By Johann Els, Chief Economist at Old Mutual Investment Group.
The Economic Growth Plan released by Treasury this week is generally positive and should be viewed positively by the markets. The ideas contained in the report are mostly pragmatic, given it is not too ambitious and at the same time not overly contentious. However, the results will depend on the successful implementation by National Treasury.
In short, it provides detailed plans – with most having been seen before, such as the past few budget documents raised at Minister Mboweni’s colloquium with Harvard economists late last year – that brings policy proposals together in one document, which increases the sense of coordination. The main aim appears to be to ease growth constraints, with significant emphasis on increasing competitiveness and making it easier to do business with South Africa. It provides policy proposals that are not yet approved by Cabinet, but given that most of the ideas are not new, some consultation might have taken place already.
The interventions outlined are split into short-, medium- and long-term plans. The growth impact in each phase is as follows:
- 0.8ppt growth lift in years 1-3;
- 1.8ppt growth lift on average in years 1-6;
- 2.3ppt growth lift on average over 10 years.
Further detail on the focus areas include improving network industries to improve competitiveness in the water and electricity sector and the transport and telecommunications industry. There is also a focus on lowering barriers to make it easier for SMME’s to access government incentives to stimulate new business formation. Prioritizing labour intensive growth to boost the agricultural, services and tourism industries are also highlighted in the plan.
To improve export competitiveness and regional trade Treasury will also be creating a more focused and flexible industrial trade policy. This could lead to improved private sector participation in infrastructure, marketing SA’s goods and services abroad; increasing access to export credit and credit insurance; and improving the quality of infrastructure.