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Rallying behind SOUTH AFRICA

This year has been one of the worst on record for Eskom power outages, and predictably it had a negative impact on South Africa’s Q2 2022 GDP performance within the context of a highly volatile international commodities market. The upside is that while South Africa’s Q2 GDP figures are down by around 0.7%, there was a sustained upward trend in the previous two consecutive quarters.

Moving forward, global supply chain constraints will continue to be affected for the foreseeable future as the Russia-Ukraine conflict continues. The higher cost of international borrowing also presents challenges at a time when the South African government has stated its commitment to progressively lowering the public debt burden.

Managing inflationary pressures

To curb inflation, and smooth out the peaks and troughs in the domestic market, the Monetary Policy Committee of the South African Reserve Bank (SARB) took the decision to opt for a further interest rate hike in September 2022. As Dr Rashad Cassim, deputy governor, SARB, stated, “Our objective is to look past the immediate supply shock, focus on the period after it has subsided, and ensure inflation stabilises at that point.” The ultimate objective is “moving towards a more balanced or neutral interest rate setting.”

While higher interest rates do burden borrowers, the current 9.75% lending rate is still favourable when you consider that it peaked at around 17% back in 2003. Higher interest rates also attract money market investors and promote a muchneeded savings culture in South Africa that reduces social dependence on the state.

A macroeconomic policy that works

The key to repositioning for sustained growth is a sound macroeconomic framework that is conducive to attracting both foreign and domestic investors. Rather than imposing prescribed assets legislation, for example, a focus on ease of doing business and policy certainty would encourage the local pension industry to step forward voluntarily in support of South Africa’s Infrastructure Fund.

Before that, we need an urgent revamp of major impediments that include current public-private partnership (PPP) legislation. We also need to put forward a far greater array of bankable projects to mobilise available funding and provide a constant pipeline of work for our construction industry – one of our most vital and enabling assets.

At present, the construction sector is 24% smaller than it was before Covid-19 hit but, as with the FIFA 2010 World Cup, that can change ‘overnight’ with optimal PPP implementation. Alongside renewable energy projects – of which the larger ones can take three years or more to build and commission – we need immediate investments in roads, water and wastewater, and social housing.

Put the right skills in place

Allied to this is the pressing need to address engineering and financial skills deficits in the municipal and SOE environment that contribute towards poor asset management and reactive maintenance interventions. Bringing back the role of the traditional town engineer – universal in countries like the UK – with oversight for infrastructure project preparation, programme management and execution, would make an immediate and positive difference. Plus, there is no shortage of experienced and qualified candidates from the private sector who would be willing to step forward and do their civic duty. Alastair

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