South African Reserve Bank (SARB) governor Lesetja Kganyago does little to hide his frustration over the lack of progress in pursuing the structural reforms required to improve South Africa’s growth prospects and deal with its serious unemployment problem.
He argues that the National Development Plan (NDP) outlines many of the reforms needed, but questions whether the political class is truly ready to make the “bold decisions” required to implement the plan. “The truth of the matter is that the NDP spells out a structural-reform programme. But, because those things are painful to do, we would rather talk of the NDP as a living document that must continuously be adjusted.”
The governor also laments recent backsliding from reforms that have already been implemented, highlighting in particular the prevailing uncertainty around South Africa’s renewable-energy procurement programme. He believes the programme is not only a “no-brainer”, but also a symbol of the type of structural reform that should be continued and expanded.
He notes that the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) is held in high regard globally. “When I visited Washington DC there is a big showcase at the World Bank stating that any country that wants to know how to do a renewables independent power producer (IPP) programme should look at South Africa. And then what do we do? We come back home and we say: ‘These IPPs – we don’t want them anymore; they are not reliable’.”
Kganyago is referring, of course, to the prevailing uncertainty in the sector, which has arisen as a result of Eskom’s reluctance to sign power purchase agreements for projects already adjudicated following the most recent bidding rounds of the REIPPPP.
Kganyago, who was the director- general at the National Treasury when the REIPPPP was first implemented, says the decision to include IPPs in South Africa’s electricity mix was conscious structural reform undertaken by government to deal with electricity shortages, which were constraining growth. “So it was a no-brainer. Did government have to put money into those renewables? No. All we had to do was guarantee that we would buy the electricity.”
He also stresses that it is not the only reform required to deal with the country’s anaemic growth outlook. The bank’s forecast is for growth of only 0.4% in 2016, rising to 1.2% and 1.6% in the subsequent two years.
In South Africa, these reforms range from improved governance of public entities to ensure that such institutions are offering support rather than undermining private investment through to labour market reforms that could improve prospects for small and microenterprises.
SARB economic research and statistics department head Dr Rashad Cassim argues that the current focus on structural reforms is also not unique to South Africa, with many countries assessing supply-side interventions as demand-side stimulus programmes reach their limits.
“There is no magic bullet. [But] the reason people are currently focusing on supply-side reforms is largely that there is a view that the world economy will probably move sideways at 3% for several years. It’s going to be hard to ride on world economic growth. Something else has to be done,” Cassim avers.
In light of South Africa’s increasingly volatile politics, the question is whether the political leadership has the capacity to make the kinds of decisions that could be uncomfortable in the short term, but game changing in the longer term. In other words, it’s a case of a plan without a leader, man or woman, to champion it.