Mboweni's economic blueprint 'parks reform tanks' on govt lawn - economist

An economic policy paper unexpectedly released by Finance Minister Tito Mboweni on Tuesday evening "clearly parks reform tanks on a range of lawns across government," according to Peter Attard Montalto, head of capital markets research at Intellidex.

" […] it is quite clear this paper is meant to be divisive and this is where the politics is really key and ultimately we believe the purpose of publishing it now," said Montalto in a note to clients.  

In the 77-page economic policy paper Treasury called for a series interventions and reforms to "reverse the downward trend in South Africa’s growth potential". The aim is also to boost the gross domestic product (GDP) growth rate by up to 3%.

One proposal is for debt-laden power utility Eskom - facing a declining pool of customers and rising tariffs - to consider selling coal-fired power stations to raise R450bn, roughly the size of its debt. The stations would then sell electricity back to the power utility at a predefined tariff.

"Restructuring the electricity sector will limit the fiscal and economic risk that Eskom poses and support economic transformation through more entrants into the electricity space," it states. 

The National Union of Metalworkers of South Africa (Numsa), which has been strongly opposed to privatising any part of Eskom, did not immediately reply to requests for comment on Wednesday. 

The paper also calls for the speeding up of the State's auction of spectrum to mobile operators, the reintroduction of a law to cut down on red tape and the simplification of onerous visa regulations. 

'Political fall-out'  

"This paper is going to cause political fall-out as a result, but we think that is its disruptive purpose, and if it can mobilise and solidify a more robust evidence-based debate on policy  … as well as additional pressure from business on the president for reform – then it will have been a success," says Montalto.

He noted the paper does not mention the National Economic Development and Labour Council or use the term "developmental state". 

According to Intellidex, the paper is the result of preparation Mboweni has been doing since coming into office in October 2018, including a series of meetings and roundtables with academics and economists. 

"This paper has been circulated amongst ministers for around a month, and the understanding was originally that it would be published closer to the mini budget (in October), but some acceleration appears to have occurred suddenly this week – all down to politics we believe," he said. 

Johann Els, chief economist at the Old Mutual Investment Group, described the plan in a note on Wednesday as "generally positive", saying it should be viewed positively by the markets.

"The ideas contained in the report are mostly pragmatic, given it is not too ambitious and at the same time not overly contentious. However, the results will depend on the successful implementation by National Treasury."

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