OPINION: Success of stimulus depends on reforms
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The R500 billion injection into the economy to deal with the health-care fallout and look after the most disadvantaged is more than 10 times what the country spent in preparing to host the Fifa World Cup 10 years ago.
It’s understandable that there will be some questions about how implementable large parts of the stimulus will be, with the state’s performance over the past decade, in its own words, amounting to a “wasted” opportunity.
These measures come against the backdrop of an economy still in lockdown, and likely to remain so in some form until September.
As much as we welcome the fiscal intervention, we need to understand that we are chasing a growing hole. Its size will be determined by the length and depth of the lockdown.
The stimulus focuses on job retention and creation in a climate that is going to become more difficult, with projections of 1 million job losses. There’s opportunity in the global shift in supply lines that could aid local production. At its centre, there is a clear focus on saving jobs and putting money in people’s hands. There’s no restarting an economy if people don’t have disposable income.
The success of the stimulus hinges on the country’s ability to deal with the structural reforms that we’ve pushed for over the past two years since the change in political leadership.
At the top of the list of priorities is the future of our state-owned enterprises (SOEs). The president has called for the overhauling of these entities, which, in my mind, means a complete change of how they are structured and perhaps even more importantly how we reduce our exposure to some of the biggest companies in the country and the continent.
These institutions have neither provided dividends nor aided the state’s ability to deal with the socio-economic ills that it inherited over the past decade. There’s long been a need to make a call on their future, all 740 of them, particularly those that can’t say that they are structurally important for the betterment of the economy.
Miscommunication around the status of SAA this past week is concerning.
This is no time for indecisiveness, particularly for a company that has incurred more than R28bn in losses over the past 14 years.
The commitment to structural reform and a decisiveness in dealing with questions such as SAA will be integral as the National Treasury speaks to international funding agencies such as the World Bank and the International Monetary Fund.
Action has to accompany calls for the overhaul of SOEs and the other structural reforms in the areas of energy and telecoms to name two.
There is much riding on the measures announced this week, and while there are rightfully concerns about the deterioration in our debt metrics, the state quite simply had to react to the unfolding economic meltdown.
Monetary policy has played its part in reducing borrowing costs, and after the cuts in interest rates by 200 basis points, it was time for the president and his Treasury to fire off their big bazooka. And fire it off they did. Now we have to trust that it has the right impact on an economy that is set to contract by as much as 10 percent this year, by some estimates.
There is zero room for error and credibility is key. The Treasury has stepped up to the plate but now has to flesh out the details to keep markets onside - and it must do so quickly.
Busi Mavuso is chief executive of Business Leadership South Africa.