Wednesday, 26 August 2015 14:19

Collaboration between government and business more urgent than ever before

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The success or failure of addressing South Africa’s energy, infrastructure and unemployment increasingly lies in the ability of government and business being able to work effectively together in public/private sector partnerships.

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This was the view of a panel of economic experts, brought together at Old Mutual Investment Group’s Investment Insights conference recently.

Rian le Roux, ‎Chief Economist at Old Mutual Investment Group and Sake24 Economist of the Year 2015, believes that public/private relationships are not always smooth, as understandably one party wants a more liberated market, and the other wants more regulation. However, he pointed out in the panel discussion, that it is not always Government’s fault that the relationship breaks down. “The private sector must also take some of the blame. For example, the construction sector has damaged national trust with its anti-competitive collusive behaviours; and there are also unacceptably high levels of private sector tax evasion, especially with regard to VAT.”

Elias Masilela, Chairman of DNA Economy and part-time commissioner of the National Planning Commission, added: “To really make the relationship between government and the private sector in South Africa work, we need to start by looking at its psychology.. First step is to repair the trust gap between government and business so that optimal collaboration can take place. Until then, we cannot move forward on the practical implementation of these partnerships.”

Masilela identified some examples of lack of trust. “We see government holding back on incentives because it considers the private sector to be too focussed on profits – and we see the private sector distrusting legislation in the pipeline aimed at business.”

To give life to the social compact described in South Africa’s National Development Plan 2030, Masilela urged each party to stop waiting for the other to take the next step, and rather be the one who makes the move. He reminded the audience that if the SA economy is to grow faster and in a more inclusive way, gross fixed capital formation needs to reach about 30 percent of GDP by 2030, with public sector investment reaching 10 percent.

Another member of the panel, Old Mutual Wealth Chief Investment Strategist, David Mohr agreed, highlighting where public/private trust can be found, and where it is lacking. “Large institutions and corporates generally enjoy reasonable relationships with their relevant government bodies, but this can certainly be improved and go a lot deeper. However, it is at the smaller business level where economic growth can be transformative, where trust is notably lacking and needs to be addressed.”

Masilela set out his hopes for greater labour market flexibility, skills investment, and labour mobility with regard to both skills and geography. “For example, the mining sector urgently needs to train its labour force to be able to operate in other parts of the economy.”

One of the most vital sectors of our economy where government and business need to work together is energy. “This is a burning issue for our economy” says Masilela. “An energy sector is meant to contribute to economic growth and development. It must also be sensitive to social equity, contribute to environmental sustainability, and demonstrate good governance.”

Masilela identifies regulation as key to the success of an energy sector. “We need policy on competition – such as who produces what, from which source, and to what extent. The energy landscape should ideally be guided by market forces and this will ensure best pricing.”

With South Africa presently looking vulnerable, Le Roux considered the outlook for the rand. “Our currency still looks cheap on several valuation metrics. However, the current account is problematic and we have too many imports that need to be financed. The US Fed will raise interest rates this year, the dollar is strong, and commodity prices are falling. None of these factors are Rand-friendly.

“To add to this, we are unsure of where the local economy is heading and whether it is in crisis. We have problematic inflation, energy outages, low growth, interest rate increases, unemployment, deficit challenges and aspects of policy uncertainty. These are all obstacles to the rand firming or even stabilising. So if we do not work together over the long term and resolve our challenges, the rand could certainly go weaker with the potential to collapse if we move into a real economic crisis situation.” 

Mohr concludes that growth is imperative for the South African economy. “We have certainty in terms of our fiscal and monetary policies, and we have solid infrastructure in terms of our financial institutions and intermediaries. So when will we see meaningful savings and investment in the country? Only when there is meaningful growth.

Last modified on Friday, 15 September 2017 13:03

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