Intellidex makes submission on National Treasury economic policy paper

Posted in: Press Releases, Reports on September 25, 2019

PRESS RELEASE. 25 September 2019

In response to the minister of finance’s request for feedback on National Treasury’s paper, Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa, (often called the “Tito Paper”) Intellidex has drawn up a submission with our views on some of the topics addressed in the paper.

Intellidex is actively engaged in advising investors on the macroeconomic environment in South Africa, as well as specific debt and corporate exposures they have. We also work closely with several banks on understanding their market places and so can see the domestic investment decision process clearly. We draw on these insights for our comments.

Overall, we welcome the paper and its focus on evidence-based policy making and promoting inclusive growth. In our engagement with international investors, this philosophical underpinning for the paper has been welcomed after what has been a long period of heavily ideological policy arguments with little evidence invoked to settle differences. We also appreciate the call for public debate and hope our contribution is useful. We look forward to further iterations of the paper.

South Africa is facing a deep economic lull in which policy uncertainty has been a major contributing factor. As a result, investment is being delayed or cancelled, even in those sectors of the economy that are benefiting from the weak rand and high commodity prices. It is essential that clear, growth-promoting policy is pursued as a matter of urgency and embraced by the government at large. On the present trajectory, unemployment will continue to increase, along with inequality, leading eventually to a fiscal (government balance sheet collapse) or social shock (violence). We think many of the ideas presented in the Treasury paper are appropriate and will contribute to growth, averting the disaster that is heading our way.

The paper, by way of tone more than explicit positioning, sets out a vision for the state as facilitator of economic activity, rather than the prime mover itself. This is a change from the developmental state ideas of the past, that we believe have demonstrably failed in the last 10 years.

We make some further suggestions that would enhance the policy ideas proposed. The paper is not clear on what South Africa is “selling” to the rest of the world, the opportunities we can present to global investors that will attract capital to invest in expanding the economy. This requires a vision of what the future economy will look like – one we believe will include expanded services and manufacturing. The causal chain from the current economy to this future economy needs to be set out, making clear the policy interventions that will facilitate it. The paper focuses on promoting competitiveness and labour-intensive growth, which is appropriate, but does not set out just what competitiveness and labour-intensive growth will give us.

It also notes the need for a capable state, with stronger monitoring and valuation of interventions. However, we think a capable state also requires institutional improvements, particularly how the presidency and department of performance monitoring and evaluation deploys policy direction from the centre.

Our input also focuses on the Treasury’s paper’s interventions to improve the competitiveness of network industries. We comment particularly on banking, but point out that greater competitiveness at a consumer level is positive for consumer welfare, but only marginal for economic growth. We think, however, that competitiveness at this end can be enhanced by introducing bank account number portability and interoperability of different money repositories such as e-wallets and traditional bank accounts. Account number portability would substantially lower the cost of switching accounts, leading to enhanced competition, but interoperability opens this further to include non-bank financial services, vastly widening consumer choice. However, from a growth perspective, it is far more important that bank funding can be drawn on to finance investment. This requires bankable projects, which in turn requires policy certainty and visibility on long-run cashflows from projects. Good procurement policy, as was exhibited in the Renewable Energy Independent Power Producers programme, is the way to crowd banks in to driving economic growth.

On Eskom, we point out that Treasury’s idea of selling coal-fired power stations will be very difficult, given the environmental and decommissioning risks associated with them. We also point out that the paper does not mention the public-private growth initiative (PPGI) which we think is a positive intervention to kick-start investment.

Our full submission can be downloaded here.

For further information, please contact us.

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