South African President Cyril Ramaphosa unveiled a highly anticipated plan to revive the coronavirus-battered economy, with job creation, increased infrastructure investment and enhanced energy security among its key tenets.
The plan targets an average annual economic growth rate of 3% over the next decade and envisions the government reining in surging debt and curtailing spending. The president didn’t specify whether budget-deficit targets will be revised, with Finance Minister Tito Mboweni expected to release details in his medium-term budget on Oct. 28.
“The damage caused by the pandemic to an already weak economy, to employment, to livelihoods, to public finances and to state-owned companies has been colossal,” Ramaphosa told lawmakers on Thursday. “We need to see this moment as a rupture with the past and an opportunity to drive fundamental and lasting change,” placing the economy on “a new path to growth,” he said.
Annual economic growth was 1.7% a year over the past decade and hasn’t exceeded 3% since 2011.
There was little reaction on domestic financial markets to the plan. The rand remained weaker, trading 0.8% lower at 16.6718 per dollar by 4:26 p.m. in Johannesburg.
“It appears to be more of a lofty wish list than a concrete policy plan,” said Casey Delport, an investment analyst at Anchor Capital. “Whilst the significant boost in infrastructure development and increased focus on employment creation is greatly needed, very little detail was provided as to how government plans to finance the ambitious goals.”
The blueprint, drawn up with business and labour groups, has been several months in the making and some of its main components have already been announced. They include plans for the government to spend ZAR 100B (US$6B) on new infrastructure — an undertaking the president expects to attract a further 1 trillion rand of private investment within four years.
Several projects are already under construction, including housing programs worth ZAR 44.5B and road building worth ZAR 1.3B, while a number of others will begin within six months, Ramaphosa said. He reiterated undertakings that more power will be bought from independent producers and that companies will be able to generate more energy for their own use — measures that are expected to help deliver reliable supply within two years.
The plan envisages a substantial increase in electricity-production capacity by 2030 to halt intermittent blackouts. An additional 6,000 megawatts of power will come from solar photo-voltaic plants and 14,400 megawatts from wind.
Ramaphosa said measures will be taken to stabilize the loss-making state power utility Eskom Holdings SOC Ltd., though he provided no details of how its crippling 488 billion-rand debt will be brought under control.
Policies will be enacted to ensure infrastructure projects use locally made materials, including steel products, cement and bricks, and companies instead will be encouraged to increase local procurement, according to the plan.
Africa’s most-industrialized economy was already in the doldrums before the coronavirus struck and ground to a near halt after a lockdown was imposed in late March to curb its spread. The number of people who are employed fell by 2.2 million in the second quarter to the lowest in almost a decade and the central bank expects gross domestic product to shrink more than 8% this year.
In April, the government presented a ZAR 500B package to support those worst affected by the shutdown, including 200 billion rand in guarantees for banks to encourage them to lend.
What Bloomberg’s Economists Say:
The details, which are still thin, will be laid out at the upcoming Medium Term Budget Statement. We expect a further deterioration in the budget as a result of this additional stimulus.
Almost ZAR 14B will be spent on creating 800,000 job and economic opportunities in the current fiscal year, which ends on March 31. The government intends hiring 300,000 teacher assistants and allocating grants to about 75,000 small-scale farmers. More than 60,000 road-construction jobs will also be created and an additional 6,000 community health workers and nursing assistants will be hired.
A special welfare grant of ZAR 350 that was announced in April for those who didn’t qualify for other state support, and was due to expire in October, will be extended by three months, according to Ramaphosa. He also recommitted the government to tackling corruption, making it easier and cheaper to do business, reducing the time it takes to secure mining, water and environmental licenses, and easing visa requirements for skilled workers.