BLSA CEO’s Newsletter – 21 March 2022
POSTED ON: March 22, 2022 IN by Admin
This week President 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.
There is some good news on that front with the finalisation last week of the auction of additional spectrum to mobile operators. This is another huge step forward on structural reforms we at 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 R14.4bn of 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 R27bn 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.
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.
The recent problem at Chris Hani Baragwanath Academic Hospital, when it could not feed its patients, is a sad reflection of the sorry state of most of our state-owned hospitals and it carries over to far too many other areas of service delivery. I write in fin24 that these types of problems have been prevalent for far too long and we cannot afford to allow the continued misgovernance at all levels of government. When we start getting the basic issues right, we’ll find that investment in South Africa will flow.
We’re about to see how destructive inflation can be, I write in Business Day. Fuel prices are on the rise, interest rates have been raised by 25 basis points and Eskom’s electricity prices continue to rise sharply. This means consumer spending will fall and businesses will suffer. The solution was spelt out by Finance Minister Enoch Godongwana himself: the reform agenda — in energy, telecommunications, rail, ports water and sanitation — must be pursued, tourism boosted and rare skills attracted to the country, with regulatory constraints reduced.
This is a weekly newsletter from BLSA CEO Busi Mavuso.
BLSA is a business organisation that believes in South Africa’s future and shares the values set out in the Constitution. In 2017, BLSA signed a contract with South Africa, committing business to playing its part in creating a South Africa of increasing prosperity for all by harnessing the resources and capabilities of business in partnership with government and civil society to deliver economic growth, transformation and inclusion.
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