Delivering reforms will be our key sales pitch at the investment conference
POSTED ON: November 10, 2020 IN Economic policy, Energy by Admin
By Busi Mavuso
President Cyril Ramaphosa should use the investment conference to ram home impending changes in policy and show government’s commitment to providing additional power.
One of the successes of President Cyril Ramaphosa during his time in office has been generating conversation around the investment potential of the country, something that rarely occurred in the final years of his predecessor’s administration. Next week, for the third straight year, he will host an investment conference to showcase the vast number of investment opportunities that do exist in our country and garner support for his economic revival efforts.
Previous conferences have so far yielded pledges that if realised could significantly change the trajectory of economic growth and job creation in the country but, set against the backdrop of the Covid-19 pandemic, this year will be especially difficult and that much more important.
With interest rates at record lows across the globe as central banks from Washington to Frankfurt try inspire activity and confidence in their economies, money is cheap and abundant and looking for investment opportunities. International funding agencies such as the International Monetary Fund and World Bank are as keen as ever to help stimulate economic recovery in member states. The test is going to be to stand out in a crowded field as nations across the globe tell their stories.
South Africa carries a great advantage in a league of emerging market nations. It is endowed with commodity riches, one of the world’s most advanced financial sectors and a rapidly urbanising population in the most developed economy in a continent that has just signed off on an African Continental Free Trade Agreement – that promises to open up the continent to inter-regional as never seen before. But as advantageous as our position is, investor decisions will be premised on the commitment to structural reforms in numerous areas – but particularly energy.
We’ve been an energy insecure state for more than a decade as Eskom has struggled to meet demand as a result of an ageing fleet of coal-fired power stations and an expansion project in Medupi and Kusile that hasn’t yielded the desired results . As a country still heavily reliant on energy-intensive industries such as mining, the lack of cost efficient and readily available power supply has fed directly into our falling competitiveness. The manufacturing sector, which has been proven to be the biggest jobs multiplier, has also struggled under the weight of both inefficient supply and electricity prices that have more than tripled over the past decade.
Reform is critical in this sector and we understand that will come with disruption to the status quo. In exchange for the short-term pain that this shift will yield as the country introduces additional power through independent power producers, we can be transformed into an energy secure economy in the medium term. There’s no overestimating just how this lack of stable energy supply has fed into our anaemic growth rates over the past six years. We were already in recession when Covid-19 arrived, fuelled by both an unexpected return of load-shedding and a confidence crisis that still prevails.
There have been very encouraging steps at reforming this important sector, with the National Energy Regulator of SA clearing a path towards introducing an additional 12,000MW of renewable power within the next two years. The regulator’s step finally brings it into line with government’s stated plans that have been in place since the presidency of Ramaphosa began last May.
President Ramaphosa should use the investment conference to ram home these impending changes in policy and show government’s commitment to clearing the hurdles to the introduction of additional power. As we’ve said before, some of the largest industrial players and miners have capacity to feed energy into the grid and are able to so quickly.
Such energy reforms will open new opportunities for a South African economy that will come under increasing pressure in years to come to reduce its carbon footprint. As small as we are as a nation, economically speaking, we are the world’s 14-largest emitter of carbon dioxide.
We’ve been encouraged by measures so far with regards to electricity reform and next week, there’ll be some progress to report by President Ramaphosa to an investment public interested in the South African story.
In allowing Finance Minister Tito Mboweni to push through with the fiscal reforms that will come with expenditure cuts to many departments, the state has shown readiness to accept reality. These reforms, as much as those in energy, will be key in ensuring South Africa stands out in a crowded field of countries seeking to unlock investment. We desperately need such investment, it is vital to reducing our cost of capital, which has increased considerably in recent years as our yield curve has steepened and as a result shut down projects that were previously economically viable.
This column was written by Busi Mavuso and was first published in Business Day.
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