with a history of poor policy implementation, indecision on key projects such as e-tolls, rising levels of corruption and poor economic outcomes, the bar for convincing the private sector to invest is high. So far, the efforts appear too slow and fall short of what will give an investor the conviction to bet on SA relative to other emerging markets.

Following failure, future success can only be demonstrated by making hard choices, choosing unpopular pragmatism over the gallery of populism, doing things differently, reversing course where a clear road to ruin has been followed, and with unwavering implementation. SA fails to unequivocally demonstrate resolve in key aspects that need demonstration.

Among these are the following. A continued commitment to sound fiscal management, which so far is objectively on track but faces key risks given the pressure to support unemployed individuals. The current debate about whether to implement a basic income grant creates uncertainty, especially if it is permanent. The medium-term budget policy statement (MTBPS) must clear up this uncertainty by sticking to the fiscal framework, which aims to put public finances on a sustainable level while restructuring the composition of spending towards investment.

One of the questions that arose in the 2021 February Budget Review was what to do with the better-than-budgeted tax revenues. Commodity prices have continued to perform well, and tax revenues will again be better than budgeted. The MTBPS will have to provide the answer to the same questions raised in the Budget Review.

Given the high unemployment rate and need for short-term financial support, it would build more fiscal credibility for the government to use the tax windfall to reduce bond issuance and extend social assistance for a specified period. This is likely to reduce debt service costs going forward while buying time to demonstrate the implementation of other reforms that boost productivity.

The other demonstration that is required is fixing Eskom and resolving its debt. This will not be an easy feat in the context of climate change and the need for a just energy transition. A clear and consistent policy decision on how fast this transition will take place is necessary. China and Europe’s energy blackouts demonstrate how precarious it will be to rush this transition before securing green energy, which the rich countries clearly have not secured themselves. SA’s most urgent priority must be energy security, because that is a binding constraint on economic growth, job creation and development. It is a prerequisite for private sector investment.

The other thorny policy decision that always comes to the fore around election time is e-tolls. The user-pay principle must be asserted. Either enforce payment in the current form, which is admittedly difficult politically, or pay for infrastructure the easy way: through the fuel levy. The sooner this is solved the quicker a commitment to public-private partnerships can be demonstrated. This is key to the current investment drive. Failing to solve the e-toll problem will frustrate future investment drive efforts.

For long-term productivity there is a need for a skills revolution, without which none of the government’s ambitions, including lifting potential growth and reducing unemployment, will be achieved. There must be a solution to improve the skills of SA’s roughly 12-million unemployed people, but more so to produce better skills for those still going through the schooling system.

These are hard things to do, and they require political will. More importantly, South Africans must have the will to better their lives through, among others, holding those they elect to account and making the hard trade-offs to forgo consumption to invest in their own development.

The path of least resistance and populism is appealing, but often it is not the most beneficial. The country must choose a productive future for young people over short-term comfort in state support with limited benefits.

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