FirstRand chair Roger Jardine says the “socio-economic fallout of the Covid-19 pandemic has brought forward the inevitable inflection point that our country was bound to eventually face”.
“Confronted by an accelerating unemployment rate, falling economic activity and an ever-rising government debt burden, economic change has become inevitable as the weight of these developments is becoming too heavy for the current system to carry.”
Writing in the banking group’s 2020 annual report, Jardine says the country still has “the opportunity to choose how we would best effect the changes necessary to reverse the trajectory”.
“These choices cannot be wasted and need to be executed in a manner that optimises the roles of each of the social partners. The government should set the rules of the game by fostering an environment characterised by sound fiscal management, safety and security, intolerance for corruption, certainty of property rights, delivery of common goods, and protection of the poor and vulnerable.
“This will create an environment for businesses to play their part in delivering goods and services through employing skills, capital and technology. Labour should play its part by ensuring that South Africa has a highly competitive labour force.”
Jardine warns the “time to implement these choices is running out”, given the state of the economy and government finances.
Signal of intent needed
“However, by executing on a few reforms, such as fiscal restraint, successful auctioning of spectrum, allowing business to generate electricity and attracting highly skilled people from the international labour markets, the government will send a strong signal of intent which can gain us some valuable time to implement the rest of the necessary reforms.
“The good news is that most of these measures have been suggested by government, it is now simply a matter of implementing them.”
FirstRand has a long history of allowing its chairs to use the annual report as a platform to weigh in on matters of national importance.
These letters are often blunt and openly critical of government.
Last year, Jardine questioned “government’s apparent unwillingness to champion the private sector as a growth engine” and called it “mystifying”. In 2018, he used his letter to comment on land reform, income inequality and what he described as “broken” state-owned entities.
Jardine says it took a “once in 100-year crisis” – the Covid-19 pandemic – for “government to ‘crowd in’ the private sector to assist building much-needed capacity”.
Rapid scaling of solutions
This was the central topic of his letter last year, and the response to the pandemic “proved how this partnership can rapidly scale solutions across the country”.
He says it is “extremely important that as we move back to some level of normality we do not lose this momentum”.
“South Africa is in a parlous state and needs to rapidly rebuild.
“Government cannot and should not do this alone as it is now in a worse fiscal position with depleted capacity.”
One area offered as where an immediate impact can be made is infrastructure. While he acknowledges work done to date, Jardine says progress “has been slower than originally anticipated and needs to be accelerated”.
“The country’s use of PPPs [public-private partnerships] as a percentage of the total infrastructure budget currently sits at 2%, which is well below the global average of 5-15% for countries with a robust PPP framework such as ours.”
He continued: “As the country finds itself in a low-investment, low-growth trap, the public sector needs to urgently leverage the private sector to create an ecosystem of shared risk, accountability and a deeper pool of skills and expertise. A shift is required in the current government and private sector engagement model.
“While the private sector is willing, able and deeply capacitated to partner with government, it cannot be a model based on crowding out the private sector wherever possible and only finding a useful space for the private sector when convenient or in times of desperation (for example, the current health pandemic).”
Jardine is realistic, however, citing the fear that large projects “become vehicles for graft” as an obvious obstacle to government’s ambitious infrastructure programme.
“Depressingly, corruption continues to be an ongoing and toxic reality for the country, and even more distressing is the absolute callousness demonstrated during the Covid-19 pandemic, with the disappearance of personal protective equipment (PPE) and food for the poor.
“I am fully supportive of the President’s absolute and public commitment to rid the government of rent extraction and corruption. The granting of the International Monetary Fund loan is one indication that the President has convinced some external funders that he is serious about this topic and he has certainly made some progress.
“Until corrupt people, both in the public and private sector, are successfully prosecuted and punished appropriately, the pervasive culture of looting will persist. It is therefore very important that the criminal justice system and the National Prosecuting Authority be properly resourced to enable them to do their jobs without any institutional constraints.”
Seeing people being brought to account “will be extremely positive for the country’s psyche”.
“It would also be an important signal for inward investment which is another much needed impetus for economic recovery.”