PETER ATTARD MONTALTO: Will it be doom or recovery?

Posted in: Economics, i-Blog, South Africa on October 12, 2020


This column was first published in Business Day.

The launch of THE recovery plan on Thursday by the president is a seminal moment which will define the path to economic doom or recovery.

The bar should be set high — there are no free lunches and spin won’t cut it — so that all the correct ideas are on the table just for the picking. Equally compacting counts for nothing for a recovery itself, only the quality of implementation.

Much of this will rotate on credibility as much as specifics — how implementable any such plan is from the president in parliament into action. The plan is meant to give the medium-term budget policy statement some clothes after a “naked” emergency budget in June that lacked the credibility of a whole-of-government recovery plan.

Hearing more about “boring” implementation logistics of existing policy would be more exciting — how the president’s political capital can be deployed through Operation Vulindlela to turbocharge the initiative.

The cabinet lekgotla last week was told in stark terms how important getting it right was. In the back of a slide deck it was presented from the economic cluster it said bluntly that “non-implementation of the economic reconstruction and recovery plan could lead to … collapse of the supply capacity, consumer and business confidence, the labour market and increased vulnerability of the poor.” Quite. (I would add a fiscal crisis to that too as the hippo gets jaw lock).

Yet if the plan is meant to mitigate against that risk, the plan the lekgotla was presented misses the point.

There is a core of illogicality here. The president decries state capacity; yet at the same time the government looks to a plan that is a hodgepodge of 1,000 different ideas that even a government with capacity would struggle to understand and implement. If you don’t have the capacity, then logically you can’t do a plan like this and someone else must run with driving growth (that is business).

There are simpler issues to consider on Thursday. The lekgotla plan mentions nuclear. Will that still be there on Thursday? It might not be fair but this is a fact of life. Any recovery plan that has “nuclear” in it anywhere will have zero credibility and will be a laughing stock. Similarly, a plan that stuffs renewables and a just energy transition in the back will lack credibility, given this will be a central and defining issue for social as much as energy security reasons in the coming decade.

There is also a question of language. A real plan can’t throw around words such as “accelerate implementation”, “deal with”, “strengthen”, “ensure”, “improve” without explaining what is going to happen specifically.

This all sounds harsh. But business and investors are sceptical and the bar is set high. There have been too many failed plans. Let us not forget the R500bn stimulus, which has crumbled on closer inspection. Then there is also the September 2018 economic plan, which has actually achieved small gains especially around red tape, but was quickly forgotten given its lack of moving fast enough on implementation.

There is no “free lunch” of animal spirits that can be prodded to life to bridge the phases from announcement to implementation. Banks are not going to pre-emptively open the credit taps. This is the roadblock that unbankable infrastructure will run into. This is unfortunate, but it’s a fact the government is shackled to given its track record.

What has been lacking since the start of 2018 is a central driving agenda, a focus that can build to a narrative. This is clear in the lekgotla presentation on the recovery plan. The same was true it must be said of the B4SA (Business for SA) plan as well.

The point in a recovery plan is you are going from somewhere (bad) to somewhere else (good). At the moment a “recovery” back to where the economy was before and 1.5% growth at best would still mean a fiscal crisis.

It needs to be something uncontrolled, organic and unstoppable. Something buzzworthy, where local content follows instinctively rather than being a dirty word, jobs growth happens naturally and there are larger multiplier effects through the whole economy.

Real energy policy liberalisation and a quickly spun out independent transmission system market operator that is tied to a world-leading hydrogen production and local industrialisation plan could be such an agenda and narrative to generate such animal spirits. It would solve the fact that the economy is on the road to far more frequent load-shedding in the coming two years than the government cares to admit.

Yet the blockages are personality and political based.

There seemed to be some sense in the cabinet lekgotla that the plan they were presented wasn’t quite right and so we await what finally emerges on Thursday. The bar cannot be set low. The stakes are too high.

But the fact that such a dense 1,000-point yet vague plan that lacks any narrative could even be tabled signals the urgent need for fresh external blood into the cabinet to sweep away the reform blockers and vested interest and status quo blockages. Such a cabinet reshuffle would add credibility to any recovery plan.

Every country is in this position. Investors like a sense of credible narrative turning point after a crisis. Egypt recently managed that as an example, Poland after 2008. There are no second chances.

Thursday is very important.

Attard Montalto is head of Capital Markets Research at Intellidex.

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