Is SA at a Cross-Roads?

Depending on which South African media you interact with, you are probably in no doubt that South Africa has reached some kind of a cross roads. Many key sectors of the South African society seem to be hit with one form of crisis, or another: education, look at the recent poor national senior certificate examination results; high unemployment rate, the last reported figure put unemployment at 24.5%; high HIV/AIDS prevalence, estimated at around 11% of the total population; lack of adequate housing, informal settlements are a common sight around the country. But perhaps one of government’s biggest headaches is the looming energy crisis due to the growing lack of electricity-production capacity at Eskom. Electricity is the corner-stone of any functioning economy, all infrastructure and services rely on the availability of electricity. Energy therefore is of great strategic importance for South Africa. To make matters worse, the state-owned national energy provider, Eskom is proposing significant price hikes, prices that will certainly hurt the pockets of the poor. Indeed the challenges facing President Zuma and his government over the next four years are many and daunting. South Africa therefore is at a cross roads in a sense that critical strategies need to be put in place or many fear, myself included, that South Africa may be moving towards a disaster.

Energy is of strategic importance

If President Zuma were to succeed in tackling most of the challenges facing his government, and failed to deliver a sound solution to the energy problem and bring order at Eskom, he and his government would probably not receive many plaudits. On the other hand, were President Zuma to resolve the Eskom problem and avert the looming energy disaster and yet fail to deliver on many of the other challenges facing his government, perhaps he would receive some praise. The challenge therefore, is to successfully tackle as many of the challenges as possible, as well as the energy problem, then I think the President and his government would receive truly high praise. Delivering and implementing a clear plan on education, employment, the HIV/AIDS pandemic and on top of that improve Eskom’s ability to deliver enough electricity without any threat of future blackouts, would  ensure that (I say this with no fear of any contradiction) President Zuma is remembered by future generations as a truly great statesman.

How should the ANC monitor Cadres in Government?

The monitoring and evaluation of government performance is a matter that has for a long time occupied the agenda of governments which are concerned about bringing about transparency and accountability. To this end, the World Bank has a division  (Independent Evaluation Group) dedicated to assisting government with putting in place proper monitoring and evaluation systems (M&E System). In the news recently is news that the ruling party’s National Executive Committee (NEC), the highest decision making body of the African National Congress (ANC) ruled that the organization ought to come up with a mechanism aimed at monitoring the cadres who have been deployed to serve in the government of President Zuma. The debate regarding how the ANC keeps track of the performance of its members who serve across all levels of government has been going on since the ANC came to power in 1994, however more recently, the debate has gathered momentum due largely to President Zuma’s strong focus on excellence in service delivery. Within weeks of taking office, President Zuma introduced a brand new ministerial department with the sole purpose of monitoring and evaluating the performance of all spheres of government, located in the office of the Presidency. The challenge with government monitoring and evaluating itself, is that there’s always be a question mark about the independence of such evaluations. For any government M&E System to be truly independent, it is my view that this must be carried out by an entity that has no vested interest either in government or the ruling party. However, in the absence of an independent entity the ANC must be applauded for wanting to explore an M&E System that presumably would be housed within the party structures at Luthuli House.

The Performance M&E System Concept 

The different ministerial departments of the government of President Zuma are officially organized into five main clusters: economic; social services; governance; justice as well as crime prevention and safety. In my opinion, the ANC should consider the creation of a structure that is populated by people who are experts in the fields related to these five government clusters. The role of this structure, which I shall call the monitoring and evaluation unit (MEU), would be firstly to ensure that government’s own M&E System as devised by the Ministry of Performance, Monitoring and Evaluation is sound. More importantly the role of the MEU would be to continuously track the performance of the different government departments based on agreed performance measures. The success of the MEU depends on its powers and authority to have its recommendations and guidance implemented by government. One of the ways to secure this authority for the MEU would be for the recommendations of the MEU to be made binding by the NEC of the ANC, because this is the body whose says goes, both within the party and within government. Structurally, the MEU should report directly into the ANC Secretary General, Mr Gwede Mantashe with a dotted line to the NEC. The MEU’s own point of contact into government ought to be the accounting officers of each of the different ministerial departments, known as Director Generals.

Nationalization: does the ANCYL have a point?

The oil and gas-rich Middle East countries which make up the United Arab Emirates(UAE) offer one of the best examples of how national ownership of key natural resources can be used to empower not just the elite in a country but the entire population in general. Back in 1971, the Abu Dhabi government (one of the Emirates of the UAE) set up a company known as the Abu Dhabi National Oil Company (ADNOC) whose purpose is “to operate in all areas of the oil and gas industry and since then has steadily broadened its activity establishing companies and subsidiaries and creating an integrated oil and gas industry in Abu Dhabi. The company manages and oversees oil production of more than 2.7 million barrels a day which ranks it among the top ten oil and gas companies in the world.” ADNOC in turn either owns outright or has a stake in companies which are involved in the different stages of the petroleum and gas production process, from exploration, drilling, refinement to the distribution of finished products.

A Strategic Partnership Model

Through ADNOC, the government of Abu Dhabi has successfully formed joint ventures with multinational companies involved at both the up and down stream activities of the oil and gas industry. This strategic partnership model means that ADNOC and the multinationals share equally in the costs related to operating the oil and gas entities while sharing in the profits generated. ADNOC then routinely transfers its profits to the Abu Dhabi government, which funds are then used to develop the country. Abu Dhabi has some of the best infrastructure of any country in the world with unemployment levels of virtually zero. An additional advantage of the strategic partnership model for Abu Dhabi and its citizens is that because ADNOC is involved in the production of finished petroleum products, the Emirate territory is able to secure petroleum for local consumption at a relatively low price. This is different from other crude oil producing countries such as Venezuela, Nigeria and Angola which do not have sufficient refinery capacity and therefore have to rely on importing petroleum to satisfy local consumption needs.

Profit as Source of Government Income

To be clear, what the Abu Dhabi government has achieved through ADNOC is not conventional nationalization of the country’s resources, often seen as government stealing what no longer rightfully belongs to it. Abu Dhabi has instead made itself part of the exploitation of its natural resources by owning a stake in the entities that produce and sell lucrative petroleum resources, from the on set. The profits earned from these companies serves as the main source of the Abu Dhabi government’s income, not taxes. None of the UAE members (Abu Dhabi included) generate income from taxes of any kind, therefore the strategic partnership model is an essential and primary income generation platform for the government of Abu Dhabi.

The SA Landscape

South Africa has a diversity of natural resources, ranging from ferrous and non-ferrous metals to coal. Over the years, the different governments of South Africa have simply “sold off” the rights to exploit these natural resources to private companies, in return for a guaranteed royalty fee. Government has further earned a significant portion of its income from taxes, which are by far its primary source of revenue. According to the South African Treasury figures for the 2008/9 period, the South African government generated 87% of its income from taxes with the different forms of taxes contributing as follows: personal taxes: 29%; corporate taxes: 27%; VAT: 26% and Customs and Excise:5%. Putting the spotlight of the mining companies in South Africa, most of these companies export the raw materials which they mine, such as gold to other countries where such metals are then processed into finished products which products we imported back to South Africa at a much higher price.

Is it Nationalization?

In recent weeks, the ANC Youth League (ANCYL) has been touting the idea of nationalization. What the ANCYL has not been clear about is what form this nationalization would take. What is very clear however is that buying stakes I(any form of stakes) in existing companies would cost government billions of Rands, money government simply does not have. In my opinion, the most obvious option open to the South African government would be to borrow from the Abu Dhabi model of forming strategic partnerships with private companies where on the one hand, government would contribute the natural resources and some capital, and on the other hand, the private partners would provide capital as well as expertise. It is critical to point out that government would need to focus its efforts into a specific industry and define a clearly plan of how it intends to enter that market without upsetting existing dynamics.

Is the SA economy on the mend?

Whether our economy is on the mend or not, will depend largely on which indicators are used to make this judgement call. The equities markets are often a good barometer of what is happening in the broader economy largely because the trades and the prices of the shares being traded are a reflection of what is taking place that point in time. The equities market tends to react immediately to any changes in the overall economic conditions or any news that may point towards any changes in the economic conditions. With this in mind, I have chosen the performance of some elements of the JSE Securities Exchange as indicator that to measure the direction our economy will take in 2010. the mend?”

The JSE Securities Exchange at a glance

For the full 2008 calendar year, foreigners were net seller of equities on the JSE to the tune of R54,2 Bill. This fight of capital from the JSE is a clear sign that investors were jittery about equities in 2008. In 2009 calendar year however, foreigners were net purchasers of JSE equities by foreigners of JSE equities, with net purchases of R75,4 Bill, which seem to confirm the general belief that 2009 was indeed a year of recovery compared to the disaster that was 2008. An even more compelling evidence of a recovery in 2009 is the fact that the JSE All Share Index (an index of combined shares listed on the JSE) closed the year an amazing 28.6% higher than it closed in 2008. This recovery, as can be expected, was led largely by the resources sector. Despite the fact that 2009 saw only 10 new company listings on the JSE compared to 63 in 2008, the market capitalization of the JSE Securities Exchange at the end of 2009 (R5.9 Trill) improved by 30% from its 2008 closing level of R4.5 Trill.

Barring any unforeseen disasters in 2010, it is my opinion that the South African economy in general will show a strong and continued recovery. Of course the best barometer of true economic recovery will be the  GDP figure for 2010, which hopefully be better than the 0.9% experienced in 2009. The South African economy is indeed on the mend and this mend should continue into 2010.

Does Eskom have a long-term strategy?

In 2009 the national electricity provider, Eskom announced it had asked the National Energy Regulator of SA (NERSA) to approve its request to hike electricity tariffs by 45% annually. This figure was questioned by economists and the public alik, without adequate and acceptable explanations by the wholly state-owned enterprise. Eskom argued that the aim of the sharp tariff increase would be to somehow compensate for the lack of proper electricity pricing in the past which led to a backlog in the building of new power stations. Eskom argued at the time that it would require around R385 bill in capital investment in order to eliminate this backlog. In its justification of the price increase, Eskom is effectively admitting to bad management and poor planning over the years. Currently there are hearings taking place where Eskom is making yet another case regarding electricity price increases, this time around however, the state-owned enterprise is pleading for a slightly lower 35% annual increase, a 10% adjustment from its 2009 submission to NERSA.The lower revised price increase suggests one of two things, that either Eskom in its initial submission, miscalculated the amount of capital it would require to build new power stations to create sufficient capacity to meet current and future demands or that a decision has been taken to cut back on the number of power stations to be built in the short term. Both these options would suggest continued poor planning at Eskom. Which raises another critical question, where is Eskom’s long-term power generation and distribution strategy? (see Re-newable energy ideas)

Power Generation and Distribution Strategy

In my view, what Eskom needs now more than a price increase is a well-defined strategy on how it plans to effectively secure the generation and distribution of electricity for South Africa going forward. In the absence of that strategy, it will remain difficult for Eskom to justify any price increase that is above the prevailing inflation rate. Furthermore, in the absence of understanding the overall strategy, how sure are we as citizens that the funds raised from the proposed sharp tariff hikes would in the long run be used for the purpose of building new power stations. For all we know, some of the existing power stations may be in such a bad state as to require billions in funding to guarantee their continued operation. As you read this posting, Eskom is still without a permanent CEO and one would guess that the kind of strategy I’m calling for would not materialize until a new fulltime CEO has been installed, which could take months. Until we see Eskom electricity generation and distribution strategy, me thinks that the price of electricity ought to remain unchanged but, for all I know, this may be at the risk of experiencing future blackouts.

Ideas on Solving the Education Crisis

The national senior certificate (NSC) results were released this past week and since then this has been the topic of great national interest with newspapers affording the story front-page coverage. Most of the coverage has been critical without offering any real solutions while other media have been constructive in their approach.Before the NSC results were announced, one could easily have predicted a decline in the 2009 pass rate from the previous year, based purely on the trend that has emerged over the past five years . Indeed this year’s pass rate of 60.7% compared to 62.7% in 2008 remained true to this now established downward trend. Interestingly, South Africa saw a rise in the pass rate between 1994 and the early part of this decade and for at least the past five years the total NSC pass rate has been showing a steady but certain decline. This year’s figures are even more alarming when viewed from the perspective of the failure rate, which means that 39.3% of those learners who wrote the NSC exams in 2009 actually failed. In absolute number terms, the implication is that of the 580,577 learners who wrote their NSC exams, a staggering 228,168 will either have to repeat the year or write supplementary examinations in an attempt to improve on their 2009 marks. For me, this downward trend seems to point towards either a drop in the general quality of either the learners sitting for the NSC exams or the decline in the quality of teachers or perhaps both. In a previous blog (SA Needs an Education Propostion) I highlighted a need for the South African government to devise a sound long-term education proposition, this proposition is now more urgent than ever. A critical point that must be mentioned is that the NSC results merely serve as a symptom of the overall sickness which the basic education system is suffering from and in the short term government ought to come up with a cure for this education sickness. In the long, however what is really needed is a preventative measure against the poor results sickness, which measures must involve a complete overhaul of the education system across all levels. I’ve always advocated for innovation when it comes to problem solving and our education system needs some serious innovations if progress is to be made. Some of the things I think government ought to consider doing to get the country out of the education crisis include the following:

Inculcating a culture, within families and society in general, that places higher value on education. This would necessarily require for government to create some sort of a REWARDS SYSTEM. Imagine if all leaners received government financial assistance towards their higher education should they attaint a specified mark by subject, regardless of their social background. Imagine also if teachers and Head Master received some incentive (financial or otherwise) for attaining a specified pass rate in their school;

An extensive teacher training and re-training programme. We now live in an information technology age where information is ubiquitous and new teachers that are being trained must be properly equipped to effectively leverage the benefits of the information age. Qualities teachers must be continuously retrained on different and new and emerging teaching methods to maximise learner outcomes. Teacher must keep up lest they be rendered redundant by the Internet;

Improvement of schooling facilities. This means making sure that schools are safe and secure and that each school has adequate access to running water and electricity. Furthermore government ought to invest more in ICT. Kids who want to be scientists need to do experiments from an early age, so Bunsen burners, Petri dishes are a must at every school;

While I realise that for most parents their kids’ performance at school is a daily challenge, as a country we seem to place greater emphasis on performance largely at the end of the year. Imagine therefore if government could somehow release high level performance results for current matriculants every quarter and make education a quarterly as opposed to an annual talking-point. In the short-term this would serve as artificial external pressure on parents, learners and teachers to improve on their performance thereby put education on the national agenda throughout the year. Our education system is in crisis and the citizens are looking towards government must show the political will to make improvements and for the sake of our children and our children’s children future, government cannot and must not disappoint.

GAUTRAIN changes SA's landscape

South Africa, like many countries around the world, experienced a severe economic squeeze in 2009. The country experienced a decline in GDP for the first two quarters of last year followed by a small 0.9% rise in GDP for the third quarter. Analysts expect that the GDP growth figure for the fourth quarter will be above the 1% mark, and thus usher in a more buoyant 2010. Many argue (and I’m one of those supporting this view) that without many of government’s capital investment projects the GDP as well as the unemployment (which stands at around 24%) numbers would have been even gloomier in 2009. By far the most visible infrastructure programme taking place in South Africa is the GAUTRAIN , the high-speed train system in the Gauteng province that will link Joburg, Sandton, Pretoria and OR Tambo International. The picture above shows just how the Gautrain has changed South Africa’s landscape.

Reclaiming deserted buildings for housing

Towards the latter part of 2009, Minister of Housing Settlements, Tokyo Sexwale announced that thousands of low-cost houses across the country which are financed by government would have to be demolished due to poor workmanship. This illustrates a number of problems regarding  government’s housing plan. In the first instance, it highlights the fact that, up to now, government has employed a very poor plan of identifying developers involved in delivering houses to the poor. Perhaps more alarmingly, this also indicates a general lack of care on the part of government in spending tax-payers’ money. Now more money has to be allocated towards the rebuilding of these houses while the poor are left waiting. In my previous blog post (Housing Proposition) I highlighted the need for government to show more innovation regarding its housing strategy. One such innovation, in my view, is the idea of reclaiming deserted buildings and working closely with those city councils under whose jurisdiction such buildings may fall. Essentially, at the heart of the building reclamation strategy would be the delivery of flats as opposed to conventional single unit houses which has been government's main focus so far. I must hasten to add that proper care would have to be taken in identifying buildings suitable for reclamation, with a specific focus on the structural soundness of any building chosen for reclamation. Johannesburg, like many other cities around the country, has many old buildings (similar to the one in the featured photo) which have been abandoned for one reason or another. There are a number of reasons why I think reclaiming deserted but structurally sound buildings would make sense for government.

Advantages for Buildings Reclamation

The first advantage is that of financial efficiency, presumably the cost of modifying such buildings for housing use would be less costly than building houses from scratch on virgin land. The second reason would be increased speed of delivery, presumably converting an existing single structure which can house many households would result in more houses being delivered. In this government would be delivering many houses under one structure as opposed to individual single houses built from scratch. Thirdly, presumably such deserted buildings would have had some form of link and access to both the water and electricity supply grids, it would therefore merely be the question of reconnecting these buildings back to the grids. Lastly, because most of these deserted buildings are situated in the central business districts of the major towns and cities, it would mean the poor would be living in close proximity to their places of work, thus reducing their costs of commute.