South Africa’s economic revival will largely depend on these actions

Expediting South Africa’s access to vaccines, cutting borrowing costs, and making tough political and economic decisions are some actions that can be taken to improve policy uncertainty in the country.

This is according to professor Raymond Parsons from the North-West University Business School, who on Monday (11 January), highlighted some of the key findings in the latest Policy Uncertainty Index (PUI) for Q4 2020.

The professor pointed out that South Africa has faced a double challenge: to contain and manage Covid-19 outbreaks while simultaneously implement policies and projects to promote sustainable inclusive growth.

“To do so successfully policy reform and essential infrastructure projects needed to be kick-started, even before the pandemic was over. Hence the formulation of various growth and fiscal plans in 2020.

“These have nonetheless continued to be beset with an ambiguous sense of economic direction, weak implementation and poor policy coherence, thus perpetuating policy uncertainty,” he said.

Parsons said that the latest sudden return to adjusted level 3 lockdown restrictions was clearly a necessary step but will have economic consequences and will likely to have some negative impact on growth in 2021, “and might delay the anticipated modest economic recovery until the second half of the year”.

The reported stated that the pace of South Africa’s economic revival in 2021 will largely depend on:

• Whether level 3 restrictions are extended beyond January 15;
• Whether lockdown measures are tightened;
• Whether economic support measures are extended; and
• How quickly the vaccine is available.

“Overall, in the absence of real structural reforms the economic revival this year is unlikely to be more than a short-term ‘rebound’ of about 3% GDP growth.

“Among the bright spots on SA’s economic horizon this year will also be the strong performance of the agricultural sector and certain commodity exports, both of which will help to push growth into positive territory,” said Parsons.

What else should be done to help reduce economic uncertainty?

The Policy Uncertainty Index (PUI) points to six actions which could be ‘game-changers’ in lessening policy uncertainty and supporting an economic revival:

• Coordinating the twin policy pillars of sustainable economic growth

The twin policy pillars on which hopes of sustainable job-rich growth now rest are the urgent implementation of the Economic Reconstruction and Recovery Plan (the growth plan) and the Medium Term Budget Policy Statement (the fiscal plan).

“These two plans must in 2021 now clearly ‘speak to each other’ in official ‘messaging’ and decision-making so as to project a coherent and balanced overall economic strategy.”

• The SONA and main Budget must build credibility

Parsons said that two events in February have the potential to ameliorate policy uncertainty and boost confidence in the country’s future economic direction. They are the state-of-the nation address (SONA) and the main Budget.

“There remains a serious credibility ‘gap’ to be overcome in 2021 and these key policy statements must be actively and creatively used to help close this gap, particularly also in wanting to ward off further investment rating downgrades.”

• Emphasis on an ‘implementation-led’ economic recovery

The professor said that President Cyril Ramaphosa’s recent reference to ‘implementation, implementation, implementation’ as the dominant mantra for the country’s policies and projects must start to take tangible shape.

“Drift and procrastination are the enemies of delivery and undermine policy certainty. The ever-present implementation risks must therefore be visibly reduced in 2021,” he said.

• Taking the tough economic and political decisions required in 2021

Big decisions including what to do about the inflated public sector wage bill, need to be taken soon, Parsons stressed. “Early evidence is needed that troubled and costly state-owned enterprises will be decisively restructured and the country’s energy supply secured.

“The longer remedial action reform is delayed the more difficult the problems become to resolve. And the longer SA remains on its present path, the more policy uncertainty will persist and the longer it will take to recover.”

• Cutting borrowing costs further

The Monetary Policy Committee (MPC) next meets on January 21. “Although monetary policy cannot do the heavy lifting on growth, in current economic circumstances the MPC could now consider offering some additional support to business and consumers by further lowering borrowing costs.

“With the present combination of subdued inflation, a strong rand and weak growth there is room to contemplate another cut in interest rates in 1Q 2021,” said the professor.

• Expediting access to vaccines

The report calls for the country’s access to one or more of the Covid-19 vaccines to be be urgently expedited. “It has now become an imperative factor for securing lives and livelihoods. Firm timelines for the delivery of vaccines would strengthen confidence and reduce uncertainty,” said Parsons.

“The UK government, for example, has appointed a ‘Minister for Vaccine Deployment’ to specifically oversee the rapid distribution of the vaccines in that country. SA should perhaps also consider a similar dedicated appointment for this task. It is ultimately through speedy vaccination that the vaccine can be ‘weaponized’.”

The PUI improved from 58 in Q3 2020, to 56.7 in Q4 2020, but remains negative. The PUI was launched in 2016 and uses a score of 50 as its baseline.

Anything above 50 shows heightened policy uncertainty. The latest score was measured before president Cyril Ramaphosa introduced new level 3 lockdown measures.

This comes as South Africa continues to grapple with the Covid-19 pandemic, which has affected the lives and livelihoods of many amid new surges of the coronavirus.

The International Monetary Fund (IMF) projects the world economy will grow by 5.2% in 2021. South Africa’s GDP meanwhile, is expected to grow by about 3%.

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