Mr President, announce major policy reforms

Turn the annual investment conference on its head.
The author believes much investment could be opened up by concessioning access and related infrastructure to the private sector. Image: Supplied

This week President Cyril Ramaphosa will again host an annual investment conference. It will be against the backdrop of a continuing decline in investment in the economy.

My call is for government to use the opportunity to announce major policy reforms that would support investment across the economy.

Reserve Bank figures for gross fixed capital formation in the third quarter for last year at 14.3% of GDP were dismal. We are far from the National Development Plan target of 30% and consistently below the 16.7% of GDP we were at before the pandemic. The declines are broad based – the public sector has steadily shrunk its investment into the economy over the last five years. The private sector suffered a major decline during the pandemic and has not yet recovered.

These investment conferences have historically seen private sector companies cajoled into announcing multibillion-rand projects. These are all fine and well, but they do not tell us if these are additive – are we increasing investment flows or merely saying what would have happened anyway?

I would like the conference to be turned on its head.

Instead of the private sector announcing projects, let government announce regulatory changes that advance the case for investment. That is what drives genuine additionality.

Progress made

There is some good news on that front, with the finalisation last week of the auction of additional spectrum to mobile operators.

Read:
South Africa takes a massive digital leap forward
Ramaphosa’s reform agenda gets a broadband boost

This is another huge step forward on structural reforms that we at Business Leadership South Africa (BLSA) have long called for. Next to electricity, broadband cost and availability is perhaps the biggest constraint on growing economic activity.

The auction has massively increased the spectrum available to mobile operators, while also raising R14.4 billion in revenue for the state. It will unleash significant investment as operators can now build 5G and other cellular networks. There are some legal challenges to the process, which I hope can be resolved appropriately. This would be helped by political support from the highest level.

Further good news was the amendment to schedule 2 of the Electricity Regulation Act last year to allow companies to build plants of up to 100MW without a licence. Members of the Minerals Council alone are expecting to build 3 900MW with investment of R27 billion thanks in large part to this amendment.

However, as I’ve written, this immense potential is now being frustrated by red tape, as investors struggle to get projects registered with the electricity regulator.

Government should focus on cutting this as fast as possible and allow the plans for massive amounts of investment to become a reality.

But what next can government do to shift the dial on investment?

To my mind a major area that can make a big difference is logistics. Whether you are moving goods through ports, rail or on road, the cost of doing so in South Africa is prohibitively expensive. There have been positive signals on this – government and Transnet are working on a plan to modernise the Durban port by drawing in private sector operators and investors. But this process is not going fast enough and opportunities are being lost.

It is notable how successful the Maputo Port has been in growing volumes, much from South Africa, while being managed by a private operator.

Read: Grindrod flags expansions at Mozambique’s Port of Maputo
Read/listen: Grindrod CEO Andrew Waller on Maputo shipping throughput booming

There is a similar story with rail – our national haulage routes are not operating efficiently.

Much investment could be opened up by concessioning access and related infrastructure to the private sector.

Again, positive signals have been made about doing this – but we need to make progress.

Our logistics system could attract significant investment with the right policy environment, but more importantly it could lower the cost of doing business across the country.

That would make so many more projects viable, triggering a second wave of investment. But it can only start with the right policy environment.

I hope that the government uses the investment conference to demonstrate that it is taking these opportunities seriously. Many of us in the private sector are ready to invest as soon as government makes it feasible.

Busi Mavuso is CEO of BLSA.

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Would be wonderful and so refreshing but sadly your call will fall on deaf ears.

We need economic growth to be at least 2 percentage points above population growth if we want to make any meaningful change to alleviate poverty and inequality in South Africa. At this moment, under the current political-economic policies, connected cadres receive a slice of the cake, while the vast majority are left scrambling for the crumbs. If we want to be able to generate a GDP growth rate above 3% in 10 years’ time, we have to see investments of 30% of GDP in industrial manufacturing now. Investments as a percentage of GDP are below 15%. This target of potential growth gets delayed by a day for every day we keep on implementing these stupid redistributive ANC policies. Our GDP per capita is shrinking by the day. We are getting poorer by the day, for every day the ANC is in control.

We are not moving forward yet. We are not even standing still yet. We are still moving backward in this regard. Investors and capitalists, per definition, are well-informed and not stupid. Investors have seen, from a mile away, that the myopic, ignorant, and populist socialists are setting an ambush for them. Once they invest, they will be strafed by populist labor laws and minimum wage requirements. They will be bombarded by BEE and EE laws. They will spring the claymore mine of redistributive municipal rates and taxes and demands for local beneficiation. They will face the small-arms fire of crime and militant labor unions. Then, if they have survived this onslaught, they will be bled dry by SARS who will be patiently waiting for them at the end of the ambush.

Our economy is structured for redistribution and not for growth. There are no incentives for anyone to maintain the existing manufacturing capability, let alone add new capacity. The ANC incentivizes unscrupulous individuals to plunder the shared resources at the maximum rate before their comrades can beat them to it. Socialism, and in this case, communalism particularly, is a race to the bottom.

The system is built for maximal extraction for populist reasons and for the exploitation of the productive resources of the nation. This is exactly the same system that created the scenery en circumstances we experience when we travel through the former homelands. The overgrazing that leads to the degradation of natural pasture, the soil erosion and the general state of decay, the emaciated and tick-infested cattle, the overall poverty, the non-existent services, the lack of opportunities for the youth, and the lack of development are typical of this system of The Tragedy of the Commons.

The current low trajectory is exactly within the flight plan of Luthuli House. This economic disaster is a Controlled Flight Into Terrain(CFIT), and is entirely due to human error, therefore.

Annual Investment Conference …?

After the Ukraine vote debacle at the UN, I presume most of the donations into the begging bowl will be from Russia?

It is not just the billion rand things stalled

The SME (say 10-250 workers) new factory / expansion market is what drives employment. I see many good ideas when people shop around for space, but almost all the business plans stay in a lever arch file.

Primary reason 1 : unless you have huge surety, are a trust baby, you will not get finance for a project where funding gap is even 40% of peak funding. So a young entrepreneur starting out has no chance no matter what his skills, technology or market. He could do a factory and own 10% but who wants to do that?
Primary reason 2 : uncertainty. About electricity, about more regulations, about the country’s politics and therein mainly whether the stupid people take back the ANC.
Primary reason 3 : concentration of power and pricing. If you have a great food product, know how to make it, the retailers still kill you. Even more so on primary production. The farmer that put down hectares and tens of millions for a crop might see 20% of his product’s retail selling price. The retailers actively pursue a strategy that no producer has substantial share of the shelf but happily expect that you must go exclusive on them. You pay an uplift to your local Shoprite DC for them to handle your product to their JHB DC which wants the product because nobody in JHB can do your product in their winter.
Other Reason 1 : currency views
Other reason 2 : labor inflexibility, which is murder in seasonal products.

Johan: I visited Denel Business Park this afternoon after some 40 years. Two weeks ago Pravin Gordhan announced the “revival” of Denel. It is dead. There is absolutely nothing going on. Except for the two or three companies still renting, it is a morgue. Virtually nobody on site. They don’t even cut the grass anymore. 40 years ago it was like Brandfort op ‘n nagmaal Sondag: busy as anything. It is enough to make a grown old man cry. They have ruined everything.

I’d lay bets Denel Business Park has a redundant and huge transmission grid : no loadshredding and is built like a bomb shelter. In the 70’s they built like concrete was paper mache versus nowadays it is thin slab, metal frame construction with two feet of brick along the bottom. A freak wind storm will nail most modern warehouses and factories.

Denel would make for great data center rental at a fraction of the cost of new construction (that would have to be priced over R200/sqm excl power equipment). I really do not get why we see so much new construction versus repurposed old buildings. When Denel gets broken up somebody will pick up the site at R2000/sqm. New construction is R14k excl development fees to the site.

End of comments.

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