FirstRand chair Roger Jardine has sharply criticised the “painfully slow” pace of government’s much mooted infrastructure programme.
Writing in the group’s annual report, he says that over two years ago President Cyril Ramaphosa pledged an infrastructure programme that was, in the president’s own words, “the flywheel for economic growth and large-scale job creation”.
He says Ramaphosa “has regularly acknowledged the criticality of South Africa’s infrastructure programme as a key driver of his economic recovery strategy”.
“Yet, it is hard to identify one government-led infrastructure project of any significance that has actually been executed. Progress, in other words, has been to date, glacial.
“The pace does not correlate to the stated ‘extraordinary’ nature of the measures required. Extraordinary suggests urgency, immediate action and focus.”
These are astonishingly strong words from a senior business leader.
Jardine says the disconnect between Ramaphosa’s plea and the lack of delivery can’t simply be blamed on the “massive strain on government finances” following the state capture years and the Covid-19 pandemic. This, he says, may be “a small part of the reason”.
The real problem
Rather, he argues – as he has done in previous chairman’s letters – that the primary reason “is the historical unwillingness to crowd in the private sector”.
He acknowledges that there is “some evidence of a shift in this thinking in some parts of government, which is welcomed” and says the two parts of society “have a long and difficult road to travel together”.
FirstRand has a proud history of allowing its chairs to use the group’s annual report as a platform to weigh in on critically important matters in the country.
This predates Jardine, with previous chair Laurie Dippenaar unafraid to take a stand on matters which are often critical of government and policy.
In 2020, Jardine warned that the time to implement critical reforms in the economy was “running out” given its fragile state, as well as that of the fiscus.
In 2019, he questioned “government’s apparent unwillingness to champion the private sector as a growth engine” and called it “mystifying”.
In 2018, he used his letter to comment on land reform, income inequality and what he described as “broken” SOEs.
In hindsight, these pieces of commentary have all been prescient.
In this year’s report, Jardine admits that there have been “some promising developments” where government has involved the private sector, “particularly in the energy space”.
But again, he says “government was slow and the electricity grid was, and remains, on its knees before they embraced partnership with the private sector”.
The raft of new measures announced by the president in July could be game-changing for the country, he adds.
“These measures, however, remain high level and there are some crucial actions required to fix Eskom’s capital structure, revise the National Energy Regulator of South Africa’s (Nersa’s) regulatory and pricing powers, amend the Electricity Regulation Act, and deliver grid expansion.
“In addition, the government must urgently accelerate the procurement of new generation capacity through increased private investment. This has been achieved at scale in other markets.”
The reforms at Transnet in both rail and ports are helpful “first steps” in “ensuring that the country is investing in infrastructure that has a multiplier effect on economic growth”.
But Jardine criticises the 16 rail slots that have been made available by Transnet under its private sector participation effort as falling “well short of what is required to fundamentally overhaul logistic infrastructure and notably improve efficiencies”.
He notes that the investment to GDP ratio in this country is stuck at 14% – “a paltry number compared to other emerging markets”.
A level of 25% within the next decade is “definitely achievable” but will require focus and urgency.
Importantly, South Africa has no time to waste as we are “currently enjoying the benefits of a strong, albeit fading, commodity cycle”.
“This has boosted our terms of trade, which in turn created welcome fiscal and balance of payments capacity.
“However, given the cyclical nature of the commodity cycle, it is highly unlikely that this temporary revenue boost will present a long-term windfall. Therefore, it must be urgently utilised to assist the transformation of the economy’s production capacity.”
Jardine is candid: “The state currently possesses neither the financial nor human resources to meet the social and economic needs of South Africa …
“High-quality and reliable government services, such as a constant supply of electricity generation, reliable transport, and functioning healthcare and education systems are not features of our daily lives.”
He says there is simply no more room for social compacting.
“The government and the private sector should meet to agree on priorities and a plan to implement them.
“There is no plausible plan for South Africa to prosper without the private sector playing a strong role.”