South Africa Sees Selling Coal Plants and Visa Reform Boosting GDP

(Bloomberg) -- South Africa’s National Treasury outlined its vision to bolster economic growth and tackle a 29% unemployment rate, proposing a range of reforms including cutting red tape for businesses and easing visa rules to boost tourism.

The reforms could lift the average economic growth rate by 2 to 3 percentage points and create more than one million jobs over a decade, the Treasury said in a policy paper released on Tuesday.

While proposals such as easing visa rules and releasing broadband spectrum could be low-hanging fruit and have also been suggested by the Reserve Bank and International Monetary Fund, others, such as selling off power plants owned by state utility Eskom Holdings SOC Ltd. and introducing new rules that will let households and companies sell excess electricity they produce back to the national grid, may be more difficult to push through.

Read more about the proposal that Eskom should sell coal plants

The policy paper is an attempt to circumvent obstacles to structural reform in both the cabinet and the ruling African National Congress and is likely to trigger an angry reaction from within the government and parts of the party, according to Frans Cronje, chief executive officer of the Johannesburg-based South African Institute of Race Relations.

It “is likely to be welcomed in analyst and investor circles but not sufficiently to change investor sentiment, and will rather be read as further evidence of the contradictions and confusions that continue to bedevil government policy in South Africa,” he said.

Weak growth has exacerbated social pressures in Africa’s most-advanced economy and failure to create jobs and reduce income inequality could spark unrest. The economy contracted an annualized 3.2% in the first quarter, the most in a decade, as power shortages curbed output.

The Reserve Bank projects growth of 0.6% for the year. That’s well short of the more than 5% rate the government says is needed to halve the unemployment rate.

The Treasury described the current economic trajectory as unsustainable and said it could only be turned around through “deliberate and concrete action.” The country also needs “a stable macroeconomic policy framework underpinned by a flexible exchange rate, inflation targeting, and credible and sustainable fiscal policy,” the Treasury said.

These are some of the other proposals in the paper:

• Allocate broadband spectrum to private companies through an auction, with a small set-aside for a government-controlled network. Competition should be allowed in Telkom SA SOC Ltd.’s infrastructure.
• Visa regulations should be amended to ensure a better balance between security concerns and the growth of tourism. The tightening of visa regulations is out of step with a global move and while other countries are typically making it easier for tourists to travel, South Africa risks falling behind, the Treasury said.
• Grant third-party access to the rail network to promote private-sector participation.
• All infrastructure projects of strategic importance should be developed in coordination with government, the private sector and state-owned companies to alleviate pressure on the balance sheets of these firms.
• Water demand will exceed supply by 2030, so the country needs a strategy for investment in water-resource development, bulk-water supply, and waste-water management and should apply lessons from the renewable energy independent power producers program.
• Small businesses should receive full or partial exemptions from certain regulations, including labor laws, to lower the startup costs and reduce the regulatory burden.
• Conditions for banking licenses should be made less onerous and banking regulations should be more flexible to new developments, such as the growth of mobile money
• Fuel-price regulation should be reviewed, particularly in terms of spot price benchmarks and where regulation has supported incumbents such as Sasol Ltd.

The paper is out for public comment until Sept. 15. What may further complicate Finance Minister Tito Mboweni’s efforts garner support for the 77-page document as policy is that it doesn’t mention three key ANC’s decisions: expropriation of land without compensation, nationalizing the Reserve Bank and investigating the use of prescribed assets of pension funds to boost inclusive growth.

While Treasury’s proposals are similar to those stated in previous development plans, it is unclear whether they will be supported or lead to coordinated policy action because they have not been issued by the government, Nema Ramkhelawan-Bhana an economist at FirstRand Bank Ltd.’s Rand Merchant Bank, said in a note.

“The proposals are a further demonstration of our country’s ability to conceptualize practical solutions but, at the same time, an expression of its failure to execute on seemingly well-thought-out plans,” she said

--With assistance from Antony Sguazzin.

To contact the reporters on this story: Prinesha Naidoo in Johannesburg at pnaidoo7@bloomberg.net;Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, Alastair Reed

©2019 Bloomberg L.P.