Financial incentives to grow economy

During bad times, most economies lose jobs, meaning increased unemployment. During bad times, companies also generate lower levels of revenues. With less people employed and less revenues generated, less taxes are collected by government. During the 2008/09 fiscal year, Treasury raised R683 Bil in revenue and the 2009/10 fiscal year saw government revenue decline by 2.6% to R665 Bil and since then treasury has seen a steady increases in revenues.

For the current fiscal year (2011/12), Treasury expects to raise R824 Bil in revenues and by this measure alone, South Africa’s economy is certainly showing growth, this is in spite of our high unemployment rate of 23.9%. During these prevailing good times, Treasury has indicated that it would reduce government spending and this will allow government to divert more of it’s revenue towards the servicing of debt.

However, what SA really needs is a vibrant economy, one that could attain double-digit growth. Such growth cannot be achieved by doing the conventional, especially as this relates to fiscal policy.

SA needs to attract higher levels of Foreign Direct Investment (FDI) as opposed to Foreign Portfolio Investment (FPI) which is what SA currently has abundance off. PFI, by its nature is fickle. In order for SA to attract significant FDI, a number of critical things must be done by the government of President Zuma.

Rub shoulders with leading countries

Those managing Brand SA must work closely with government and especially the department of International Relations and Co-operation (DIRCO) in an effort to lift SA’s standing on the global economic and political stage. SA becoming a member of the BRICS formation was certainly a good step in the right direction. This sends a message to the world that SA is a powerful political and economic player on the global stage. More and more however, SA must be involved in platforms which allow the country to be constantly seen in the company of leading nations such as the USA, Britain, France, Germany, and Italy. Imagine what a visit to SA by US President Barack Obama would do to the SA’s standing among nations. The reality is that it is the leading countries of the world which attract a significant share of global FDI and indeed it is this high level of FDI which makes these countries belong to a class of leading nations.

SA Reserve Bank Building, Pretoria.

Create Incentives for Capital Investment

Being in the company of leading nations on its own is not enough, if FDI levels are to increase significantly SA must create substantive investment incentives. SA has one of the best financial services industry in the world and this is a critical pre-condition the attacrction of substantial FDI. The single biggest change which the SA government could bring about is that of introducing some form of tax incentives on capital investment made by both local and foreign companies, perhaps targeting certain sectors e.g. manufacturing of hi-tec products. Most major foreign companies which have offices in SA, especially as this relates to the technology sector, merely have sales, marketing and consulting presence while the core products sold by these companies into SA are imported as finished products. SA ought to focus on hosting factories to serve as a hub, if not for global production at least for regional, African production not only for hi-tec products but a range of products.

Our Politicians must show willingness to create effective government!!

SA ought to fundamentally change energy industry

In today’s world, electricity and power in general are critical to get anything done. From the moment we wake up electricity and power play a major role, indeed power plays a major role even during our sleeping hours. Most of us wake up to an alarm which is powered by either electricity or batteries, we have a warm or hot shower with water heated by some form of energy source, breakfast and all the other meals we eat through the day are prepared using power, generated from different sources. Getting to work, either using public transportation or a private vehicle, requires power and energy. Whether you are a student or a worker, your outputs require some of power and energy. Energy, as generated by either coal, solar, nuclear or petroleum-based products is the life blood of everyday life. Those countries which produce at least enough energy to meet all their private and industrial consumption needs have a good chance of creating thriving economies. Those countries which fail to produce enough power to meet even the most basic of private and industrial needs have economies languishing in the doll-drums.

Energy, as this relates to electricity, accounts for 15% of South Africa’s GDP. Taking electrical energy and all other energy sectors into account, specifically the petroleum sector, the contribution of energy to SA’s GDP could possibly account for 30% of GDP.

Coal is South Arica’s main source of energy for electrical power generation with 88% of all electricity generated produced using coal, while nuclear, solar and other sources account for the rest. South Africa has no crude-oil reserves and as such the country imports all the petroleum-based products it consumes, be it petrol, diesel, paraffin etc.

Fundamentally changing SA’s energy sector

South Africa faces two critical energy problems. First, increasing access to electricity to as wide a population as possible. Secondly, reducing the country’s carbon footprint. The government of President Zuma ought to therefore consider an aggressive increase in the use of cleaner sources of energy (wind, solar and water) for power generation (except for a synthetic fuels produced by SASOL).

In order to fastrack the increased use of cleaner sources of energy, government ought to liberalize the electricity sector. Currently Eskom produces 95% of all power consumed in South Africa, and in my view more private players should be allowed to compete with Eskom. Eskom is heavily invested in coal-powered electricity and one of the ways to speed up the adoption of other cleaner power-production means would be to license new power generators. Government could keep Eskom as the sole entity licensed to generate power from coal while new licenses could be issued to new generators on an energy sources basis i.e. licenses for wind-power generators, water-power generators and solar power generators. Together, these newly licensed electricity generators along with Eskom, would contribute their electricity to a common national or even regional grid(s).

This approach would serve to address the above two challenges as well as to generate new industries and new jobs to further fuel (pun intended) economic growth.

Our Politicians must show willingness to create effective government!!

Infrastructure as vehicle for vibrant economy

What is very clear to see, is that South Africa's high unemployment rate has been difficult to arrest and therefore drastic measures are necessary to reverse this joblessness situtation. At last count, more than around 4,2 million South Africans (23,9% Unemployment rate) were without work. President Zuma's 2012 State of the Nation Address to Parliament, showed that his governement is taking the unemployment challenge very seriouly.

During tough times, most countries have resorted to increased infrastructure investment to help stimulate their economies and thereby creating jobs. In my view, South Africa will need to follow this very same recipe. While, SA's infrastructure is among the best on the African continent, it is still far from world-class. Aside from using infrastructure to help create jobs, investment in crititical infrastrucure should serve as a stimulus to attract further investment to drive economic growth. South Africa can not and must not invest in infrastrucure merely to create jobs but there must a broader purpose to use such infrastructure to fundamentally alter the trajectory of South Africa's economy growth.

Improving our Transportation Infrastructure

Transportation plays a big role towards facilitating economic activity and South Africa would therefore need to ensure that there is a long term plan to invest in strategic transport sectors such as rail, road, sea and air. Rail is supremenly important in the transportation of both people as well as goods. While projects such the Gautrain are commendable, SA needs a modern and wide rail network that can be accessed by the masses. A rail network connecting major locations within the bigs cities and connecting big cities with small towns. South Africans are spending too much of their time driving on the roads (hence such high road fatalities).



Goods headed for the Durban harbour



By virtue of SA's geographic location, our sea ports should have capacity to allow them to become the global hub for goods moving from East to West and from North to South. The Suez Canal is an important gateway between Europe and the Far East but one that is slowly loosing its importance due mainly to the twin problems of it's limited capacity as well as the continuous threat of pirates in the seas along the East coast of Africa. Without sounding cynical, SA must take advatnge. Part of ensureing bigger port capacity means SA has to invest in state of the art port equipment and facilities to ensure that goods are loaded onto and off-loaded from docked ship in record time.

More of SA's airports ought to be of international standard, meaning foreign visitors ought to be able to land at more of our airports directly from foreign shores to allow for easier access for people and goods to various locations around our country. Imagine if Limpopo, Free State and Eastern Cape all had international airports, with proper passport control facilities. This alone would surely serve to help stimulate the development of tourism facilities and infrastructure in these provinces, which in turn would increase visitor interest.

Presdient Zuma and his Cabinet must be commended on a detailed job-creation plan, the challenge is always regarding the delivery of such plans.

Our Politicians must show willingness to create effective government!!