DESPITE a return of load-shedding over the first half of this year and even stricter Covid-19 lockdown restrictions in July, our economic rebound from the devastation of last year’s hard lockdown seemed assured. Business conditions had improved significantly as most industries were finding their feet after the devastation caused by the “Great Lockdown”.
That was all until the July protests, a week in which R50 billion was wiped off the country’s GDP as looting and fires flared in parts of Kwazulu-Natal and Gauteng.
This week we saw the first bits of economic data from the month of July, with the South African Chamber of Commerce and Industry (SACCI) reporting that business confidence fell to its lowest level since October. The violence and looting that has cost the lives of more than 340 of some of the most vulnerable people in our society will set back our recovery, once again ensuring that South Africa remains a laggard among emerging market nations in the global economic rebound. While the short-term cost will be calculated by businesses and economists alike, the longer term cost in the form of higher levels of country risk and lower investment will be much higher.
In June, manufacturing output fell on a monthly basis for the third consecutive month, according to Statistics South Africa. While the decline was a moderate 0.7%, it does highlight the fragile state of the economic rebound ahead of the social unrest and looting that took place in July. With some 3,880 retail stores affected by the protests, according to the South African Council of Shopping Centres, one can only imagine the impact on the manufacturing sector in the wake of this destruction.
The figures point to the difficulty the state faces in trying to re-ignite confidence in the South African story as an investment destination. A key element to the success of the economic recovery plan that was adopted by parliament and embraced by all social partners last October is just that. Confidence is essential, especially for the infrastructure plans that look to unlock 800,000 job opportunities in the medium term. The reforms that are central to those plans require both private and public sector investment; the violence that we experienced will have a dampening impact on confidence levels for some time to come. Law and order and the protection of citizens and their assets by government are at the foundation of democracy and economic growth.
Ensuring the security of everyday South Africans and businesses both big and small as they go about their daily lives is critical to get our rebound back on course. For this we must commend the efforts to increase security in the affected areas. The collaboration of the private sector and civil society in supporting law enforcement to protect property, business and community infrastructure was something we haven’t seen before and in many cases community actions were most effective.
But the job of rebuilding confidence in the South African story has become more difficult for the sixth administration, never mind the positive steps on certain reforms that have been made this year. The only course for the government to take is to ensure that we don’t lose any more momentum on that path as our only sustainable solution to our current challenges relies on creating the conditions for higher levels of investment, economic growth and therefore job creation.
In that light, we’re encouraged by the gazetting on Thursday (only two days late, the deadline was Tuesday) of schedule 2 of the Electricity Regulation Act, which will enable private entities to generate up to 100MW without a licence. This is a major reform milestone and a win for Operation Vulindlela, the unit within the Presidency that works with National Treasury to remove obstacles to and accelerate the required structural reforms, given that energy minister Gwede Mantashe initially wanted the self-generation cap to be only 10MW.
Our initial reading of the wording shows there is a lack of clarity in some areas that is causing concerns over bankability of wheeling. For example, the selling of electricity to municipalities was not included in the definition of resellers, which on a strict interpretation would exclude them, requiring licensing still municipal IPPs. Certainty on the registration process and other areas is also lacking and we hope the Department of Mineral Resources and Energy moves quickly to clarify these issues.
What is confirmed, however, is that the regulation solidifies the concept of wheeling arrangements – it introduces the idea of selling energy to an end-user customer and also selling through resellers to an end user. As such, it introduces a broad and liberalised energy supply industry as a concept.
These changes are significant and can spur substantial investment: research house Intellidex believes that even on a narrow reading, the regulation can still unlock significant investment in the order of 10GW in the coming seven years, though we must be cautious that it will take around two years for the first energy to arrive and so we still face a significant period of loadshedding.
While the state and businesses mop up the debris from the July protests and, importantly, work to bring the leaders of the perpetrators to book and secure the nation against a repeat of such protests, we need to keep the foot on the pedal with these and other economic reforms that were agreed to last October. It’s the only course that will drag us out of the confidence-sapping position that these protests have put us in.
This column is by BLSA CEO Busi Mavuso and was first published in fin24.
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