Although the president hit some high notes in his speech with respect to the economy, spending significant time on the plan for Eskom, he failed in large part to offer direction for struggling state-owned enterprises (SOEs) like the Passenger Rail Agency of South Africa, SA Express and SAA.
On Eskom, Ramaphosa acknowledged that the recent bouts of load-shedding, which reached as high as stage six last last year, have had a debilitating effect on the economy.
Although it was unavoidable, he said, load-shedding — whose cumulative cost to the economy last year was between R59-billion and R118-billion — would be undertaken in a way that is predictable and minimises disruption and cost to firms and households.
Ramaphosa said that the state was intent on fixing Eskom, but the bigger picture was about ensuring energy security. To help achieve this, he announced a slew of initiatives, which include fast-tracking legislation that would bring additional power — including all renewables — to the grid almost immediately.
Some of these moves could be seen as having the potential to anger the labour unions, including the immediate opening of window five of the Renewable Energy Independent Power Producer Procurement (REIPPP) programme. This programme was halted by former energy minister Jeff Radebe amid criticism from labour unions, which argue that it is costly and benefits the private sector.
Ramaphosa also announced, to large-scale applause from the opposition benches, that the government would allow municipalities to purchase energy from independent power producers — effectively ending the court action brought by the City of Cape Town to compel the government to allow them to do this.
Other initiatives include:
- Signing crucial legislation that will enable the development of additional grid capacity from renewable energy, natural gas, hydro power, battery storage and coal;
- Initiating the procurement of emergency power from projects that can deliver electricity into the grid within three to 12 months from approval;
- Allowing small-scale distributed generation of less than 1MW for own use with no licence requirement;
- The fast-tracking, by the National Energy Regulator of South Africa, of all applications by commercial and industrial users to produce their own electricity, as suggested by the mining industry and other large consumers. These will be processed within 120 days; and
- Negotiating supplementary power-purchase agreements to get additional capacity from existing wind and solar plants.
Ramaphosa reiterated the state’s intention to forge ahead with Public Enterprises Minister Pravin Gordhan’s plan to restructure Eskom by breaking it up into three standalone divisions — generation, transmission and distribution — each with its own board and management that will report to the Eskom group.
He also revealed that labour, business, community and the government had been meeting, through the National Economic and Development Labour Council, over the past two weeks to agree on the principles of a social compact on electricity. “Through this compact the social partners seek an efficient, productive and fit-for-purpose Eskom that generates electricity at affordable prices for communities and industries.
“This requires both a drastic reduction in costs — including a review of irregular contracts — and measures to mobilise resources that will reduce Eskom’s debt and inject fresh capital where needed,” he said.
Ramaphosa essentially put to bed any possibility of using pension funds to rescue Eskom — as suggested by trade union federation Cosatu — saying all this would be done without putting “workers pensions at risk and [in a way] that does not compromise the integrity of the financial system.
“While they work to finalise this agreement, the reality is that our energy system will remain constrained until new energy generation comes on stream,” he said.
On SOEs in general, Ramaphosa said precious little, perhaps underlying the government’s lack of a coherent plan for them. What he did say contained the same old promises about repurposing strategic companies to support growth and development.
When it came to the embattled national carrier SAA, which was placed in business rescue late last year, Ramaphosa said that restructuring should result in an airline that will not be dependent on government funding.
Ramaphosa also touched on the need to fix commuter rail and the project to modernise and refurbish the rail network. He announced an investment of R2.8-billion to refurbish the central line in the Western Cape and the Mabopane line in Pretoria.
“Work under way on other lines includes station upgrades, parkway replacements, new signalling systems and overhead electrical traction upgrades,” he said.
Ramaphosa said the country can no longer continue on a trajectory of accruing debt and not generating enough revenue to keep up with its daily expenses.
South Africa’s national debt stands at R3-trillion and the treasury warns that it could grow to R4.5-trillion by 2022-23. He said this is a path that the country can no longer “afford”.
The country’s finances have been shifted from investing in the economy and towards consumption, such as bailing out SOEs. As a result, gross domestic product for the third quarter of 2019 contracted by 0.6% and the fourth quarter data, which is due to be released on March 3, is not expected to look that good. The economy has performed badly, with the South African Reserve Bank in January revising growth forecasts for 2020 and 2021 to 1.2% (from 1.4%) and 1.6% (from 1.7%), respectively.
But Ramaphosa has a plan.
His government is planning to establish a sovereign wealth fund as a means to preserve and “grow the national endowment of our nation, giving practical meaning to the injunction that the people shall share in the country’s wealth”, said Ramaphosa. He said the government will also establish a state bank as part of its effort to extend access to financial services to all South Africans. The president relegated most of the details about how this will work to the Minister of Finance Tito Mboweni, who is due to deliver his budget speech in two weeks time.
But a sovereign fund, if handled well, is not a bad idea. In October 2019, Norway, which has the world’s largest sovereign wealth fund, grew its kitty to a record $1.09-trillion. The fund has been around since 1996 to save petroleum revenues for future generations. Now the fund invests almost 70% of its money in global equities and about 28% in a portfolio of fixed-income assets.
Ramaphosa also said that the government is working to reduce the public wage bill, which consumes 35% of the country’s budget. He said the government has engaged with labour and stakeholders to reduce the amount.
“By shifting government spending from consumption expenditure to investment in infrastructure, we aim to improve the state of public finances,” he said.
High unemployment is an albatross around the national budget.
Government, business and labour meet every month to find solutions to the unemployment crisis. This initiative, however, has not borne any significant fruit.
With the latest statistics showing that 10-million people in South Africa are unemployed, creating sustainable jobs to cut down the country’s high unemployment rate is one of the tasks that the ANC-led government has to face.
The outcomes of the 2018 Jobs Summit, which was instituted by Ramaphosa, have not been realised. Instead of adding jobs to the economy, the unemployment rate has continued to rise, from 27.2% at the time of the summit to 29.1%, according to the latest data related by Statistics South Africa this week. This is the highest unemployment rate since 2008.
Although 45 000 new jobs were added in the fourth quarter of 2019, Ramaphosa admitted in his address on Thursday that the unemployment rate is worsening.
The high unemployment rate is unsustainable. Ramaphosa, however, says that the country needs to work together to solve the issue, as the government cannot solve South Africa’s economic challenges alone.
“Even if we were to marshal every single resource at our disposal, and engage [in] a huge expenditure of public funds, we would not alone be able to guarantee employment to the millions of people who are out of work,” Ramaphosa said.
The youth continue to be the hardest hit by the ailing economy: about 8.2-million (40.1%) of young people aged 15 to 34 are not in employment, education or training of any sort.
Of the 1.2-million young people who enter the labour market each year, about two-thirds remain outside employment, education or training, Ramaphosa said.
To combat this, Ramaphosa said that the national budget would have to be sliced from the top, which would require a collective tightening of belts “and [to] redirect resources to address the national crisis of youth unemployment”.
During his address, Ramaphosa introduced the Presidential Youth Employment Intervention, which is a programme of six “priority actions” that will be implemented over the next five years to combat youth unemployment.
The government plans to launch “five prototype sites” that young people would be able to use to match themselves with employment opportunities. The sites will enable three-million job seekers to “receive active support, information and work-readiness training to increase their employability and match themselves to opportunities”.
The second priority area is ensuring that young people are trained to prepare for “specific skills” that are required by employers. Thirdly, the government will develop “new and innovative” ways to support youth entrepreneurship and self-employment.
“These six actions will together ensure that every young person in this country has a place to go, that their energy and capabilities are harnessed, and that they can contribute to the growth of their communities and their country,” he said.
“Fourth, we are scaling up the Youth Employment Service and working with TVET colleges and the private sector to ensure that more learners receive practical experience in the workplace to complete their training.”
“Fifthly, we are establishing the first cohort of a Presidential Youth Service programme that will unlock the agency of young people and provide opportunities for them to earn an income while contributing to nation-building,” Ramaphosa said. The sixth and final priority will be to set aside 1% of the national budget to deal with the high levels of youth unemployment.
Ramaphosa said Mboweni will provide greater detail of the government’s plans to roll out its plans to combat youth unemployment in his budget speech later this month.