Give SA more than just reform gimmicks, Ramaphosa

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Give SA more than just reform gimmicks, Ramaphosa

The president’s raising of the power licensing threshold will add only 0.5% to GDP

Columnist
President Cyril Ramaphosa must start getting serious about an economic recovery plan, instead of trying to fob gimmicks off on us.
TOO LITTLE TOO LATE President Cyril Ramaphosa must start getting serious about an economic recovery plan, instead of trying to fob gimmicks off on us.
Image: GCIS

In the face of soaring unemployment, which has created an unviable society, and brutal energy blackouts in the middle of winter, President Cyril Ramaphosa has announced two structural reform gimmicks that will do little to resolve the country’s immediate economic and power crises.

According to Stats SA’s latest survey, the expanded unemployment rate for black Africans was 47.9% during the first quarter of 2021. For black African females it was 51.5%. In the Eastern Cape and Limpopo, the unemployment rates for people of all races were 49.6% and 49.5% respectively. The expanded youth unemployment rate was a staggering 74.7%.

Since December 2008, the economy has created only 226,000 jobs and the labour force has increased by 5.7 million people. The number of unemployed people has soared from 5.5 million to 11.4 million people. Ramaphosa’s gimmicks for the crisis have delivered nothing. The jobs summit agreement of October 2018 was supposed to create 275,000 jobs a year. The Youth Employment Scheme was supposed to create a million jobs. It has created 55,000 so-called work opportunities. We do not know how many of these people are still working.

The decision to increase the licensing threshold for embedded generation projects to 100MW was billed as a game-changer that would kick-start the government’s economic recovery plan and help with the energy crisis. The decision will create investment of R75bn and new power capacity of 5,000MW between 2022 and 2024. That is equivalent to only 0.5% of GDP a year. This is no game-changer.

Let us be clear: the government does not have an infrastructure-led recovery plan. It has committed only 0.1% of GDP a year for the next three years to a R100bn infrastructure fund that the president announced in 2018.

Austerity measures of R264.9bn over the next three years — 0.5% of GDP in 2020/2021, 1.5% of GDP in 2022/2023 and 2.5% of GDP 2023/2024 — and leakages through imports will cancel out the impact of the small increase in investment. Let us be clear: the government does not have an infrastructure-led recovery plan. It has committed only 0.1% of GDP a year for the next three years to a R100bn infrastructure fund that the president announced in 2018.

Since the new capacity will only be available in 2024 or 2025, the president’s announcement will not tackle the immediate crisis of energy blackouts. Eskom’s year-to-date energy availability factor has collapsed to 60.78%. Regularly, about a third of the utility’s capacity is down. The announcement will also accelerate the utility’s death spiral.

What the government has given to the private sector, it will take from Eskom, which will lose its key customers. The decline in sales revenues, which have collapsed by 12.5% since 2014, will accelerate. There will be higher price increases to cover for the reduced utilisation of generation capacity. The government will have to increase its bailouts to Eskom. The liberalisation of the sector will increase energy inequality in a country where the rich have already left public services such as health, education and security.

A few large companies will be able to exit the grid, but 224,000 formal small and medium enterprises will not have this option. There will be two energy systems — one for rich households and a few large companies that will have 24/7 power, and another one for millions of South Africans who will continue to rely on a mismanaged Eskom and experience blackouts.

Since there are so few details about Takatso’s purchase of a 51% stake in SAA, I can only conclude that there was political pressure to make an announcement at the same time as the energy sector reforms. So far, there is no purchase price. Takatso has committed to invest R1bn a year in working capital for the next three years.

I do not have to be an aviation expert to understand that we are talking about a small airline that is less than 10% the size of the former SAA. In 2017, the last time SAA published financial statements, it was a R30bn-a-year business. SA must get serious about developing an economic recovery plan.

• Gqubule is founding director at the Centre for Economic Development and Transformation.

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