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Gigaba’s 14 point plan: Will it work?

Minister of Finance Malusi Gigaba announced a detailed 14 point action plan yesterday, which aims to bolster South Africa’s struggling economy. The country entered a technical recession in the first quarter of this year, and the action pl...

16 July 2017 · Jessica Anne Wood

Gigaba’s 14 point plan: Will it work?

Minister of Finance Malusi Gigaba announced a detailed 14 point action plan yesterday, which aims to bolster South Africa’s struggling economy. The country entered a technical recession in the first quarter of this year, and the action plan, it is hoped, will help lift the country out of this.

Gerard van der Westhuizen, dealer at TreasuryOne stated: “The main focus of the plan was to set out goals in which we can dodge another downgrade and create growth in the economy. The highlight feature of this detailed plan will be the mandate given to the Mineral Resources Minister, Mosebenzi Zwane, to reopen engagements of the new Mining Charter that focuses on the local mining and minerals industry. If this charter succeeds, foreign investment into local mining industry will take a hit and could create big capital outflows from South Africa.”

Gigaba’s 14 point plan has been met with caution and scepticism by some experts. Nomura research analyst Peter Attard Montalto noted that there were no “real pro-growth reforms; what was offered up instead were measures that should help stabilise the economy at this very weak place by providing a floor under sentiment but not provide upside to per capita income growth in our view.”

According to Montalto, only time will tell if this action plan will see ratings agencies give the country the benefit of the doubt as to whether or not this plan will stimulate growth, leading to some delays in the ratings timeline.

Professor Raymond Parsons, an NWU School of Business and Governance economist, said: “The acid test for finance minister Gigaba's 14-point action plan today is whether it will boost confidence in the economy by producing real outcomes.”

Parsons highlighted that the action plan reveals that Gigaba is aware of the tough decisions that are required to address the serious economic and political headwinds facing the country. “In promising action the Minister's plan can be seen as a step in the right direction. Although there were no new proposals in the plan, the fact that firm time-lines for implementation of previous decisions have been indicated, and the development of framework for greater private sector participation in projects run by the government and state-owned enterprises (SOEs), are welcome,” said Parsons.

The plan

In his speech, Gigaba highlighted the low growth experienced by the country in recent years, as well as the low growth expected for 2017, calling on government, business, labour and civil society to play a role in helping growth for the economy.

“In my view, at this moment, all relevant role-players need to unite behind the urgent action steps we must take to re-ignite growth in our economy and avoid much of nomenclature that from time to time characterises our discourse,” said Gigaba.

In Parsons’ view, the 14 point action plan reveals that government is beginning to engage with what needs to be done to turn the economy around and to break South Africa out of its ‘low growth trap’. However, he pointed out that as further details will only be unpacked in the Medium Budget Policy Statement (MTBPS) in October, it is impossible to say at this stage whether the announcement of this action plan will be adequate enough to restore confidence in the country and economy.

“For ultimately the success of latest action plan will not rest on technicalities. It will instead depend upon whether Minister Gigaba's 'message' overall can rebuild investor and business confidence, as well as reduce the policy uncertainty which is bedevilling SA's economic performance, given other political factors,” elaborated Parsons.

Montalto stated that the 14 point action plan does not offer anything new in terms of actions. However, it does provide timelines for each of the actions, which is new, as well as naming the authorities responsible for implementing the various interventions (see below for more details). “Both of these factors have previously been missing from such plans, so while the content is not new, this does ‘elevate’ it somewhat.”

Is it enough?

Montalto noted that with regards to the action plan being enough to satisfy the ratings agencies, he does not believe this is the case.

The issues in this plan have already been discussed with them. We don’t think they will find anything new here. However, ratings agencies may give more benefit of the doubt and shift back timelines, watching for implementation. The National Treasury (NT) may well have carefully constructed the timelines here with that in mind (as the ratings dates are known for this year and roughly forecastable for next year). Ultimately, we think the growth needle not moving will be enough to secure further downgrades,” elaborated Montalto.

According to Montalto, the new 14 point action plan has not led Nomura to change its growth outlook for the country from 0.2% for 2017.

The details

The action plan lists the following interventions and deadlines:

Intervention

Details

Deadline

Fiscal policy

Finalise a sustainable wage agreement

February 2018

Finalise infrastructure budget facility

October 2017

Financial sector and tax policy

Convene a financial sector summit to quantify transformation targets, including for low-income housing and transformational agriculture

December 2017

Bring down banking costs by implementing Twin Peaks

February 2018

Work with DTI on targeted debt relief for the most vulnerable

February 2018

Introduce micro-insurance framework and review cooperative bank framework

February 2018

Leverage public procurement

Implement preferential procurement regulations, which took effect on 1 April 2017

July 2017

Finalise the Public Procurement Bill

March 2018

Finalise complementary government fund aimed at financing SMMEs in the start-up phase

February 2018

Recapitalisation of SOEs and government guarantees

Continue engagements on framework for the disposal of non-core assets

March 2018

Conduct detailed audit of non-strategic assets of SOEs aimed at strengthening SOE balance sheets

March 2018

Finalise recapitalisation of South African Airways and South African Post Office

August 2017

Reduce the issuance of government guarantees, especially for operational reasons

October 2017

Determine the consequences of SOE non-adherence to the guarantee conditions

October 2017

Broader state owned entity (SOE) reforms

Implement private sector participation framework

March 2018

Implement the remuneration framework

March 2018

Finalise the board appointment framework

March 2018

Table draft Shareholder Bill

March 2018

Implement a framework for the determination and costing of developmental mandates

March 2018

Approve ToR for implementation of the Remuneration Standards oversight committee

September 2017

Private sector participation (PSP) framework

Engage other departments on PSP framework

July 2017

Provide broader guidance on sectors or asset classes for PSP and decide whether sector specific PSP frameworks are needed

October 2017

Present potential projects for PSP to line departments, Technical Task Team and Inter-Ministerial Committee

November 2017

Approve PSP projects as outlined in the governance framework proposed in the PSP framework

March 2018

Include PSP projects in Shareholder Compacts and Corporate Plan for subsequent implantation

March 2018

Costing developmental mandates

Consult other SOEs on costing of developmental mandate

August 2017

Implement mechanisms to effect outcomes through Corporate Plans

August 2017

Roll-out the template for inclusion in the 2018 corporate plans

September 2017

Monitor implementation through quarterly reports, annual reports and corporate plans

March 2018

Energy

Approach NERSA regarding Eskom hardship

July 2017

Develop the case for Eskom soft support until tariff adjustment in 2018 and submit to Treasury and Eskom Board

July 2017

Finalise lowest cost IEP and IRP, taking into account extensive comments received during public consultation

February 2018

Review the pace and scale of rollout under the circumstances of Eskom hardship and overcapacity up to 2021

August 2017

Review the level of participation by black industrialists and develop a strategy to increase it

August 2017

South African Airways (SAA)

Finalise CEO Appointment

July 2017

Finalise and implement five year turnaround plan

December 2019

Negotiate with lenders to extend debt to longer-term

October 2017

Telecommunications

Conduct high level study on WOAN spectrum needs with a view to license the remainder to the industry

August 2017

Issue policy directive mandating ICASA to commence the licensing process

December 2017

Complete the spectrum licensing process

December 2017

Direct Competition Commission to investigate the data prices

July 2017

Commence rollout of phase one of SA Connect Broadband programme

August 2017

Postbank licensing

Amendment of the enabling legislation for licensing of Postbank.

December 2017

Minerals and Petroleum Resources Development Act Amendment Bill

Finalise MPRDA Amendment Bill in a manner that reflects the inputs of civil society, labour and industry solicited through the public consultation process

December 2017

Broad-based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry

Conduct further engagements with civil society, labour and industry

Charter gazetted

The Regulation of Land Holdings Bill

Table Regulation of Land Holdings Bill in parliament (after processing by a multi-disciplinary Ministerial Think Tank, the NJSC and NEDLAC)

October 2017

Details of the action plan can be found here

 

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