The state needs to urgently push reforms so that the private sector can deliver renewable energy.
This column was first published in Business Day.
Last week’s monetary policy committee meeting basically announced that there was no free lunch for the government now or during the recovery period to come.
The Reserve Bank committee reinforced the fact there is no substitute for real growth and that simply inflating your way out of crisis driven debt is hardly the first best option. With likely only a 25 basis point or so cut left it therefore becomes all about the ability of the private sector to lift the economy out of this rut.
Why just the private sector? This isn’t to say the state won’t be doing anything, but all the revenue for post-crisis support is going to have to come from somewhere — for likely permanent continuation of supposedly temporary steps up in grant payments and new unemployment benefits — as well as for additional support for state-owned enterprises (SOEs). The state is also likely still to support the economy through making tax holidays permanent and various industrial support.
The scale of rebuilding is now going to be twice as big as before (well, maybe a third as big again thinking about unemployment likely) and the state cannot micromanage the process of recovery. We saw how that went through level 4 of this lockdown after all.
This means an enabling state, with the right recovery narrative. Not the slogans and public relations fluff we have seen around some previous growth strategies or investment conferences, but something that people (investors offshore and onshore) can buy into.
Country-based narratives, however, are going to be a crowded space in the coming year. While normally countries come out and woo investors at random times and uncoordinated — now every country in the world is going to be trying to craft narratives for recovery.
The government has traditionally not understood this issue of competitive policymaking dynamics. You not only have to improve doing business and provide structural reforms at home, but you need to do so faster than your peers. This pressure is going to be more intensive than before and it will be a good time for the government to learn from its past failings in these areas.
The challenge is even greater than usual — all countries will be repatriating manufacturing and supply chains either onshore or closer to within their near regions. What “dream” is SA going to be able to sell?
The other problem will be the need to move at speed. Reforms need to be put in place now (yes right now) to start to open the taps for investment through year-end as the economy opens and into next year.
Waiting for two years, to align with some political cycles, a mass of social compacting, endless delays for something to be gazetted and mixed messaging is not going to cut it. Equally “national lekgotlas” end up going in circles.
To state the risk clearly — the economy can be stuck with permanent loss of output, fiscal space for developmental spending can be permanently reduced and large swathes of temporary unemployment can become permanent.
Let’s find a narrative that takes something that SA has a huge endowment of. Something that addresses deep structural change required in the economy, brings together offshore and onshore capital and supply chains, is jobs intensive can self-sustain a long investment boom over a decade or more, with positive spill overs to the rest of the economy.
What on earth could such a thing be, it sounds too good to be true? Well politically, now, it is. The cobwebs will have to be swept away and with it any ministerial blockages (unless they have a Damascene conversion to survive). The endpoint is uncompactable precisely because of all the points above and its international inevitability.
What is this then?
A full throttle, totally unapologetic green energy liberalisation that lowers energy costs, creates new industries, new SMMEs, supply chains, crowds in foreign capital and will see a boom that will last over a decade — using SA’s solar and wind resources (and its potential for domestically sourced back up gas).
This is far from a new idea — proof yet again that in SA we just debate over the same finite set of ideas. But so many people have done the maths on its effect (yes and informed government).
There is a lot to do, however, after years of policy neglect, not just in the energy policy space but also as expertise has been paired back in SA with endless delays, as new innovative financing mechanisms for infrastructure in general and just energy transition financing in particular have to be built and plumbed into capital markets then simply given the lead times required for legislative, regulatory, bureaucratic change.
More than that, however, systems of bureaucracy are going to have to change and new institutions built to move infrastructure at scale and speed.
It is time to take ownership and run with it, Mr President. A recovery solution is being offered on a plate.
• Attard Montalto is head of Capital Markets Research at Intellidex.