Collective effort

The government and the private sector need to work together to boost growth

Collective effort

If I were president for a day… It’s a game South Africans play, with each ‘president’ trying to outdo the other with their economic creativity. Of course, we all believe we could do a better job than the incumbent, but it’s easy when one is not trying to keep members of one’s own party off one’s back, or bowing to internal pressures and competing ideologies.

If only life were that simple. Yet it should be. SA’s economy has to grow at the same pace as the population – 1.5% a year – just to maintain per capita income levels. The current flat to negative growth means the inequality gap is widening and the precarious gains of the late 1990s and early 2000s are being reversed. Restoring growth and jobs should be a singular focus. Getting the economy moving isn’t rocket science; it takes investment: foreign direct investment, public sector investment and private sector investment – preferably all three. But foreigners will not invest in droves when locals are not investing, while government has run out of money and the capacity to fund its own investment drive.

This leaves the private sector, which has shown limited appetite for investment over the past few years. There is cash available on private balance sheets. It’s not as much as some believe, because banks, medical aids and pension funds are required to sit on big reserves, but there is enough to catalyse growth. Before investors deploy that cash into factories and other fixed assets, they want to know that growth is coming.

It’s a chicken-and-egg conundrum. The private sector will not invest without growth, and growth will not happen without investment. The missing ingredient is confidence. Business and consumer confidence has hit rock bottom, but perhaps it’s time for a conscious shift in sentiment.

Business is starting to invest again, albeit off a low base. SA Reserve Bank data shows that real gross fixed capital formation increased in the second and third quarter of 2019, after five consecutive quarterly contractions. Two swallows don’t make a summer. This investment is into tools and machinery, and it is replacement capital rather than investment capital. Nevertheless replacement investment can help ignite a cycle.

There are other reasons to be cautiously optimistic. Government has taken steps to restore confidence: we have a new head of the National Prosecuting Authority (and a few long-awaited arrests, with hopefully others to come), a new head of SARS, a new head of the Hawks and a new head of Eskom. Boards of SOEs are slowly being strengthened. Sure, it is taking time to tackle the corrupt, inept and complicit – but it is always easier to break a system than it is to rebuild it. At some point these reforms will gain traction.

But we do need more swallows, and the government and private sector must be more proactive. The SARB could lower the interest rate. It’s at a nine-year low and the authorities, I believe, are too focused on risk. Cutting interest rates won’t necessarily lead to an increase in investment spending and growth, but it does support a long-term investment cycle. More important, it will boost confidence.

Government could also allow the mining sector to generate its own power. Small gestures incrementally add confidence.

The private sector needs to step out of its misery too. For one, it can maintain a constructive dialogue with government to deregulate the electricity industry. Coal producers, big and small, could stop short-term price gouging and come to the table to negotiate fixed-term contracts with Eskom. Yes, some of them have been treated appallingly, but now is not the time for one-upmanship. It is easier to sit on a perch and criticise, whether it’s the lack of private sector investment or government’s policy inconsistency. But as the Springboks showed in 2019, we are stronger together.

I am hopeful the Public-Private Growth Initiative will gain good ground in 2020. It brings government and business sector heads together and has been labouring in the background since 2018 to identify, smooth and remove the bottlenecks, red tape and miscommunication that is holding back domestic investment. It is making progress, but seldom shares this publicly. It should. We need a few high-impact successes.

I’m labouring the point, but confidence is the ingredient that leads to investment and growth. I’m not talking about the naive confidence of the early Ramaphoria era when we sat back and waited for him to rebuild the country. I’m talking about a slow and steady push. It needs a collective effort, an understanding that there are no shortcuts, and more than a dash of self-belief.

By Sasha Planting