Four key areas that can accelerate economic growth in South Africa

Despite the current economic challenges that South Africa is facing, we are still the most industrialised economy on the continent, and there is a lot of optimism that, if we can address our structural challenges, South Africa can once again become one of the fastest growing economies in the world.

We need to back to basics. Finance Minister, Enoch Godongwana, tables some promising growth areas during this year’s budget. If we stick to the script, we can accelerate economic growth. These were outlined in a recent article by PwC.

The just energy transition will be key

The PwC article points out that elaboration on the just transition for energy and the role that municipalities are to play in resolving the energy crisis and addressing climate change is a must. A just transition ensures the livelihoods of communities in the transition to a low-carbon economy. 

The article adds that, at the same time, resolving the energy crisis and expanding renewable energy is important to prevent further job losses from continued load shedding. The focus on international funding is crucial especially in light of its ability to reform the energy sector. However, the need to understand the downstream implications of this transition on municipalities, which are at the frontlines of energy distribution, is necessary for the just transition to make local government part of the transformation process and not a point of failure.

Studies show that economic growth is directly linked to a steady energy supply. It is no secret that the Energy Crisis is South Africa’s single biggest structural challenge. While Government has ignored loadshedding in the past, it is encouraging to see that they are committed to addressing this risk and the creation of a Minister of Electricity is a positive step in the right direction.

There needs to be clarity now. Eskom has no less than three ministers and the President focused on its turnaround. If all of these parties can sing off the same hymn sheet, the crisis can be resolved in record time.

However, this cannot happen at the expense of the just energy transition. Reducing our carbon footprint and focusing on renewable energy sources can create jobs and address the country’s unemployment crisis. We need to be a continental leader in renewables and the just energy transition.

Infrastructure development

The PwC article points out that commitment to the delivery of infrastructure at all levels of the state is important. Municipal infrastructure provision is one of the most direct ways that people feel the impact of the state in their daily lives. After public corporations, municipalities are the most important source of public capital spending yet their capital spending has consistently declined over the years from R64 billion in 2016 to R41.2 billion in 2020.

The article adds that infrastructure provision at this level has a variety of delivery challenges not always related to financing. There are many municipalities that are unable to spend their budgets and so fall short on delivering their developmental objectives. In 2020, where municipalities spent only 60% of the adjusted budget allocated for capital spending that year, underspending was partly due to restrictions on activity that prevented construction and maintenance work.

Yet, in other years, municipalities’ inability to spend their budgets and deliver on their development objectives has been a result of lack of capacity and skills within the metros to plan, programme, and implement carry out capital projects. There are many municipalities that are unable to spend their budgets and so fall short on delivering their developmental objectives. The reasons for these shortcomings need to be fully considered at the level of governance arrangement, administrative capacity, and regulatory provisions.

South Africa saw massive economic growth in 2009 and 2010. This was built on a massive infrastructure build programme that was needed ahead of the 2010 FIFA World Cup. We have not been able to replicate this; however, it is sorely needed. Part of Eskom’s problem is that the utility ignored infrastructure development since 1994. We need to focus on infrastructure development programmes in order to facilitate growth.

Demand for broadband

Commitment for greater permissions for broadband in municipalities. The PwC article points out that the need to bridge digital divides in society is large in terms of social equity and access to opportunity. At present, only 1.5 million households make use of fixed-line broadband internet, with the digital divide entrenching the overall inequality gap in the country.

Broadband is the lifeblood of both consumers and businesses and it became even more clear during the Covid-19 pandemic that being connected is a non-negotiable necessity. Broadband infrastructure is critical for providing the backbone of digital transformation, including the digital transformation that extends to better government services. The policy intersection of permissions, infrastructure investment, technology authorities, and licensing will require dedicated attention.

South Africa has the potential to be a continental powerhouse when it comes to the digital economy. Digitalisation, while hard, can give companies breathing room when it comes to diversifying their operating models to adjust to disruption. Government has been sitting on this for a while and needs to roll out the switch from analogue to digital in order to free up the space needed to increase broadband supply in the country.

Water supply needs to be ensured

The article points out that the commitment to reviewing water boards to ensure better water quality for municipalities, including attention to monitoring standards is a challenge that is impacting infrastructure development in the country.

Once corrected, this will be done under the District Development Model (DDM). South Africa is already one of the 30 driest countries in the world, and with the changes brought on by climate change, a focus on water quality as a resource is absolutely vital. This will require a level of formalisation of the structural and governance elements of the DDM to ensure that the attainment of standards and the provision of relevant infrastructure for water provision takes place with more efficient mechanisms and without any confusion or additional bureaucracy.

The article points out that clarity at the level of implementation for the DDM will be key as will the potential for using Public Private Partnerships.

Once we address these key areas, we can focus on how we can use them to add value to companies that are facing financial distress.

Phahlani Mkhombo is the MD of Genesis Corporate solutions and is a Senior Business Rescue Practitioner