Rand Merchant Bank chief executive James Formby has commended government for finally taking steps to tackle persistent power outages in South Africa, but added that it is an opportune time to capitalise on the move by taking further action on the country’s most pressing economic challenges.
Formby said he is ‘cautiously hopeful” that the announcement of the sale of a 51% stake in SAA may result in financial independence for the airline and that its partial privatisation might even serve as a blueprint to help remove the burden other struggling SoEs have on the state’s coffers.
President Cyril Ramaphosa last week also announced the amendment of schedule 2 of the Electricity Regulation Act to increase the NERSA licensing threshold for embedded generation projects from 1 MW to 100 MW.
This will remove a significant obstacle to investment in embedded generation projects, he said. “Generators will also be allowed to wheel electricity through the transmission grid, subject to wheeling charges and connection agreements with Eskom or the relevant municipality.”
“South Africa’s future is brighter today than it was last week with government announcing the Electricity Regulation Act would be amended to free up business and industry to invest in their own generation capacity,” said Formby.
“As such, we should see a material increase in new electricity supply within the next eighteen months. The economic multiplier effects associated with this will also be large.
“I trust processes around the registration of embedded generators and them obtaining the necessary grid connecting permits won’t get caught up in red tape.”
This, along with further progress in vaccinations, will help lift the national mood and improve investor confidence somewhat, said Formby.
“It’s a really good time to use this momentum to grasp the nettle of our other key challenges and change South Africa’s growth trajectory.”
The chief executive said that a renewed policy focus on logistics is particularly important given South Africa is riding a commodity price boom, a rare gift to the local economy.
“We need to ensure our exports can get out of South Africa in the most efficient and cost-effective way possible, so we can fully benefit as a country. At the moment we are hamstrung by bottlenecks in rail transport and resultant over reliance on expensive road transport.
“There are plans to allow greater participation of the private sector in container ports and the rail network, but plans must now turn into action.”
Formby said that a more proactive approach is needed to resolve the vexed spectrum issue. “All parties should be sitting around a table, not in the courtroom.
“Speedier allocation of extra spectrum would unleash much new investment in telecom infrastructure which, among other factors, should help further reduce the cost of data and enable significant growth in this vital sector. South Africa has already waited too long for this policy change,” he said.
Formby said that a plan to fix municipalities is also needed. “It’s a longer road but we need to re-skill municipalities to enable projects to repair ageing infrastructure alongside better financial management.”
Companies have increasingly expressed concern about the additional costs they have to incur because of lack of delivery by municipalities.
Poultry producer Astral has had long-running water supply problems in Standerton, while Clover has decided to shift its cheese plant from Lichtenburg in the North West to Queensburgh, Durban because of poor service delivery.
“For the current cyclical economic recovery to develop into a durable business-cycle upswing, jobs must be created, and for that to happen, fixed investment must accelerate.
“With increased collaboration between the public and private sector South Africa now has an opportunity to create a sound platform which could serve us for years to come,” Formby said.