South African President Cyril Ramaphosa announced his long promised economic stimulus and recovery plan after news that the country has slipped into a technical recession, with two consecutive GDP contraction during the first and second quarter of 2018. This raised fears that the country would slip into socioeconomic abyss as it threatens to worsen the already stubbornly high unemployment, poverty and inequality.
Ramaphosa notes that “In recent months, the structural weaknesses in our economy have been made worse by global factors such as a rising oil price, weakening sentiment towards emerging markets and deteriorating trade relations between the US and other major economies.”
Here are the key points from Ramaphosa’s presentation of the economic stimulus and recovery plan:
Whats the plan?
The plan is made of a range of measures, financial and non-financial, to be rolled out immediately to ignite economic activity and restore investor confidence. The measures are designed to have the greatest impact on youth, women and small businesses in townships and rural areas.
It encompasses reprioritisation of public spending to support job creation, the establishment of an Infrastructure Fund and addressing urgent matters in education and health.
Ramaphosa notes that “for our economy to grow at a rate that will lead to job creation on a meaningful scale, we need to significantly increase levels of investment. We are decisively and rapidly accelerating the implementation of key economic reforms that will unlock greater investment in important growth sectors.”
Other measures include expanding procurement from small business and cooperatives, as well as using trade measures – within WTO rules – to protect poultry and other sensitive sectors and a crackdown on illegal imports.
Changes to the visa regime
Ramaphosa highlighted the need to reform the country’s Visa regime in order to boost the tourism sector. Key reforms have alread been approved by the cabinet.
Within the next few months, amendments will be made to regulations on the travel of minors, the list of countries requiring visas to enter South Africa will be reviewed, an e-visas pilot will be implemented, and the visa requirements for highly skilled foreigners will be revised.
These measures have the potential to boost tourism and make business travel a lot more conducive.
Mining sector interventions
Ramaphosa noted that it is imperative that South Africa restores investment and exploration levels in the mining sector as mining and mineral beneficiation activities have significant potential to drive long term growth, exports and job growth.
He said following extensive consultation that involved industry players, communities, labour and government, Cabinet approved the revised Mining Charter.
This will revitalise the mining industry and provide certainty to investors while charting a sustainable path towards a transformed and inclusive industry.
Parliament will be requested in terms of its rules not to proceed with the Mineral and Petroleum Resources Development Act Amendment Bill, which has contributed to a lot of uncertainty in the sector.
Separate legislation for the regulation of the oil and gas industry will be drafted through the government’s legislative process.
To reduce the cost of doing business, to boost exports and to make South African industry more competitive, government has begun a review of various administered prices, starting with electricity, port and rail tariffs.
Ramaphosa said within the next few weeks, government will initiate the process for the allocation of high-demand radio spectrum to enable licensing.
“This will unlock significant value in the telecommunications sector, increase competition, promote investment and reduce data costs.
“Lower data costs will also provide relief for poor households and increase the overall competitiveness of the South African economy.”
Agriculture, rural areas and townships
The plan emphasises reprioritisation of investment towards agriculture and economic activity in townships and rural areas.
Agriculture, said Ramaphosa, has massive potential for job creation in the immediate and long term.
The interventions will include a package of support measures for black commercial farmers. The aim is to increase their entry into food value chains through access to infrastructure like abattoirs and feedlots.
Blended finance will be mobilised from the Land Bank, Industrial Development Corporation and commercial banks. A significant portion of the funding will go towards export-oriented crops that are highly labour intensive.
Government will finalise the signing of 30 years leases to enable farmers to mobilise funding for agricultural development.
Ramaphosa has appointed an advisory panel on land reform that will guide the Inter-Ministerial Committee (IMC) on Land Reform chaired by Deputy President David Mabuza.
The 10-person panel is to advise government on the implementation of a fair and equitable land reform process that redresses the injustices of the past, increases agricultural output, promotes economic growth and protects food security.
Three regional and 26 township industrial parks have been identified as catalysts for broader economic and industrial development in townships and rural areas.
Infrastructure development spending
The stimulus and recovery plan prioritises infrastructure spending as a critical driver of economic activity.
A new Infrastructure Fund will be established to roll out infrastructure projects more efficiently.
The private sector will be invited to enter into meaningful partnerships with government in this fund.
The contribution from the fiscus towards the Infrastructure Fund over the medium-term expenditure framework period would be in excess of R400 billion, which we will use to leverage additional resources from developmental finance institutions, multilateral development banks, and private lenders and investors.
To ensure these funds are used effectively and that projects are completed on time and on budget, a dedicated Infrastructure Execution Team in the Presidency with extensive project management and engineering expertise has been established to assist with project design and oversee implementation.
The team will identify and quantify ‘shovel ready’ public sector projects, such as roads and dams, and engage the private sector to manage delivery.
Additional infrastructure funding will be directed towards provincial and national roads, human settlements, water infrastructure, schools, student accommodation and public transport.
The IDC will be targeting to increase its approvals to R20 billion over 12 months, an increase of 20% on the previous year.
This funding will target the productive sectors of the economy, including manufacturing, mining, industrial infrastructure and sectors in distress.