GNU signals potential for accelerated economic recovery in South Africa

</p> <p> GNU signals potential to accelerate South Africa’s economic recovery – OPINION | Politicsweb<br />

OPINION

Busisiwe Mavuso |

July 29, 2024

Busisiwe Mavuso says that while the new public procurement law may have noble intentions, there are concerns

BLSA CEO’s Weekly Newsletter – GNU signals potential for accelerated economic recovery in South Africa

28/07/2024

I am encouraged by the rapid pace at which the bills are being approved – and that they are continuing after the election, after the president signed many bills just before the May 29 election. This is a welcome change from the lethargy we have become accustomed to in the past.

New appointments to key government departments are also causing excitement, with many announcing new plans or measures to speed up the implementation of existing ones.

The national unity government, still in its infancy and facing many risks, has so far appeared to be a tool capable of boosting the country’s economic recovery. And investors are showing interest: Bloomberg reports that South African bonds have already returned 9.3% in dollar terms this year, more than any other sovereign debt in local currency. India is next at 5.5%, and the average return for emerging markets is just 0.1%.

In addition to political trends, investors are also impressed by improvements in energy security, as evidenced by fewer power outages, and by the fact that inflation and monetary policy are heading in the right direction, Bloomberg noted, citing analysts who expect continued growth in the bond market.

–>

Continued policy reform is also a big factor for investors, and two of the latest pieces of legislation signed by the president are important for business: the Climate Change Act and the Public Procurement Act. A series of amendments to the Companies Act were also approved on Friday. They deal with the issuance of new shares, financial assistance to subsidiaries and share buybacks. But they also make it easier to disqualify directors, mandate pay disclosure and require all public and state-owned companies to prepare and submit a pay policy for shareholder approval, which must include pay gap disclosures listing the highest and lowest paid employees.

The Climate Change Act 2022 was signed into law on July 18, but will come into force on a set date to be published in the Government Gazette, according to law firm Bowmans. Within a year, the Department of Forestry, Fisheries and Environment must publish the greenhouse gas-emitting sectors and sub-sectors that will be subject to sectoral emissions targets; and allocate carbon budgets to emitters, who must in turn submit a greenhouse gas mitigation plan.

The Act sets sectoral carbon emission reduction targets, driving industries and large emitters towards net zero emissions, with a timeline aligned with the carbon tax and emissions trading system. All industries emitting greenhouse gases, including coal mining, must submit annual progress reports to the Minister of Forestry, Fisheries and the Environment.

The Act makes it an offence for a company to fail to submit a mitigation plan. It is also an offence to fail to provide information to the minister or to comply with emission reduction measures. However, Bowmans notes that “there are no consequences in this list of offences for failing to meet a carbon budget or sectoral emissions target”. He argues that this would probably help South Africa most in meeting the emissions targets needed to reach net zero.

–>

The Act goes beyond emissions targets – it establishes the Presidential Climate Commission as a statutory body and gives powers and responsibilities to all levels of government to manage emissions targets at sectoral and sub-sectoral levels. It also establishes an Adaptive Resilience Fund and requires the state to undertake adaptation and resilience financing, which is critical given the predicted increase in severe weather events due to climate change.

It’s a good time to pause and remember that the overarching goal of the Climate Change Act is to protect the planet for today’s children and future generations. These steps are necessary on a global scale as we seek to limit the Earth’s temperature rise to 1.5°C above pre-industrial levels.

From South Africa’s perspective, the stakes are high if we fail to meet our Nationally Determined Contribution (NDC) targets, and one of the most important is the $8.5 billion that international donors have pledged to support the country’s Just Energy Transition Implementation Plan.

I believe most BLSA members already have comprehensive emission reduction plans or are developing them. Compliance is important because it also aligns the country with the EU’s carbon border adjustment mechanism, which will introduce an import tariff on high-carbon products from 2026.

–>

The Public Procurement Act is an ambitious piece of legislation that attempts to establish a single framework for sourcing, buying and paying for goods and services across all government bodies, with a focus on transformation. It establishes designated groups for preferential procurement: black people, women, people with disabilities, military veterans, youth, small businesses and cooperatives. Business Day reports that it also includes tendering provisions to apply a designated minimum threshold for locally produced goods or goods with a local content in designated economic sectors.

Noble in its intention, there are serious concerns that local capacity may be insufficient to meet the local content provisions of the Act, particularly when it comes to manufacturing. There also appears to be a risk that a bidder who meets the requirements of the Act will be accepted, even if it is significantly more expensive than other bids.

The law attempts to address the problems of the current public procurement system – as well as endemic corruption in state tenders – by centrally directing all public procurement through the finance minister, with the framework applying to departments, constitutional institutions, municipalities, municipal entities and public entities, according to Business Day. Contracting authorities will have to develop their own public procurement rules.

The question remains whether this will be enough to combat corruption – I encourage the new government to ensure that the checks and balances surrounding tender evaluation processes are thorough and effectively enforced.

–>

+++

BLSA is a business organisation that believes in the future of South Africa and shares the values set out in the Constitution. BLSA is committed to playing its part in creating a South Africa of growing prosperity for all by harnessing the resources and opportunities of business in partnership with government and civil society to deliver economic growth, transformation and integration.

Issued by BLSA, July 28, 2024