By: Johann Els, Chief Economist, Old Mutual Investment Group
While there are certainly commendable aspects to the Reconstruction and Recovery Plan presented to Parliament by President Ramaphosa, most of the initiatives are not new news, but rather a repeat of plans previously announced.
This is according to Johann Els, Chief Economist at Old Mutual Investment Group, who says that the speech lacked the firmness and determination needed to turn the economy around. “This is not a ‘whatever it takes’ economic plan, as promised by the President, nor are these really extraordinary measures,” says Els.
Els says that some positives from the speech include the “high impact interventions” mentioned, including massive infrastructure intervention; rapid expansion of energy capacity; employment stimulus and the drive for industrial growth. “The commitment to the fight against corruption and the statement that there will be no political interference in the decisions taken by the NPA is also a positive and will help to rebuild confidence,” says Els.
“So there are certainly aspects that will help confidence and lift growth to better than what SA experienced over the last 5/10 years,” he adds.
However, he is concerned to hear of the employment stimulus as it plans to expand public employment – when we should be cutting this back.
“Also, the delayed MTBPS and the 3-month extension to the special COVID-19 grant, combined with the Presidential Economic Advisory Council’s statement that too much expenditure cutback will hurt the economy, leads me to worry about the commitment to the June Supplementary Budget’s targets,” he says.
Els strongly disagrees that we should be scaling back the expenditure cutbacks that were envisaged by the June Supplementary Budget.
“We should definitely be expanding on it,” he warns. “It is the absolute wrong approach to try and stimulate the economy through either extra expenditure or reducing expenditure cutbacks. The Reserve Bank’s own estimates suggest that the fiscal expenditure multiplier is either very low or even negative.”
“In summary, the speech was mostly as expected and lacked real reform measures. It lacked a true ‘whatever it takes’ approach needed to lift growth in the medium term to 2.5%+ on a sustainable basis,” he says. “Ultimately, I worry that the MTBPS will also lack the real fiscal consolidation promised or needed.”