OPINION: SA's bank guarantee scheme must be consistent with the stimulus package
JOHANNESBURG - The introduction of a guarantee scheme at R200 billion to effectively enable the banking sector to undertake large-scale lending to bridge finance companies through the crisis has been welcomed by industries.
This as many businesses have had cash flows substantially diminished because of the lockdown and wider economic disruption from Covid-19.
The failure to support these businesses would lead to widespread business liquidations, staff lay-offs and trigger wider distress in their supply chains, causing a permanent loss in
output, making the post-Covid-19 recovery slower and reducing potential long-term Inclusive Growth.
However, I argue that the intentions of the scheme should be broader than the narrow technical mania of the banking credit assessment and made to be consistent with the 2018 stimulus package aligned to the Economic Strategy for South Africa by National Treasury.
The 2018 stimulus and recovery plan identified five broad parts - implementation of growth-enhancing economic reforms, reprioritisation of public spending to support job creation, the establishment of an Infrastructure Fund, addressing urgent and pressing matters in education and health and investing in municipal social infrastructure improvement.
In this instance, if we take reprioritisation of public spending to support job creation, the establishment of Infrastructure Fund, and investing in municipal social infrastructure improvement, pockets of value chains are most likely to surface.
This is the area of the economy where most of the R200bn can be invested with less exploitation by tenderpreneurs helping to build value chains directed by demand for both established and nascent industries, including small medium enterprises.
Authenticated entrepreneurship could be nurtured to build a real industrial climate with the supply side growing in congruence with the demand side while effective infrastructure is realised.
This is not taken from a blank slate as a dedicated Infrastructure Execution Team in the Presidency by now must have identified and quantify ‘shovel ready’ public sector projects, such as roads, railways, ports, energy, and dams, and ready to engage the private sector to manage delivery.
Consulting Engineers of South Africa and other academic centres made pleas a while ago to work with the government in providing capacity and efficiency in such projects, and in turn that improves the bankability of these projects.
A plethora of black engineering firms can be established and those already in the sector can benefit through sustained order books. This will allow white engineering firms to include real black engineering entrepreneurs for compliance with the inclusive growth agenda.
There was a commitment that, in support of the stimulus efforts, the Industrial Development Corporation would increase its approvals to R20 billion over 12 months, an increase of 20 percent on the previous year.
These are pockets of resources that can be optimised to build an industrial value chain capable of creating labour-intensive jobs, building a base for the mature execution and refinement through the practice of the “Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa by National Treasury”’.
It is the only blueprint I am aware of that endeavours to proffer an economic solution.
Therefore, a convergence of demand with supply while creating sound value chains must be supervised by our regulatory frameworks such as designation policies for localisation and the Broad-Based Black Economic Empowerment Act to enforce transformation and inclusive growth.
The Bank guarantee scheme to bridge finance the economy, with other resources, which can be extracted from development finance institutions and integrated with engineering proficiency from the private sector, are ideal tools to achieve the promised Inclusive Growth.
In return this will kindle domestic private investment to invest in fixed capital activities of the economy, a win win for both private and public sectors resulting in job creation.
Bongani Mankewu is an associate of the Infrastructure Development & Engagement Unit at Nelson Mandela University.