The Common Sense can exclusively reveal details from a new macroeconomic strategy document being considered by the government. The new plan, called the Growth Acceleration and Inclusion (GAIn) strategy, is the latest in a series of policy documents drafted by South African government leaders to address the country’s poor economic performance.

The latest plan, which has not been publicly released, sets two central objectives.

The first is to raise the economic growth rate from under 1% at present to: “3.5%+” by 2030. The second is to raise the fixed investment rate from its current level of 14% of GDP to: “20–25%” by 2030.

In achieving both objectives, the plan makes the following key proposals.

On energy, the plan proposes: “the complete restructuring of Eskom…[the introduction of] a competitive wholesale electricity market…[and] private investment in transmission infrastructure.”

On port and rail logistics, it proposes: “open access to the freight rail network and private sector participation in rail corridors.”

On water, it proposes: “private sector participation in water infrastructure” through a new: “Water Partnerships Office.”

On housing, it proposes: “subsidies for ownership and rental” whilst: “improving property development regulations.”

On visas, it proposes: “an Electronic Travel Authorization System to streamline applications for work visas.”

On welfare, the plan proposes: “improv[ing] the design of the [Social Relief of Distress] SRD Grant” to link it to: “employment and productive activity.”

On the informal economy the plan proposes: “removing restrictions on informal trading...[and]...reducing or removing the cost of trading permits...[whilst]...expanding non-bank lending to small businesses.”

On finance, the plan proposes: “increasing investment in the productive economy by commercial banks and reducing the cost of capital for small and medium-sized enterprises” by getting the Treasury to underwrite a portion of private loans.

The plan also proposes a shift to: “a utility model for water and electricity services in municipalities.”

Fiscal consolidation

On public finance, the plan is a renewed commitment to fiscal consolidation and improved public spending, arguing that curbing wasteful expenditure and fixing procurement leakages will strengthen debt sustainability.

Frans Cronje told The Common Sense that many of the above points were extremely positive and, if implemented: “certainly have the potential to help lift the fixed investment rate towards 20%. On procurement streamlining alone, our estimates indicate that, done aggressively, this could unlock up to R300 billion in funds for redirecting to both eliminating debt and increasing social protection spending. Such an amount could, for example, halve the budget deficit at the same time as increasing welfare grant spending by 50%.”

However, Cronje warned that the plan also suffered from internal contradictions that could scupper its chances of success.

The plan is, for example, very strong in identifying state capacity weaknesses as a key reason for South Africa’s weak economic performance but then goes on to give the state a central role not just in reforming the investment and regulatory policy environment but in actually operating key aspects of the plan.

The plan sees an important role for state-owned enterprises that can be reformed via: “a centralised ownership model,” although it also speaks of: “streamlining and consolidating the portfolio of public enterprises” run by the state. The plan further sees a role for the largely failed Sector Education and Training Authorities (SETAs) to meet workplace training demands, whilst being largely quiet on broader education policy reforms and giving state-run employment programmes a central role in bringing down the country’s unemployment rate.

Green

The plan also stresses the importance of: “transitioning our energy system to renewable energy sources…to create a green manufacturing sector” and doing this via a: “renewable energy master plan…[and]…a Just Energy Transition Investment Plan.” Energy experts do not believe that such greening of South African energy production can meet the electricity requirements for South Africa’s economy to grow at the rates (3.5%+) aspired to by the plan.

On fixing weak state capacity, the plan proposes: “replenishing the ranks of the public service with capable personnel…[via, in part]…establishing an Office of the Head of the Public Service…[and] a Graduate Recruitment Scheme.”

While stressing the importance of drawing more investment and improving state capacity, the plan makes little mention of addressing the known policy concerns that have contributed to South Africa’s low fixed investment and growth rates. These include worries about the costs of empowerment policy compliance and threats to property rights.

Cronje said: “The plan’s two central objectives to lift growth to over 3% by lifting fixed investment to over 20% are completely the right goals and are realistically achievable by 2030. And the plan makes some very welcome points on everything from ports to welfare to fiscal policy. There’s just a concern that it is wrongheaded on energy and does not go far enough in addressing known investor policy concerns whilst assuming too great a role for South Africa’s deeply compromised state in directing key aspects of the plan.”