NOMPU SIZIBA: President Cyril Ramaphosa today announced the eagerly awaited Economic Reconstruction and Recovery Plan. As expected, his speech was packed with commitments. He announced that some 800 000 work opportunities would be made available in the immediate future, that some R1 trillion would be spent on infrastructure investment over the next four years, and he spoke about how investments worth R340 billion were ready to be implemented immediately, and would be subjected to fast-track regulatory processes in order for them to go ahead.
As per the usual promises in the country’s annual budgets, there was a promise to invest in social infrastructure like schools, water, sanitation, and housing, with plans also afoot to invest in the country’s ports, roads and rail to enable the country to become more competitive.
Well, there’s so much more that was said, but just to give us some of his takeaways from the plan I’m joined on the line by Dr Adrian Seville, the CEO at Cannon Asset Management. Thank you so much for joining us, Dr Saville. Now, if one had not heard a South African government plan before, this one sounded pretty impressive in terms of what needs to happen.
ADRIAN SAVILLE: It is impressive. It is filled with all of the right language and the necessary undertakings to get South Africa into much better shape. We find ourselves in a dire circumstance – the word “crisis” might be used – but we are in a very, very tough place economically and socially, and this plan has all of the right language and all of the right intentions.
NOMPU SIZIBA: Now, in what areas of the announcement were you thinking to yourself, how is this going to be funded?
ADRIAN SAVILLE: The last word – “funded”. I think that generically we have run out of money. And, unless we put in place fiscal discipline and prudence, it really is just a case of rearranging current spending to try and make way for capital spending. The capital spending is on those 270 projects that translates into the R340 billion. And the power of those is that [they] have the spillovers and the multipliers and those are the types of ventures that keep giving. It’s the airports, highways, harbours, fibreoptic cable. The challenge is to find the necessary funding for that because, quite simply, we have a budget deficit this year that’s likely to come in as we go into 2021 at about 13 or 14% of GDP. We’ve got an economy that will start 2021 smaller than 2020. And there are no spending commitments that have been reined in yet. We have no evidence of that.
So the problem, to make a short point of my longer points, the thing that I’m wondering about, is where do you get the money for this?
NOMPU SIZIBA: It is tricky. And then the construction industry has been having a tough old time for the past decade since after the World Cup. This is a good time for them, assuming that these projects, the infrastructure projects, are executed immediately.
ADRIAN SAVILLE: It’s a fantastic time for them. The problem is the gap back to 2010 is so substantial that you’ve seen a number of building-construction engineering firms close or collapse, and important skills have left our shores. So there’s a second deficit, aside from the financial deficit, which is the deficit of capacity and capability in both the public and private sector to deliver on these important projects.
NOMPU SIZIBA: In terms of the immediacy of the projects, for example, we’ve heard the announcements about the renewable energy and so on, and the President talking about within two years the country being very energy-reliable, so to speak. So that’s very positive indeed, and perhaps the days of load shedding will be over. But what is your confidence level about the immediacy because, of course, everyone is saying we have so many plans, but the execution of the plans is a constant problem?
ADRIAN SAVILLE: When we talk about specific avenues or angles, for instance, the renewable energy IPPs, or the release of spectrum, these are available. We’ve got the necessary regulatory framework. We’ve got all of the capacity to deliver on that. What’s concerning is that the last time spectrum was released was the better part of 15 years ago. What on earth has taken so long? It is impossible to land on, and with the renewable energy IPPs, forget about good framework, we’ve got world-class framework to deliver those renewable energy IPPs. So both of those are certainly available wins, and don’t require either funding or re-engineering; they’re available.
The point that I’d want to dwell on, which you raise, is confidence in the ability to deliver more broadly. And, when we’re talking about 800 000 jobs and 300 000 in education, the delivery record of this administration leaves a lot to be desired.
And I think that that’s being flattering. My urging is to forget about the grand plans, just deliver on a small set of easy-to-identify and quick-to-deliver projects, because what that will bring with it is missing-in-action confidence, and through that you start to move the flywheel. Now those projects might be modest and don’t create headlines, but what they do build is credibility and believability in the private sector, which is sitting with strong balance sheets and has the capacity to invest.
NOMPU SIZIBA: But now, of course, all the parts need to be working seamlessly and working together. One of the issues the President kept on bringing up is the capacity of the state. If we look at what’s happened with the municipalities, there’s hardly any capacity. Very few of them get clean audits. They don’t seem to be able to execute on the projects that they have to do, and so on and so forth. If that’s the case, what confidence levels do you have, especially because infrastructure is front and centre of the plan?
ADRIAN SAVILLE: This is where my suggestion is forget about solving the whole country. I think that that’s a fantastic vision, the exact vision that we need. But if you’re going to build a global champion, you’ve got to start with one or two believable, deliverable, and then demonstrated projects. And you’re absolutely right. The municipalities are under substantial strain because of hollowed-out capacity. Their financial and operational footings are feeble. But if we can take one or two of these and start to demonstrate early victories though, that will establish the credibility that’s missing in action in all of this language about “We’re going to get back to 3% economic growth, 800 000 jobs, and the 270 projects that are shovel-ready,” and so on. We really have to get out of talking and pointing, and into the business of doing it.
NOMPU SIZIBA: It was a huge, huge statement, and there are so many areas I could ask you about – but what are your takeaways before I let you go?
ADRIAN SAVILLE: Well, you know, my takeaway is all of the intentions are there, there’s no shortage of good intention. This is not a debate about the believability of the project from a coherence point of view. The debate is about the believability of the project from a delivery point of view. That’s my takeaway: Fantastic policy, no challenge with that. Please turn it into action and delivery.
NOMPU SIZIBA: Fair enough. Thank you so much. That was Dr Adrian Saville. He’s the CEO at Cannon Asset Management.