President Cyril Ramaphosa and Finance minister Tito Mboweni will simply have no choice but to reform and jettison some sacred cows due to the impact of the Covid-19 pandemic, says Nedbank chief executive Mike Brown.
In an interview with Bloomberg TV, Brown said that the ‘maths’ of the country’s fiscal deficit trajectory without structural reform just simply doesn’t work.
“So the government really has no choice to stop talking about fiscal reform and start acting.
“We have done a great job of talking about reform for many years but we haven’t actually delivered on it. This has to be the year where we see real progress, in particular on things like energy infrastructure and the release of the spectrum.
“I think those things will be two litmus tests this year.”
Brown said that South Africa entered the Covid-19 pandemic with an economy that was already growing far too slowly for the needs of the country. This is was a result of poor economic choices over many years and a lack of fiscal discipline, he said.
“The shock of Covid was an accelerator on an already deteriorating economic and fiscal situation. Our current view as Nedbank is that the peak shock to the economy was in the second quarter of 2020.”
In line with the recent International Monetary Fund’s forecasts, Brown said that Nedbank expects South Africa’s GDP tp decline between 7-8% in 2020, and then rise off a low base by about 3% in 2021.
Brown said that the issue at the front of mind for most government’s around the world currently is the procurement of vaccines.
“Vaccination is the best economic policy for any government anywhere in the world right now,” he said. He added that South Africa is aiming to achieve herd immunity of just over 60% by the end of 2021.
While he noted that the government had some missteps with its lockdown, particularly on issues such as the ban on liquor and tobacco products, Brown said he felt that the country went into hard lockdown at the right time.
While it is still too early to gauge whether the country’s vaccine rollout will be successful, Brown said that he and the rest of the business sector have been in constant contact with the government in December and January on the issue, which was a promising sign.
In a statement this week, the IMF was also clear that South Africa will need finally address the some of the issues that have dogged the country for years, including the problems at state-owned enterprises and a lack of economic growth.
The IMF said that fiscal consolidation needs to be accompanied by a decisive reform package that removes constraints to growth and job creation.
“Attracting investment and promoting competition to modernize network industries is a key component of this package. Facilitating private-sector participation in all sectors will reduce the vulnerabilities and inefficiencies from relying on a few large players.
“This will require sustained efforts to promote a business-friendly and competitive environment; accelerate governance reforms; and inject firm-level flexibility into collective bargaining while simplifying employment protection legislation.”
The IMF said that special attention should be given to improving the efficiency of state-owned enterprises (SOEs) and the quality of their services by hardening their budget constraints and undertaking well-defined strategic equity partnerships, particularly in the energy sector.
“Recurring power outages in the midst of a deep recession underscore the need for bold action to redefine Eskom’s business model so that it becomes self-sustaining.
“In the absence of fundamental reforms, Eskom’s problems will continue to weigh on public finances and constrain economic growth prospects,” it said.