BLSA CEO Letter – 20 February 2023
POSTED ON: February 20, 2023 IN by Admin
By Busisiwe Mavuso
With loadshedding now causing massive economic destruction every day, addressing the energy crisis will be central to the budget.
No matter what largesse Finance Minister Enoch Godongwana allocates in Wednesday’s budget to address SA’s numerous ailments, unless there’s a massive improvement in government’s ability to implement policy and spend the funds effectively, I fear much of it may not achieve its intent.
A glance at the unfortunate states of our public health and education systems shows that often it is not lack of money but inappropriately capacitated departments, misgovernance and, sadly, corruption that causes the problems.
SA spends 20.3% of GDP on health care and 12.3% on education – far more than most emerging markets and even ahead of some developed economies such as Iceland (which in 2020 spent 9.6% of GDP on health care and 7.7% on education, according to European Commission figures) and Italy (9.6% on health care and 4.3% on education). Yet even the most sanguine of observers cannot describe the state of these two sectors as anything other than a crisis.
President Cyril Ramaphosa’s drive to upgrade the public service, primarily through the National Implementation Framework towards the professionalisation of the public service, is a step in the right direction but is a long way off from producing positive results. The consequence, logically, will be widespread ineffective expenditure.
The big one is the Eskom debt repayment. Godongwana is expected to announce that government is taking over a considerable portion of Eskom’s R400bn debt. Markets will be watching closely to see how the promised debt relief will be structured, how much it will be and what conditions are attached.
This is an important step: the reduced debt service costs will make room for Eskom to finance urgent upgrades to power stations, among other critical issues. Still, it’s no long-term solution. Eskom’s expenses will continue to be higher than the revenue it can generate, particularly with the huge amounts needed for repair and maintenance of power stations, and that is not sustainable. Various steps are needed to get it onto a sound financial footing, including addressing municipal debt of almost R50bn and rising. Another important step is the full unbundling of Eskom into generation, transmission and distribution arms, which is yet to happen despite being announced in President Ramaphosa’s 2019 state of the nation address.
We also hope to get some insight into the state of disaster. What we don’t want to see is a big chunk of money being budgeted for under a vague, sweep-all name like “emergency procurement” with little further detail.
When announcing the state of disaster, President Ramaphosa promised that the auditor-general would be “brought in to ensure continuous monitoring of expenditure, in order to guard against any abuses of the funds needed to attend to this disaster”. This is encouraging. But the conditionality attached to any such funds must not only be transparent but must confine the spending to specific areas where it is needed, i.e. areas that directly address the loadshedding crisis.
While the auditor-general’s office has served South Africa proudly with an excellent record of delivering audits that meticulously record the amounts that government entities spend irregularly, wastefully or fruitlessly, the forces of patronage have proven to be extremely powerful and reslient. Transparency can be a powerful deterrent to corruption and will aid the auditor-general’s important role.
Of course, with loadshedding now causing massive economic destruction every day, addressing the energy crisis will be central to the budget and markets will also keenly watch for details of the incentive to stimulate rooftop solar and other off-grid solutions for businesses and residents. It’s important for the incentive to be appealing to the majority who simply cannot afford even a fraction of the exorbitant costs of rooftop solar and battery invertors. We also need details on how the bounce-back loan scheme will be adapted to include loans for solar installations.
The fact that the energy crisis has been allowed to deteriorate to this extent points to a historical failure of leadership. The latest steps – including the state of disaster and appointment of a new minister of electricity – may be even more damaging to the country without meticulous planning and strong, ethically driven leadership.
The other major problems areas that get extra funding also need strong management. We hope government is quick to call on the widespread expertise that exists within the business sector to ensure funds are spent effectively and particularly to help accelerate the process of transforming the key energy and transport sectors. In short, without political will it is difficult to imagine the Budget enjoying credibility for very long.
President Ramaphosa promised to “unleash businesses and households to invest in rooftop solar” in his state of the nation address. I write in News 24 Business that with solar installation costs ranging from R150,000 to R350,000, a half-hearted approach is not likely to make much of an impact and there’s a danger that the proposed incentives benefit only high-income earners.
Business welcomes President Cyril Ramaphosa’s words at last week’s Mining Indaba and will enthusiastically “get into the ring” and assist government in solving SA’s problems, I write in Business Day. Outside of the direct measures aimed at reforming the areas of the economy that are dysfunctional, business’ contribution to the country is massive. Research conducted by Quantec reveals that every R1m of output generated by 62 companies surveyed generated an additional R3m of GDP, supported 6.15 jobs and translated to R3m taxes collected. These kinds of multiplier effects will be further magnified in a healthy, fast-growing economy.
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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