The quest for new ways to support the economy against a fiscally constrained backdrop cannot be over.

This column was first published in Business Day.

I find myself in an odd position — pointing out the looming fiscal cliff risks ahead yet also scratching my head at the almost complete lack of debate over the forthcoming abrupt end to the existing stimulus and the lack of new economic support for coronavirus hotspots.

President Cyril Ramaphosa announced on Monday that the country was moving into an “adjusted level 3 lockdown” — but no mention at all followed of any additional support for the new hotspots or the hospitality industry, which would be most directly affected.

There was an angry press release from Cosatu while others on the left sounded off on Twitter — though neither really seems to indicate a more visceral and practical political outrage, while at the ANC’s national executive committee (NEC) meeting there seemed to be nothing but the sound of silence.

Maybe this was the government realising the PR nightmare of the first non-existent R500bn in stimulus. But to mention nothing at all seemed bizarre.

Other countries have introduced hotspot-related support plans. The UK created a per capita grant to local government in areas locked down, while the US is reintroducing stimulus cheques as well as extending other forms of employment support.

The issue is not just a muted debate in public but there is no real sign whatsoever that this debate is being had by the government at all.

Maybe the Treasury has been somewhat over-effective this year in turning down the volume of the debate on broader stimulus (it would be overgenerous to say it won the debate). Yet, more importantly, maybe the lack of any zero-based budgeting or expenditure reviews of any depth in the medium-term budget policy statement (MTBPS) prevented a solid debate on distributional choices in the existing fiscal framework beyond a simplistic wage bill versus the rest focus, important as that still was.

The quest for new ways to support the economy against a fiscally constrained backdrop cannot be over. This means accelerating expenditure reviews (and gathering the necessary capacity so that the Treasury doesn’t have to) in order to free up existing space, but also prompt honest conversation.

Next year will be defined by the race among countries to reach herd immunity. What level that is in terms of share of the population is still greatly contested, but let’s take 60% as an order of magnitude. Currently the government seems to have no firm plan when to reach that point nor the facilities or funding to make it happen. The private sector will ultimately have to do it — but this key point could well be reached only at the end of 2021 or into 2022.

A number of possibilities exists for taking the blame for the messy and delayed vaccine procurement process and confused communications — but a debate over making room for about R10bn of on-balance-sheet funding should have started in the government back in April, to allow for speedy decisions on a variety of different providers with clear targets for rollout.

Equally, the costs being cross-subsidised from private to public sector is an elegant solution but a unit tax on private medical schemes could have been paid for by the cancellation of the SAA bailout.

The first quarter of 2021 will be a challenging time as the Covid-19 support grant ends in January. Politically it is easily extendable, although the Treasury seems to be holding the line for the moment. The Unemployment Insurance Fund (UIF) schemes will end too while other facilities such as support grants for small, medium and micro enterprises (SMMEs) and tourism never really got off the ground and are forgotten.

The UIF scheme should be extended to cover businesses in hotspots with registered addresses given (as Business4SA has shown) that the UIF has enough liquid assets to finance such a scheme. Banks should put their heads together for a well-advertised scheme for hotspots and the Treasury should consider what reallocations of money sent down to lower levels of government can be reallocated for things such as rates relief for SMMEs.

These are just ideas, but ideas are lacking at the moment on how to offset the economic impact of not only the second wave now upon us but also a possible third and fourth surge in 2021 before widespread vaccination has been carried out.

Also lost is a sense of the scale of need. As with load-shedding, maybe the public has become immune to stories about unemployment or GDP data still well below the highwater of end-December 2019. There also exists an inability to compute the effects of inequality on bad headline data  — in the National Income Dynamics Study-Coronavirus Rapid Mobile Survey (Nids-Cram) and elsewhere — data that isn’t bad enough to properly signal the economic pain of much of the population

R2m Porsche

Indeed, the fact that excess savings and access to credit allowing a rich South African to buy a R2m Porsche can offset the loss of income and consumption in a poorer neighbourhood of say 500 households — is the kind of reality that is very much South African yet underappreciated.

The second wave Nids-Cram study showed 11% of households reporting child starvation and 37% running out of money for food in June — down on April, and likely to have come down again in September but still unacceptably high.

At Breadline Africa, a Cape Town-based early childhood development charity where I am a trustee, we saw a shift from our usual early childhood development (ECD) infrastructure and partnership focus towards emergency feeding earlier in the year. In Cape Town alone demand was met for 1.5-million children’s meals from the end of March to September. But crucially it still has had to support the provision of 25,000 meals a week even before the new lockdown. This is just one corner of the country — the scale is underappreciated.

Indeed, it puts things such as the public sector wage bill and state-owned entity (SOE) bailouts into perspective.

The fiscal cliff edge cannot be ignored but equally meeting our evolving needs within the fiscal framework and how those needs must be ranked and categorised not with a recovery in mind but subsequent surges and lockdowns — will require an important debate and shift in mindset. February isn’t far away at all — decisions have to be made now.

Monday night’s address should be the start of a new debate. For now, we largely seem to be on autopilot to (and beyond?) the February budget.

Attard Montalto is head of capital markets research at Intellidex. 


The great tragedies of the last century are usually about humans doing terrible things to each other. The natural world has been a relatively infrequent cause of large-scale death and destruction, at least since the 1918 Spanish flu. There have been major catastrophes such as the 2004 Indian Ocean earthquake and subsequent tsunami or the Yangtze River flood of 1931 that killed up to 4-million in China. But while these were devastating, they were not global and the death tolls much smaller than either World War.

Of course, this dichotomy of man-made and natural is a false one. It is our planning for natural threats and management when they strike that determines how destructive and tragic they are. Covid-19 has illustrated this sharply. Our lack of preparedness to manage the pandemic has been exposed.

The global impact of the pandemic has cast into relief that policy choices really affect outcomes. We have seen extremes, from the United States to New Zealand. There were three critical stages that each needed to be managed: the initial onset, handling secondary effects, and then the vaccine research and distribution programme.

The initial onset required fast decision-making based on rapid accumulation of evidence. China showed the lessons it had learned from past experiences, particularly Sars. According to The Lancet, China’s centralised epidemic response system kicked into gear early, moving very quickly to stop transmission. The disease was first detected in late December in Wuhan, and by 10 January 2020 China released the genomic sequence of the virus. Wuhan was immediately placed under a strict lockdown that lasted 76 days. Within weeks China had tested 9-million people in Wuhan and had set up an effective national system of contact tracing. By 5 February it was opening the first of over a dozen “Fangcang” hospitals in stadiums and other public venues to hold extra patients.

China has had 4,634 Covid-19 deaths and infection rates are now low. The United States, with a quarter of China’s population, has had 318,000 Covid-19 deaths and an accelerating and high infection rate. History will judge its mishandling of the pandemic harshly. A trifecta of political chaos, the libertarian culture at the heart of American life, and the geography of the country, combined to make it incredibly ill suited to manage the pandemic.

South Africa may shrug off these examples as providing little to learn from because they are large economies. But being a developing country is no excuse for being ineffective: Vietnam has been highly effective in managing the pandemic there. Its strict quarantine and contact tracing measures have worked. It has recorded just 35 deaths.

Vietnam has had previous experience of Sars and implemented a model response. Its government rapidly launched a communications campaign, including a viral song about the importance of hand washing. In mid March it made masks compulsory for all people outdoors. It implemented a strict nationwide lockdown on 1 April. It quarantined hundreds of thousands suspected to have Covid-19. It used pooled sampling – mixing the blood samples of five or six then testing it, going on to test them individually if there was a positive result, rapidly increasing the speed at which it could give the all clear to groups.

It has even developed four candidate vaccines domestically, one of which is in human trials. The economy has seen clear benefits: it will be one of the few in the region to grow this year, with the IMF expecting 1.8%. Government’s response has had 97% approval ratings in polls.

This provides some context on which South Africa’s performance can be judged. There are some achievement but other failures. We moved, initially, quite quickly in implementing a lockdown. We were not particularly well thought through out about it – particularly how lockdown can work in highly dense less formal settlements. There wasn’t good reason for this – thanks to the ARV rollout we do in fact have good distributed health information and support networks. These should have been part of the immediate response.

But we were particularly weak in the economic response. Among the relative strengths was the social grants and a cumbersome UIF system to support the most vulnerable. These could have been more targeted and efficient, but overall they did get money to where it was needed. However, we have been slow and halting in driving a full economic response. We were already on a weak footing with no fiscal space for government to move and an economy that has been shrinking in per capita terms for four years, but it was unacceptable that it took until late October to come up with an economic recovery plan. And the plan contains nothing that wasn’t known back in March – indeed, even earlier.

Now, we are risking our response on the health front too. While we were fast, if haphazard, in responding to the first wave, the second wave finds us being merely haphazard. With the second wave clearly accelerating, the interventions so far have been tentative and misfiring. The lessons of the first wave seem unlearned. Certainly, the economic damage of broad lockdowns has been learned, though the lesson hasn’t been to set down protocols and encourage businesses to adapt. Instead it has been geographic targets (which are better than indiscriminate national lockdowns) and somewhat random specific closures like beaches. Closing beaches is silly – it is human density that matters and open beaches can relieve density in other areas. Ban too many people on beaches, but not beaches full stop.

In the UK, an area-level approach has been taken, but currently most of the population has had all non-essential shops closed and households banned from visiting or meeting more than one person outdoors. Christmas plans of families across the country have been torn up.

The UK is recording daily infection three times the number of South Africa, but testing is far more widespread. The better indicator is probably the Covid death rate, which in the UK is twice that of South Africa.

We should be ruthlessly focused on limiting exposure – environments in which people gather densely, indoors and with limited ventilation. That is indoor socialising and entertainment, weddings, funerals and church services. But give businesses the opportunity to adapt. For example, suspend the bylaws on outdoor dining and encourage ecommerce. This is sometimes shrugged off as only an option in wealthy areas, but in fact township distribution networks work well and can be mobilised to support ecommerce. Even Kenya shops more online than South Africa. Policies that deal with the problem must be accompanied by policies that allow the economy to adapt in response. Economies are adaptive systems and they will shift if you provide the right incentives.

The other area we have not yet gotten right is vaccines. South Africa has embarrassed itself by missing payment deadlines on the global Covax initiative. We have, as far as anyone can tell, not even tried to engage with the large global manufacturers of vaccines about potential orders. Compare that to Vietnam which is trialling its own vaccines and Thailand which has signed a deal with AstraZeneca for 26-million vaccine doses and is in talks with Russia, China and India for more. South Africa’s financial position is no barrier to engaging with manufacturers. We have two local world class manufacturers in Adcock and Aspen which may be part of the solution as they were in the ARV crisis.

We are living with the consequences of our own policy choices. It is always difficult to get these right – they are highly contested with political factions and economic interest groups battling it out. But, as we know from confronting the Aids pandemic, we can start off badly and then pull together to end well. I hope 2021 is the year we can consolidate the lessons, understand our strengths, and really come together to put this crisis behind us. As other countries are showing, it can be done. Let next year be the year for South Africa.

This is going to be a strange Christmas for everyone, the strangest the world has seen for many decades. No matter the rules, the pandemic presents risks that will linger at the back of our minds. But it is an opportunity to rest and to reflect, to come to terms with the drastic impact the pandemic has had on all of us and prepare to come back invigorated. To all our readers and clients whom we have been proud to work with through this difficult year, I wish you all the best for the festive season. I look forward to working with you next year.

Best wishes,

Dr Stuart Theobald

 An offer to investors to swap their Eskom bonds for sovereign paper would be more effective than swapping for equity because Eskom debt is already widely seen as a de facto government obligation, says Peter Attard Montalto, an analyst at Intellidex. Featured in Financial Times.  

A lot of misdirected conclusions have been drawn from the court judgment on the public sector wage bill.

This column was first published in Business Day.

I have been reminded recently by a sage of the aphorism from the Reagan administration in the US that “personnel is policy”. The tragic ANC fallacy that somehow individuals are seconded to do nothing but implement the general will of the glorious revolutionary movement needs to be killed off in 2021 with a decent reshuffle that takes out the deadwood.

The people in government can shift the narrative, boost or suppress sentiment, convene experts and process competing expert advice while balancing vested interests (of both the normal and the corrupt variety).

But are these people fighting fit to move at speed during an energy crisis, a climate crisis, a water crisis, an unemployment crisis, an inequality crisis, a just energy transition opportunity, a fourth industrial revolution opportunity? The answer is clearly a very mixed bag when you cast your eyes over the cabinet or the levels of senior civil servants that drive government strategy.

Another personnel issue that will dominate 2021 is the public sector wage bill. A lot of misdirected conclusions have been drawn from the court judgment last week. The Treasury has not magically gained any new powers — nor have existing powers been strengthened de jure. Solid provisions have existed in the Public Service Regulations Act since 2001 (and now regulation 79 in the latest act) which allow the Treasury to put a complete block on unaffordable pay increases.

The problem is that historically and for political reasons the Treasury has chosen not to use those powers. Yet the Treasury’s position has been strengthened as these powers are being aired more openly. Its ability to withstand the political winds ahead of local elections and the 2022 ANC elective conference, which are blowing for compromise and an easy way out for the president, will be a defining test of the year.

What is fundable is after all an elastic concept — SAA was fundable so why not some wage increases?

The discussion on public sector wages needs to change after the court case to one about productivity. Public sector unions are in no position to talk about collective bargaining. What are they offering in return?

Unions have no leg to stand on arguing for increases when there is no increase in productivity. Productivity reviews need to be entrenched into the budgeting process to highlight this and then only to allow positive improvements to yield pay upside.

The new year may also be the year of a major strike by public sector unions — bar the inconvenience to be encountered when trying to renew licences or something similar will anyone actually notice? That is the question.

But broader discussions are needed about labour in the private sector too. Are SA labour markets flexible enough to reabsorb 2020 lost labour in 2021 — to weather third and fourth Covid-19 waves in 2021?

Some brave souls in the government tried to raise this issue through the president’s recovery programme but to no avail and it never really gained traction at Nedlac. This is partly about the ability of existing industries to cope, but also new industries to cope.

The idea of labour in SA needs to be rethought in 2021 to cope with the recovery but even more importantly with future opportunities such as the just energy transition (JET) and the Fourth Industrial Revolution (4IR). Unions and business will need to change their relationship with labour as well.

The current stuck-in-the-mud view of each unit of labour being secure in each individual job will need to be abandoned in favour of a view of maximising the probability that overall employment grows as fast as possible and so each individual has a maximal probability of being hired at any one time.

Business will need to think more about the wider labour ecosystem and unions will need to concentrate on a cycle of full career training and retraining and the mobility of skills and labour and their role in providing support.

Traditional social compacting has kept a view that “all must be accounted for” and that each individual in each job must be secured with a plan. This cannot work for disruptive forces such as JET and 4IR. Doing this risks even worse outcomes as opportunities (domestically and in the competitive global landscape) are missed.

All these public and private sector labour forces of change are much bigger than Covid-19 but it provides an appropriate kicker for a change in mindset. 2021, with further waves and likely late vaccine arrival, makes these issues even more pressing but the government needs to lift its gaze as much as possible to see the next set of opportunities and crises coming down the track after 2021. ​

Attard Montalto is head of capital markets research at Intellidex. 


The sustainability of Eskom’s debt and the risks it poses to state finances are now arousing political interests who are increasingly interested in grasping a solution, says Peter Attard Montalto, head of capital markets research at Intellidex. Featured in Bloomberg.

This column was first published in Business Day. 

The government, guided by the ANC, does not have a culture of evidence-based policymaking. This is unfortunate. There have been several determined efforts to shift it. Yet we are going into a phase where economic policy needs to shift dramatically but the tool to do it — evidence — is blunter than ever.

Things have been getting worse. The spectacle of saving the doomed SAA, purely because the ANC decided it should be before the Covid-19 crisis, has done serious damage to the government’s fiscal outlook. Not because the R10.5bn payout to resuscitate the airline is that material in the R2-trillion to be spent this year, but because it damages the government’s position on the public service wage bill, which is material.

The government is arguing in court that its current wage agreement must be broken because the country faces a fiscal crisis. It is appealing to regulations under the Public Service Act that says a collective agreement can only be entered into if the costs can be covered.

It must argue this while somehow ignoring the embarrassing fact that it is spending billions on the airline despite the fiscal crisis. There is no evidence that spending on the airline will deliver the government’s own policy priorities, particularly those set out in its own 2017 National Civil Aviation Policy white paper (itself an example of good evidence-based policy thinking).

Perhaps the more damaging case of ignoring evidence has been in the response to Covid-19. By and large, the government has attempted to react quickly in line with the science, at least on the medical front. But there have been glaring errors.

Last week the high court in Cape Town declared the ban on the sale of tobacco products to be one of those. You will remember, especially if you’re a smoker, that sale of cancer sticks was banned during the first lockdown. This, of course, did not stop consumption of them, it just meant smokers had to buy from car guards instead.

The result was a dramatic flourishing of the illicit economy, which is untaxed and finances untold other horrible illegal activity. This diversion of legitimate economic activity was highlighted through research at the time. The court, however, focused on the scientific connection between the ban and the battle against Covid-19 finding that there was none.

The lack of evidence-based thinking has also been prevalent in the economic response to the pandemic. It was hard to understand the initial ban on e-commerce during the lockdown, particularly as so many other countries had promoted e-commerce as a safe alternative to normal face-to-face trading.

There was also the spectacle of the list of “essential” clothing items that shops would be allowed to sell when they reopened published by the department of trade, industry and competition, that banned the sale of swimwear in May.

This is nothing new. One notorious earlier example was the 2014 visa rules that forced foreign tourists with families through a bureaucratic nightmare of carrying birth certificates to enter the country. This was damaging to the tourism industry and did nothing to confront the alleged problem being targeted of the trafficking of children.

Now, let me say that the concept of evidence-based policymaking can be abused. The whole point is to escape ideology about what policies should consist of. Fundamental objectives, such as eliminating poverty and inequality, are political choices.

Evidence-based policymaking gathers evidence and tests interventions to see whether they work to deliver on those objectives. Ideological shibboleths such as free markets or state-ownership can be tested to see if they deliver the desired outcomes. Successful policies are adopted and unsuccessful ones cast aside, no matter the ideological baggage.

Ultimately, the constitutional imperative that policy be rational demands that it be evidence based. This idea was baked into the National Development Plan, which was tasked with developing the research and evidence for recommendations to the government.

It was also driven by the regulatory impact assessment process introduced by the Mbeki government in 2007. This set down steps policymakers must take, including assessing alternative policy options and determining the impact on the economy, society and the environment. Any new draft law should have an impact assessment report along with it to be presented to cabinet.

That policy, however, largely gathered dust. It was an uncomfortable experience for the few political heads that tried it. Those undertaken were cursory and after the fact. They were dropped in 2013, and then replaced with the “socioeconomic impact assessment system” in 2015.

This set out rules for new policy documents that were sent to the cabinet to have detailed assessment reports to accompany them. It does not seem to have been more successful than the 2007 version. It is notionally still a requirement in policy development, but I have yet to see any such assessment documents.

Ultimately, evidence-based policy must be a culture more than a set of rules. Being attuned to and respectful of the evidence, even when it conflicts with deeply held beliefs, is a sign of intellectual honesty. It is a value system that should be fundamental to our policymakers.

Yet, as we go into a year in which policy will have to draw the line between financial collapse of the state or a robust economic recovery, its absence is being keenly felt.

• Theobald is chair of Intellidex

2020 has shown that the SA government has some capacity to move at speed in a crisis, but its overall economic policymaking is a serious mess that lacks leadership, says Peter Attard Montalto, head of capital markets research at Intellidex. Featured in Financial Mail. 

The government should just get on with the business of dealing decisively with energy policy, show some leadership and cut the stalling.

This column was first published in Business Day.

It’s time to call out the nonsensical nature of energy policy in SA.

I don’t understand how the notional short-run political upsides of not dealing decisively with energy policy and those causing the blockages can be worth it versus the long-run damage to one’s legacy, reduced growth, higher unemployment and lower investment.

After three years of stalling, 2021 will be make or break not just on actual energy policy but for the wider credibility of the government’s commitment to an economic recovery in the eyes of both local and foreign investors.

This isn’t about the fact that we are finally due early in the new year to get the next (much delayed) bid window of the Renewable Energy Independent Power Producer Procurement (REIPPP) programme, or that Eskom is stabilised, or that some new regulations have been signed. This is fundamentally about a mindset problem at the very heart of energy policy that cannot be changed incrementally but must be swept aside.

A decision must be made on the role of the state versus a liberalised system that sidesteps the state. Is the National Energy Regulator of SA (Nersa) working? Is the department of mineral resources & energy working and capacitated? Is the existing Integrated Resource Plan (IRP) process correct? Is the Electricity Regulation Act fit for purpose? Is the right leadership in place?

Proper performance management within the government will soon highlight that the answer to all these questions is no.

At the moment the private sector is made to feel grateful that there is a bid window for renewables coming. This is mad.

Changing a regulation that allows municipalities to procure IPP power is meaningless if the process still rests on opaque and delayed ministerial discretion. Removing the need for a ministerial authorisation to deviate from IRP is meaningless if private projects cannot navigate a Nersa process in a timely manner anyway.

Similarly, the IRP is now out of date, as Eskom’s own recent system planning exercise showed, and there is still a dangerous 5GW gap between supply and demand likely to emerge in the coming years that will result in unprecedented load-shedding. It is this fear that has led Eskom CEO André de Ruyter to call for liberalised energy procurement to allow him to achieve his number-one job target — keeping the lights on.

A key part of his ability to do this is going to be a spun-out Independent Transmission System Market Operator (ITSMO).  Eskom has been clear that it is getting ready for this. Yet the process and the “by end-2021” target for an ITSMO is doomed to failure because of the nine regulatory and legislative steps required to allow Eskom to spin it out. All of these involve the department in some way or another. The consensus in government circles seems to be that it will be more like three to five years before there can be an ITSMO given the lack of leadership on the issue.

But this isn’t about any one step of action, it is about a new mindset of speedy evidence-based policy. Business and investors would be far happier with someone gallantly battling a dysfunctional system than looking for praise for small morsels.

The problem is that the energy situation is a very large and complex puzzle that has many inputs and outputs at a micro level but with macro consequences.

Next year will see increasing alarm from both fixed capital and portfolio investors about the carbon content of electricity into final goods and services produced in SA. But it will also see alarm about the challenges of being able to remedy this.

It is interesting to note that despite some headline promises of streamlining Nersa’s processes and time limits, there is still not only a complete lack of trust in the regulator among experts but also deep confusion and tea-leaf reading every time they make a move. This is not a reputation a regulator should have.

Foreign and domestic companies will increasingly be forced to look at carbon on a total look-through basis — forced by both shareholders and governments. The EU plan for a carbon import tax will spread to other countries quickly through 2021 and so SA will again stand out like a sore thumb. This will be especially so given SA’s exceedingly slow movement and our risk aversion to making any commitment towards a zero-carbon point.

A 2050 net zero-carbon target for the whole country needs to be put in place before the middle of 2021. This would then start forcing current discussion on a Just Energy Transition (JET) into firm policy since decommissioning rates for Eskom (and Sasol and others) would have to accelerate meaningfully and be specific.

There would be strong signalling benefits globally, and especially into the COP26 conference in the UK in November 2021, to make such a commitment that has previously been politically impossible. Such a commitment is also crucial to gaining access to the JET financing that Eskom needs to manage its decommissioning process. If the country misses this point next year, then this whole plan becomes far harder if not impossible to finance at the required scale.

A carbon commitment should then be the foundation for a new IRP that is automatically run every two years through an outsourced, competitive process between expert modellers along guidelines (anchored around least cost and least carbon) set by the government. The result should then, with feedback but not sign-off from Nedlac, become government policy, thus sidestepping the bizarre sight of unions with no mandate arguing for a nuclear policy.

As it is, 2021 risks being a year of nuclear, new coal and exaggerated gas-to-power procurement confusion. Equally, Eskom’s need to decommission will arrive with a bang in 2021, and while Eskom has made valiant efforts on a just transition so far, this will suddenly become a much bigger issue as political interference starts.

So much will depend on perceptions of whether SA “gets it” (beyond the specifics) with energy and climate policy in 2021 or falls behind.

The direction of required travel and the requirements of investors can be accepted as is or dismissed as a colonial neoliberal conspiracy.

It will be the seminal nexus of issues for the year, with consequences well beyond. A reshuffle might be a good place to start.

Attard Montalto is head of capital markets research at Intellidex.