PETER ATTARD MONTALTO: When does the reality penny drop?

Posted in: Economics, i-Blog, SOEs, South Africa on February 15, 2021


This column was first published in Business Day. 

On Thursday evening, closing your eyes and listening to the oratorical event that is the state of the nation address (Sona) — something was different.

President Cyril Ramaphosa was perky, the speech felt self-confident, and he had clearly found some groove with better delivery combining with a stronger rhythm in the structure of the speech.

Given how dull these things can often be (and how many such speeches we find ourselves forced to listen to for titbits of change), it was a refreshing change.

There was a huge problem though — opening one’s eyes to see a gaping hole between the content in some areas and reality outside parliament in the real world.

This is not to say there weren’t long-term positive markers laid down. The almost secretive reform machine that is Operational Vulindlela (a close-knit venture between the Treasury’s excellent economic policy unit and the presidency) had clearly been busy moving the dial on a range of fronts, including water policy and visas.

The issue was more that between these parts of the speech on firmer foundations, it went off into an alternative reality.

The most obvious, though in some sense least important, was the repeating of the R500bn for the coronavirus stimulus, even though this number has no grounding in reality. Indeed, the speech stated that the largest part of the loan guarantee scheme, at a supposed R200bn, was actually only R18bn.

Far more important was the talk about support for early childhood development (ECD) centres. These crucial grassroots organisations, deeply embedded in communities — most often run by social-entrepreneurial women — need support, given that so many have been closed for prolonged periods with little support. The Sona rightly highlighted the support they need and the strengthening they require as an important community institution.

Yet the reality between the department of social development and ECD centres  themselves is very different. There’s a very short window to apply for R486m in support funding for ECD workers, combined with a faulty application process, design flaws, hoops to jump through that probably take out over half of the ECD centres and precious little of this money looks set to be distributed before the money lapses by the end of the fiscal year.

For example, someone in Pretoria should hopefully realise that about half of ECD centres don’t have business bank accounts in the name of the centre, but are run through personal bank accounts — as is so often the case with small, medium and micro enterprises (SMMEs) and in the informal economy. But this is a requirement for the facility.

This is madness for a sector that is a crucial part of the presidential employment stimulus.

When we turn to energy, we see some face-palming. No-one can yet explain to me what an Eskom “in principle” net-zero carbon commitment is. It is like what you say when you have no intention of doing something: “I, in principle, have a great desire to take the rubbish out in the rain.”

This also singularly fails to meet the requirement for SA to unlock energy transition financing for Eskom — which is to make a sovereign-level net-zero commitment into COP26 before November.

Another thing I don’t understand: how can you mention coal as a source of new electricity in a Sona? It conflicts with your discussion of net-zero, is unbankable and also sounds completely nutty. All these things have been communicated to the president by many people on many occasions.

As such, there was no sense of green recovery that could have galvanised the speech.

Eskom enjoyed a good speech overall, with key parts inserted being a success for CEO André de Ruyter’s reform agenda of the monopoly blob.

Yet De Ruyter’s rallying cry, taken up by business, labour and the entirety of the government (even many public servants inside the department of mineral resources & energy), of a 50MW energy regulator licensing threshold for self-generation and distributed generation fell awkwardly flat with only a commitment that details would be forthcoming within a month.

After all, energy liberalisation was a topic that could see credible follow-through straight away — with a new draft Electricity Regulation Act schedule 2 published this coming week, say.

This blockage is because everyone is behind this idea except the ministry sitting on top of the department of mineral resources & energy.

Given the amount of pushback minister Gwede Mantashe has given against even the president on this issue, and against every piece of fact and reality-based evidence given to him by independent experts, there is no reason to believe we will get a sensible announcement and a new schedule 2 within a month. After all, so many of the promises of the Sona a year ago on energy have materialised in partial, incomplete or haphazard ways. As long as there is not a reshuffle, there will be no change at the speed required to solve the energy crisis.

Finally, the story on infrastructure laid out in the speech was at odds with those trying to fund it, bid for it and build it. While positive steps are being taken — such as the secondment of nearly 30 private sector experts into Infrastructure SA — the deeper reforms to the way the government does infrastructure, the way it interfaces with the private sector on it, and even the very conception of a state-implemented pipeline, are not being fixed. The pipeline is still full of the same old projects that were not fundable 10 years ago or that are reliant on wider policy changes that are not yet happening.

Nedbank’s recently published Capital Expenditure Project Listing 2020, which actually lists what is going on, made the point in black and white. The problem is not that there is no infrastructure or no foreign direct investment (FDI) happening — it is that there is not enough of it happening fast enough.

Hence, while the Silverton brownfield FDI expansion by Ford is indeed a great positive in isolation, it fails to move the macroeconomic dial when other companies and the government are cutting investments and infrastructure rollouts at a snail’s pace.

One expanding car plant and a poultry master plan are not going to uplift your average South African when their local early childhood development centre cannot get funding. Nor can commodity price boons like SA has been experiencing in recent months lift potential growth when the basics aren’t right.

As we open our eyes post-Sona, the speech’s eloquence will be long forgotten as reality sets in, whether that is funds for  infrastructure or trying to educate a child in a township.

• Attard Montalto is head of Capital Markets Research at Intellidex, an SA research-led consulting house.

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