State should give private sector space to build SA

In 2012 work on the great Middle Vaitarna Dam of Mumbai was completed. It was the respite the water scarce city needed as the Middle Vaitarna boosted total water supply by 455 million litres a day. But studies showed that if the city were to fix the leaks in its old underground pipelines, it would save in excess of 600 million litres a day, 32 percent more than the new dam will supply.

As South African business and government prepare for next week’s Budget statement, the story of India’s water challenges should resound strongly in their heads. The government has shown its cards. Through initiatives such as the National Development Plan, an R860 billion infrastructure plan, R126 million towards a human settlements grant, a R3bn jobs fund, and an R800m green fund, it is clear that the government plans to spend its way to growth.

Implemented properly, this will build the economy but why build a new dam when we can fix the leaks? By changing its role to a facilitator of growth, the government could have a larger effect through lower spending. Spending and investment are a key part of kick-starting economic growth, but even in the perfect government capacity is limited.

The capacity of the people and private sector is almost limitless, however, and by unlocking their potential the government could get far more bang for its buck. There are many key areas where the government could step back from creating the growth and help others to do it instead.

Telecoms is a prime example. South Africa boasts some of the highest calling and internet costs in the world. By releasing the industry to free and fair competition, costs would plummet. Not only would business become less expensive, more efficient, and more collaborative, but cheaper telecoms could open up whole new industries and boost skills development.

Competitive behaviour needs to be subjected to higher scrutiny. The Competition Commission has done excellent work in identifying anti-competitive business practices but while hefty fines have been dished out, the plague continues causing inflated prices across all major industries.

The tender process needs to be addressed, especially if the government plans to go ahead with its elaborate public works programmes. Currently, the procedure is cumbersome, inefficient and open to corruption, causing a loss in time and money in this key area of economic growth.

New small businesses must be let loose to start and flourish. Instead of trying to bring the informal economy under the lock and key of official structures rather let it flow in its own organic fashion. The revenue lost from not having these businesses under tax monitoring will soon be regained as they create wealth and increased spending throughout the rest of the economy.

Let industry feed electricity back into the grid in an organised and fair manner. An R800m fund for green projects is an excellent start, but if private firms were allowed to compete fairly for electricity provision, private funding to green projects would far exceed any spending that the government could match.

And finally, provide some clarity on policies. Industry and investment can adapt to the most obscure legal frameworks, but what it cannot adapt to is uncertainty.

Industry, entrepreneurs and people are champing at the bit to be let loose to drive growth. The government need not take the lead; it simply needs to open the gates, prepare the track and facilitate the race as everyone else builds the growth they seek.

Pierre Heistein is the convener of UCT’s Applied Economics for Smart Decision-Making course. @PierreHeistein