1 00:00:00,000 --> 00:00:11,240 Hello and welcome to the So What podcast, in which political economic analyst JP Landman 2 00:00:11,240 --> 00:00:16,400 discusses the issues uppermost in the minds of South Africans. You can find a written 3 00:00:16,400 --> 00:00:28,760 version of this content on JP's website, jplandman.co.za. I am Ruda Landman and I am your host. 4 00:00:28,760 --> 00:00:33,560 These first few recordings were done at our dining room table, but we will soon be moving 5 00:00:33,560 --> 00:00:35,560 into a studio. 6 00:00:35,560 --> 00:00:43,260 Hello and welcome once again to a recording to accompany JP's newsletter. This one dated 7 00:00:43,260 --> 00:00:53,120 the 26th of April 2022 under the title Connecting the Dots. It is going to be slightly longer 8 00:00:53,120 --> 00:00:58,420 than usual because the newsletter is slightly longer than usual. Maybe you want to listen 9 00:00:58,420 --> 00:01:06,640 to it in a few sessions, maybe you want to pour yourself a glass of wine and settle in. 10 00:01:06,640 --> 00:01:11,960 Why use the metaphor of dots and connecting the dots? 11 00:01:11,960 --> 00:01:16,200 It was Steve Jobs who said you can only connect the dots backwards, you cannot connect it 12 00:01:16,200 --> 00:01:21,160 forward. I think that is absolutely applicable to where we are in South Africa in terms of 13 00:01:21,160 --> 00:01:27,440 political analysis. There are a lot of forecasts going around, a lot of predictions going around, 14 00:01:27,440 --> 00:01:32,760 a lot of comment going around. What I do in this newsletter is simply to focus on things 15 00:01:32,760 --> 00:01:39,360 that actually have happened. The dots are already on the page. We don't want to speculate 16 00:01:39,360 --> 00:01:45,000 about what the page will look like. The dots are on the page. So it's a backward looking 17 00:01:45,000 --> 00:01:50,160 methodology if you want. We connect the dots and then we see what the dots tell us. That's 18 00:01:50,160 --> 00:01:52,840 basically what I do in this newsletter. 19 00:01:52,840 --> 00:02:00,960 The first group of dots, if I can put it that way, concern macroeconomic policy, macroeconomic 20 00:02:00,960 --> 00:02:05,840 framework. What exactly does that mean? 21 00:02:05,840 --> 00:02:10,800 Macroeconomic policy refers to two things. First of all, monetary policy or interest 22 00:02:10,800 --> 00:02:16,160 rates, independent reserve bank, inflation, fighting inflation and so on. That's all monetary 23 00:02:16,160 --> 00:02:23,560 policy. Fiscal policy is the second leg, second part of macro policy and that refers to government 24 00:02:23,560 --> 00:02:30,480 finances. Now, in the most up-to-date growth theory that we have in the world, that is 25 00:02:30,480 --> 00:02:36,840 one of the five critical elements of an economy that would like to grow. That is you've got 26 00:02:36,840 --> 00:02:42,160 to have stable macroeconomic policy. In other words, stable monetary policy and stable fiscal 27 00:02:42,160 --> 00:02:47,600 policy. Now, I think what has been done in South Africa in the last couple of years, 28 00:02:47,600 --> 00:02:53,200 if we connect the dots, are quite remarkable. If I can go to monetary policy first, let's 29 00:02:53,200 --> 00:02:59,960 go back to the ANC's conference in December 2017 at NASFEC. There was a resolution adopted 30 00:02:59,960 --> 00:03:04,960 that the South African Reserve Bank must be nationalized and it must become part of the 31 00:03:04,960 --> 00:03:10,800 public sector or it must be in government ownership. Also at that conference, there 32 00:03:10,800 --> 00:03:16,840 were all kinds of noises made about changing the inflation targeting regime in South Africa. 33 00:03:16,840 --> 00:03:23,080 Eighteen months after the conference in June 2019, Ismail Shula, who was then still Secretary 34 00:03:23,080 --> 00:03:27,800 General of the ANC, pushed the envelope a bit further. He issued a press statement to 35 00:03:27,800 --> 00:03:34,560 say that the government should pursue quantity easing. He didn't get a quantitative, but 36 00:03:34,560 --> 00:03:39,240 he got to quantity easing and he said that should be government policy. Also in that 37 00:03:39,240 --> 00:03:45,760 time, ex-President Zuma issued a tweet in which he said that quantity easing is indeed 38 00:03:45,760 --> 00:03:51,000 government policy and if a government doesn't implement that, the government can be recalled. 39 00:03:51,000 --> 00:03:56,240 He clearly made a threat there. He would recall that at the same time, the public protector 40 00:03:56,240 --> 00:04:03,440 in her infinite wisdom issued a report in which he said the inflation targeting regime 41 00:04:03,440 --> 00:04:08,040 in the country must be recalled and the mandate of the Reserve Bank must be changed. There 42 00:04:08,040 --> 00:04:13,120 was a huge amount of political pressure on the bank. If you connect those dots in 2017, 43 00:04:13,120 --> 00:04:19,240 2018, 2019, you can see to what extent there was a total onslaught on the South African 44 00:04:19,240 --> 00:04:27,200 Reserve Bank and by implication on independent monetary policy. In June 2019, on precisely 45 00:04:27,200 --> 00:04:34,120 Tuesday, the 4th of June 2019, Ismail Shula issued that statement of his, which prompted 46 00:04:34,120 --> 00:04:41,600 Mr. Zuma's tweet and so on. 48 hours later, on Thursday, the 6th of June, the top six 47 00:04:41,600 --> 00:04:48,320 of the ANC issued a statement from the Tully House to say, this is not the policy of the 48 00:04:48,320 --> 00:04:53,560 ANC. The position of the bank remains unchanged. The authority of the Minister of Finance to 49 00:04:53,560 --> 00:04:59,360 decide on the inflation target was reconfirmed and that was put out as official government 50 00:04:59,360 --> 00:05:05,200 policy. Ismail Shula then find himself in a terrible position that 48 hours after he 51 00:05:05,200 --> 00:05:11,280 issued a statement, he now had to issue another statement on behalf of the organization and 52 00:05:11,280 --> 00:05:16,480 he is one of the top six have to sign it, committing the ANC to the opposite of what 53 00:05:16,480 --> 00:05:22,720 he propagated. There was a clear, clear, clear victory for Mr. Ramaphosa for sound monetary 54 00:05:22,720 --> 00:05:29,840 policy and I think we can put June 2019 down as the month on which the tide was turned 55 00:05:29,840 --> 00:05:35,360 on the Reserve Bank. Not the only important developments, there were also court cases, 56 00:05:35,360 --> 00:05:39,760 but that's a different set of dots and that has to do with a legal fight. I'm focusing 57 00:05:39,760 --> 00:05:47,120 here on the political dots. Also in that statement of the 6th of June 2019, the top six said, 58 00:05:47,120 --> 00:05:52,200 look, it is the policy of the ANC that the bank should be in public ownership, but we 59 00:05:52,200 --> 00:05:56,480 realize that there's a cost involved in it, in other words, you would have to pay shareholders 60 00:05:56,480 --> 00:06:01,680 out. In our current fiscal situation, we do not have the money for that and it's not prudent 61 00:06:01,680 --> 00:06:07,920 to pursue that option. So that put the whole Reserve Bank thing to bed, so to speak. Now 62 00:06:07,920 --> 00:06:13,040 note the dates here. We're talking June 2019, but it was long before a thing called COVID. 63 00:06:13,040 --> 00:06:17,920 It was long before that disaster hit us. It was quite clear which way the political wing 64 00:06:17,920 --> 00:06:24,480 was blowing. So if you look back since that time, since June 2019, it's now almost three 65 00:06:24,480 --> 00:06:31,560 years later, the status of the bank has grown further. Its independence is more assured. 66 00:06:31,560 --> 00:06:37,480 We've really deflected or defeated that attack that we saw on the sub-African Reserve Bank. 67 00:06:37,480 --> 00:06:41,660 So that's what the dots and monetary policy tell me. If you look at fiscal policy, it's 68 00:06:41,660 --> 00:06:47,760 much the same story. And there the turning point for me was in February 2019, more than 69 00:06:47,760 --> 00:06:53,400 three years ago, when the president in the state of the nation speech that February said 70 00:06:53,400 --> 00:07:00,760 very, very clearly, quote, we will not spend our way out of our economic troubles, unquote. 71 00:07:00,760 --> 00:07:06,880 Again, that was before COVID. So that was not on the table at all, where he said, we 72 00:07:06,880 --> 00:07:11,680 cannot carry on in the way that we've been going. We've got to curb our spending. And 73 00:07:11,680 --> 00:07:17,720 that has been stuck to. Now in 2020, of course, we got COVID and government expenditure, including 74 00:07:17,720 --> 00:07:23,800 at least considerably. But here is the benchmark. The economy shrank by about six and a half 75 00:07:23,800 --> 00:07:29,120 percent. We now know looking back. At the time, government stimulation measures to try 76 00:07:29,120 --> 00:07:34,800 and keep the economy going came to about 5.5 percent. And that is within the rule of thumb. 77 00:07:34,800 --> 00:07:40,260 The rule of thumb is if the economy contracts by five or 10 percent, then you must stimulate 78 00:07:40,260 --> 00:07:45,920 by five or 10 percent. And that's precisely what we've done. In fact, the one criticism 79 00:07:45,920 --> 00:07:49,960 many people make against the government on this particular dot is that we should have 80 00:07:49,960 --> 00:07:53,640 spent a bit more. Five point five percent was not enough. We should have spent six or 81 00:07:53,640 --> 00:08:01,240 seven percent. Whatever that is, that is what the dot tells us. In 2019 also, when the president 82 00:08:01,240 --> 00:08:05,600 made that speech, it was three months before the election. And the chatteling classes were 83 00:08:05,600 --> 00:08:11,360 going ballistic about how we're going to see a splurge of spending. Looking back, what 84 00:08:11,360 --> 00:08:18,400 does the dot tell us? The dot tells us that in that election here, spending was only 0.3 85 00:08:18,400 --> 00:08:23,320 percent more than the ceiling which was set by Treasury. I really don't think that's 86 00:08:23,320 --> 00:08:28,400 a catastrophe. In fact, I think it's quite an achievement. So if you look back at the 87 00:08:28,400 --> 00:08:33,280 COVID, you look back at the Natal unrest that we had in 2021, you look back at the load 88 00:08:33,280 --> 00:08:38,640 shedding that we had on top of COVID, then I think the fact that government succeeded 89 00:08:38,640 --> 00:08:44,940 in staying the course of expenditure is no mean achievement. Now, how did that come about? 90 00:08:44,940 --> 00:08:49,200 People immediately want to say, oh, it's because there was a commodity boom and we got extra 91 00:08:49,200 --> 00:08:52,840 money from there and that helped us. That's quite right. There was a commodity boom, but 92 00:08:52,840 --> 00:08:58,360 before the commodity boom, in other words, in the first half of 2021, two other things 93 00:08:58,360 --> 00:09:03,840 happened. First, government took a very firm stance on civil service increases and broke 94 00:09:03,840 --> 00:09:11,040 their negotiated agreement with the unions on three years of guaranteed increases. Now, 95 00:09:11,040 --> 00:09:15,700 the political significance of this mustn't escape one. Ramaphosa was brought into power 96 00:09:15,700 --> 00:09:22,360 with the support of Kusato, also others, but definitely Kusato. Now he goes and he breaks 97 00:09:22,360 --> 00:09:27,120 an agreement which was negotiated with them. His government breaks it and he says, we can't 98 00:09:27,120 --> 00:09:32,120 give that to you. That is not a sign of political weakness. That is not a sign of not looking 99 00:09:32,120 --> 00:09:37,200 after your fiscal expenditure. So that year, the increases were null. In the following 100 00:09:37,200 --> 00:09:43,080 year, the increases were kept to a minimum and we will see what happens in 2022. But 101 00:09:43,080 --> 00:09:48,920 certainly the tough decisions to tackle civil service increases have been made and the consequences 102 00:09:48,920 --> 00:09:53,880 are working through. How do we know that? Because in April, Moody's changed their outlook 103 00:09:53,880 --> 00:09:59,740 for South Africa from negative to stable. So clearly they can see that the dots are lining 104 00:09:59,740 --> 00:10:05,840 up behind prudent fiscal policy. Then we had the lucky break of extra money from the commodity 105 00:10:05,840 --> 00:10:11,000 boom and again, government didn't squander it. It was used to reduce the deficit and 106 00:10:11,000 --> 00:10:18,080 of course, part of it was used to subsidize people after the Natal unrest. So I'm very 107 00:10:18,080 --> 00:10:23,400 happy if we look back, that fiscal and monetary policy that we're meeting the requirements 108 00:10:23,400 --> 00:10:29,240 of what has to be done in that area. And that's what I think what the dots tell us. 109 00:10:29,240 --> 00:10:34,440 Something that your newsletter also points out and that I think we must actually remember 110 00:10:34,440 --> 00:10:42,560 is how close we came to a very rough edge with the attacks on treasury. 111 00:10:42,560 --> 00:10:48,640 A very important point and one which was confirmed this last week by the release of the fourth 112 00:10:48,640 --> 00:10:53,720 part of the Zondo Commission's report where Mr. Zondo detailed the attacks on treasury. 113 00:10:53,720 --> 00:10:58,920 If you remember that weekend special, Des Van Rohean as Minister of Finance, if you 114 00:10:58,920 --> 00:11:04,480 remember that about 15 months later, a year later, both the Minister of Finance, Gordon 115 00:11:04,480 --> 00:11:10,760 and the Deputy Minister, Deputy Minister Jonas were both just summarily dismissed. Zuma was 116 00:11:10,760 --> 00:11:15,960 really going for the treasury. In the end, he failed. He may have come with any whisker, 117 00:11:15,960 --> 00:11:20,440 but the fact is he failed. And that's the important point to bring across. And I think 118 00:11:20,440 --> 00:11:27,680 what we are now as the statue of the Reserve Bank has risen and become really unassailable, 119 00:11:27,680 --> 00:11:32,920 I think inside government, the statue of treasury has likewise risen. And we can talk about 120 00:11:32,920 --> 00:11:37,520 that under structural reform to indicate to what extent that has happened. So I'm really 121 00:11:37,520 --> 00:11:42,320 very happy with what I said that I think if you look back and you connect the dots on 122 00:11:42,320 --> 00:11:46,480 fiscal and monetary policy, we've done well. 123 00:11:46,480 --> 00:11:51,840 Your next heading is structural reform. And that's the next group of dots, if we can put 124 00:11:51,840 --> 00:11:57,600 it that way. Yes. But structural reform seems to me can mean almost anything to anyone. 125 00:11:57,600 --> 00:12:03,760 What do you mean? What do you think the government means when they talk about structural reform? 126 00:12:03,760 --> 00:12:09,240 Yeah, it's a very good point. Structural reform means different things to different people. 127 00:12:09,240 --> 00:12:14,160 On the left of our politics, it means take away the independence of the Reserve Bank, 128 00:12:14,160 --> 00:12:18,080 push up the budget deficit, print money to cover it and so on. On the right hand side 129 00:12:18,080 --> 00:12:23,480 of our political spectrum, it deals with deregulate labor markets, ban unions, there mustn't be 130 00:12:23,480 --> 00:12:28,880 minimum wages and all that kind of nonsense. What does government mean? Government has 131 00:12:28,880 --> 00:12:35,000 put down a very simple eight points or eight bullets, eight point framework. The first 132 00:12:35,000 --> 00:12:39,320 one, which is monetary and fiscal policy, which we've already discussed. And the other 133 00:12:39,320 --> 00:12:44,920 remaining six, there are eight in total fiscal monetary policy. The remaining six basically 134 00:12:44,920 --> 00:12:50,920 deal with introducing the private sector into what is called the network industries. And 135 00:12:50,920 --> 00:12:58,120 the network industries is telecommunications, internet, that whole area, spectrum. It's transport, 136 00:12:58,120 --> 00:13:03,680 railways and harbors. And it is infrastructure. There is an eighth element which we can talk 137 00:13:03,680 --> 00:13:08,020 about and that is what you can call social employment. So those are the eight things 138 00:13:08,020 --> 00:13:12,960 that government understands under their policy. That's how I read their policy. And we can 139 00:13:12,960 --> 00:13:18,080 take them one by one. The most important one, because it's happened already, is spectrum 140 00:13:18,080 --> 00:13:23,240 release. As you know, spectrum release was delayed for 10 years. For the first eight 141 00:13:23,240 --> 00:13:28,320 of the 10 years, because of political ineptitude and fighting between the minister and the 142 00:13:28,320 --> 00:13:33,800 regulator and so on, a U-turns that was made by the Zuma government, that was eventually 143 00:13:33,800 --> 00:13:39,440 sorted out after the mapporza came into power. The last two years, it was delayed by private 144 00:13:39,440 --> 00:13:45,040 sector opposition to the proposals for spectrum release. That has now also been overcome. 145 00:13:45,040 --> 00:13:50,440 The auction has taken place and 14.4 billion rand came into the treasury in payment for 146 00:13:50,440 --> 00:13:56,280 that. So that's, I think, a huge dot. Just by the way, Rudha, we must just note that 147 00:13:56,280 --> 00:14:01,160 when it comes to telecommunications and internet connection and so on, it's not just the government. 148 00:14:01,160 --> 00:14:07,120 It's also players outside government who've put down important dots. Think of the Facebook 149 00:14:07,120 --> 00:14:12,760 consortium that's building a cable linking the whole African continent with the world. 150 00:14:12,760 --> 00:14:18,440 And there's the Google cable, which is also supposed to be finished at the end of this 151 00:14:18,440 --> 00:14:24,520 year, which will increase by 10 times all the current capacity linking South Africa 152 00:14:24,520 --> 00:14:29,460 to the international internet world. Nothing to do with government, but also happening. 153 00:14:29,460 --> 00:14:35,200 So I think that the new spectrum release and so on, you look at quite big changes. Inside 154 00:14:35,200 --> 00:14:42,680 South Africa, MTN, Vodacom, and Remgrove subsidiary are working very hard to extend cheaper fiber 155 00:14:42,680 --> 00:14:49,080 connection into townships and rural areas at lower prices. All that will help to put 156 00:14:49,080 --> 00:14:53,640 South Africa on the front foot in terms of telecommunication. 157 00:14:53,640 --> 00:15:00,160 The second area is transport, and they're basically railways and harbors. Now, again, 158 00:15:00,160 --> 00:15:06,120 just look back and get the long term perspective. Portia Darby, the MD of Transnet, tells us 159 00:15:06,120 --> 00:15:14,560 his own words from mine that two years ago, two years ago, the model was a state run monopoly, 160 00:15:14,560 --> 00:15:19,920 a state owned monopoly in railways and harbors. Now the policy is to allow the private sector 161 00:15:19,920 --> 00:15:25,480 in. It's a big change. The fact that it was brought about by circumstances, brought about 162 00:15:25,480 --> 00:15:29,680 by pressure, well, that is how life works. And there's two ways that you can deal with 163 00:15:29,680 --> 00:15:34,600 pressure. You can ignore it and try to stumble through, or you can change direction. Clearly, 164 00:15:34,600 --> 00:15:40,600 there's a big change in direction. Again, one must have a feeling here for the practical 165 00:15:40,600 --> 00:15:46,040 difficulties. Before you can allow the private sector into ports or railways, two things 166 00:15:46,040 --> 00:15:52,160 had to happen. You had to separate the operations of Transnet and Portnet from the regulatory 167 00:15:52,160 --> 00:15:58,440 function. They were basically judge and prosecutor, if I can use that analogy, and you had to 168 00:15:58,440 --> 00:16:05,440 split those ropes. Secondly, you had to split infrastructure from operations so that you 169 00:16:05,440 --> 00:16:09,720 can get a true measurement of what cost is. Then you know what to charge people who come 170 00:16:09,720 --> 00:16:14,680 and use the infrastructure. Those two things took about 18 months, two years. They've now 171 00:16:14,680 --> 00:16:20,440 basically been completed. And what has happened in the last couple of months is a request 172 00:16:20,440 --> 00:16:28,400 for proposals was put out for a big new pier in the Durban Harbour. A request was put out 173 00:16:28,400 --> 00:16:33,240 for Kucha. And over the Easter weekend, just before the Easter weekend, a request was put 174 00:16:33,240 --> 00:16:38,840 out for a liquid gas terminal in Richards Bay. So you can clearly see which way Transnet 175 00:16:38,840 --> 00:16:45,880 is moving or Portnet is moving. As far as railway lines go, at the beginning of April, 176 00:16:45,880 --> 00:16:53,800 that freight rail opened up slots in the Gauteng Durban corridor for private operators to use. 177 00:16:53,800 --> 00:16:59,080 Now here, I just want to make a point. There's a huge amount of public discourse going on 178 00:16:59,080 --> 00:17:04,160 about the fact that Transnet and private operators are very far apart under conditions and so 179 00:17:04,160 --> 00:17:10,000 on. Let's just stand back a little bit here. South Africa has got a long history. It's 180 00:17:10,000 --> 00:17:16,120 a 100 year old history, more than 100 years of state monopolies in the network industries. 181 00:17:16,120 --> 00:17:20,920 It goes back to the days of South African railways and harbours. It goes back to the 182 00:17:20,920 --> 00:17:27,520 days of the South African post office long before Telcom. So we have a centuries old 183 00:17:27,520 --> 00:17:33,000 approach to these matters. Now you change it over from a state monopoly to private sector 184 00:17:33,000 --> 00:17:38,000 players participating. You've got to make new rules. You've got to develop new practices. 185 00:17:38,000 --> 00:17:43,040 What are those rules? Who must carry the risk? Who must pay for maintenance? Who carries 186 00:17:43,040 --> 00:17:49,720 the depreciation charge? What return will be a feasible return? Over what period? Two 187 00:17:49,720 --> 00:17:54,000 years, 20 years, 200 years? You've got to work these things out. They don't descend 188 00:17:54,000 --> 00:17:58,720 to you from heaven. We've worked them out in the case of toll roads. And how did some 189 00:17:58,720 --> 00:18:03,540 rail work at else? Well, Nazir Ali at the time brought everybody into the same room. 190 00:18:03,540 --> 00:18:08,480 The lawyers, the engineers, the builders, the government regulators, the bankers who 191 00:18:08,480 --> 00:18:13,480 must finance everything. And between them, they sorted out the toll road model, which 192 00:18:13,480 --> 00:18:17,640 is working fairly well for South Africa. Now you'll have to go through a similar process 193 00:18:17,640 --> 00:18:22,080 now with railway lines. You'll have to go through a similar process with ports. And 194 00:18:22,080 --> 00:18:28,040 that's part of developing, moving over from a state run monopoly to one in which the private 195 00:18:28,040 --> 00:18:33,840 sector participates. And I think this hysteria that we get from the chattering classes every 196 00:18:33,840 --> 00:18:40,560 time there's a kind of a disagreement is also really an area that asks for us to grow up. 197 00:18:40,560 --> 00:18:45,440 I think you need a little bit of empathy with people's frustration because things are announced 198 00:18:45,440 --> 00:18:53,920 and then it takes two years before anything happens. So it is human to get frustrated. 199 00:18:53,920 --> 00:18:57,960 It may be human, but you should also know why it is taking two years. If you have to 200 00:18:57,960 --> 00:19:02,520 separate the regulator from the operator and you have to separate infrastructure out that 201 00:19:02,520 --> 00:19:07,920 kind of thing, you know, we also need empathy for that. The reality is that it takes time 202 00:19:07,920 --> 00:19:13,480 to develop new practices. And that's where we are. We don't live in a Mary Poppins world. 203 00:19:13,480 --> 00:19:20,880 No, we don't. The next thing on your list of patterns of dots is energy reform. You 204 00:19:20,880 --> 00:19:26,800 have spoken about this quite often and there is a lot of information, a lot of there are 205 00:19:26,800 --> 00:19:35,000 a lot of numbers in this section. So I'm going to ask you to try and just very broad strokes 206 00:19:35,000 --> 00:19:40,120 and then we refer the listeners to a graph which is on the website. 207 00:19:40,120 --> 00:19:45,000 Yeah, absolutely. Look, in the last two years, I counted, I've written about energy seven 208 00:19:45,000 --> 00:19:50,640 times explaining what I think is going to happen and what indeed is now happening. Everything 209 00:19:50,640 --> 00:19:56,640 that we said will occur is proceeding. So it's quite gratifying from that point of view. 210 00:19:56,640 --> 00:20:01,080 I don't want to repeat any of that today. So all I do in my note is to focus on the 211 00:20:01,080 --> 00:20:06,840 recent load shedding. And here is the focus. We have load shedding in South Africa because 212 00:20:06,840 --> 00:20:13,080 we produce between 4000 and 6000 megawatts too little power. That's why we have load 213 00:20:13,080 --> 00:20:18,960 shedding. If we can wave a Harry Potter wand and tomorrow morning have 6000 megawatts of 214 00:20:18,960 --> 00:20:24,000 extra power, there'll be no load shedding. So it is now very simple. Just look at what 215 00:20:24,000 --> 00:20:31,440 is being done. Just connect the dots on what is being done to produce that 6000 megawatts. 216 00:20:31,440 --> 00:20:36,980 And as you say, there's a lovely graph which you have developed, which is in the text. 217 00:20:36,980 --> 00:20:43,820 And it basically tells us that that 6000 deficit that we've got is at the moment being covered 218 00:20:43,820 --> 00:20:50,560 by 11 and a half thousand megawatts of new capacity that's being installed. There is 219 00:20:50,560 --> 00:20:56,880 the last open window fall, which is being connected to the grid this year, 500 megawatts. 220 00:20:56,880 --> 00:21:01,880 There is the emergency power procurement, which is dominated by car power ship. Forget 221 00:21:01,880 --> 00:21:07,120 about car power ship. It doesn't look as if that deal will happen, but that was only 1200 222 00:21:07,120 --> 00:21:13,320 of 2000 megawatts. There's 800 megawatts left over. So you can add that in. Then there is 223 00:21:13,320 --> 00:21:19,240 the announcement of October 2020 that municipalities can generate their own power. So far only 224 00:21:19,240 --> 00:21:25,880 two municipalities have made use of it. Johannesburg was the first. Cape Town has done it recently. 225 00:21:25,880 --> 00:21:31,240 That adds up to about 300 or 500 megawatts. More municipalities will follow, I'm quite 226 00:21:31,240 --> 00:21:36,720 sure. But again, it takes time to work through these processes. You know, you don't wave 227 00:21:36,720 --> 00:21:40,880 your hand and then you have a municipality procuring power. 228 00:21:40,880 --> 00:21:47,360 The big, big game changer was in June 2021, when the president announced that you no longer 229 00:21:47,360 --> 00:21:53,840 need a license if you generate power up to 100 megawatts. The ceiling used to be one 230 00:21:53,840 --> 00:22:00,620 megawatt. Now from one to 100 is an enormous jump. And not only that, the president also 231 00:22:00,620 --> 00:22:06,400 announced in that announcement that you can generate the power below 100 for yourself 232 00:22:06,400 --> 00:22:13,480 or anybody else and you can sell it to anybody. This is a huge, huge change that took place. 233 00:22:13,480 --> 00:22:18,120 Something that we did predict in the seven times that I read about energy, but it has 234 00:22:18,120 --> 00:22:24,280 now happened. Now you can look at the graph in the piece. I'm not going to repeat it all, 235 00:22:24,280 --> 00:22:29,720 but all these changes that has already been announced, the decisions have been taken. 236 00:22:29,720 --> 00:22:34,200 We're busy with implementation. We'll add up to about 11 and a half thousand megawatts 237 00:22:34,200 --> 00:22:39,840 versus a four to six thousand deficit. Now just be careful. One megawatt of renewable 238 00:22:39,840 --> 00:22:45,200 power is not the same as one megawatt of base power. But again, be careful. Two things are 239 00:22:45,200 --> 00:22:50,440 shifting that. That is if your deficit is six and you get 11 and a half, you're covered 240 00:22:50,440 --> 00:22:55,200 to a large extent. And technology is also changing it. New storage technologies are 241 00:22:55,200 --> 00:23:00,920 coming in, which is making it possible for renewable operators to provide power 24 hours 242 00:23:00,920 --> 00:23:07,280 a day, even if they make use of renewable power. Near Postmasberg in the Northern Cape, 243 00:23:07,280 --> 00:23:13,680 there's a plant that is now run for, I think, 12 months. A solar plant run for 12 months, 244 00:23:13,680 --> 00:23:18,280 providing power 24 hours a day because of storage technologies that they've got. But 245 00:23:18,280 --> 00:23:26,280 I think you must make the point that this will be connected by 2025. It has been procured, 246 00:23:26,280 --> 00:23:31,480 but it is still being installed, as you say. Absolutely. Because it takes time to build 247 00:23:31,480 --> 00:23:34,720 a plant, then you've got to connect it to the grid. Then you've got problems in the 248 00:23:34,720 --> 00:23:40,840 grid. You've got to sort that out. In general, you can talk about 24 months, but in some 249 00:23:40,840 --> 00:23:45,840 cases even a bit longer from the date that you start until you actually connect to the 250 00:23:45,840 --> 00:23:51,720 grid. So this 11 and a half thousand on my cigarette box analysis will be connected to 251 00:23:51,720 --> 00:23:58,360 the grid by 2025. Now that's still three years out. So that to me implies, unless something 252 00:23:58,360 --> 00:24:03,600 else changes, that we will have load shedding for another three years. But it also makes 253 00:24:03,600 --> 00:24:08,000 it very clear that load shedding will not be a permanent feature of our landscape. I 254 00:24:08,000 --> 00:24:13,640 think one should say that as well. I don't think we're looking at a situation like Nigeria, 255 00:24:13,640 --> 00:24:17,880 for example, where they've now had load shedding for many, many years and people have just 256 00:24:17,880 --> 00:24:23,640 given up on the national system. Here the national system is changing quite dramatically. 257 00:24:23,640 --> 00:24:28,120 And it's changing from one which is dominated by a state utility, a state monopoly to one 258 00:24:28,120 --> 00:24:33,260 in which the private sector will operate. And by the way, talking about that, all the 259 00:24:33,260 --> 00:24:38,080 money needed for this 11 and a half thousand megawatts will come from private sector players. 260 00:24:38,080 --> 00:24:42,920 So you're talking massive investments that will take place in the economy already has 261 00:24:42,920 --> 00:24:48,400 taken place and will carry on taking place, pushing our investment numbers probably higher 262 00:24:48,400 --> 00:24:51,760 than what they were before COVID struck us. 263 00:24:51,760 --> 00:24:58,280 The next group of dots concern infrastructure. You've always been quite cautious about infrastructure 264 00:24:58,280 --> 00:25:03,560 because you said so many people had to agree on so many things. Is that shifting? 265 00:25:03,560 --> 00:25:09,200 Yeah, I think it is shifting. It's precisely right. Doing infrastructure where you mix 266 00:25:09,200 --> 00:25:13,960 public and private money and you've got private operators coming in, the kind of thing that 267 00:25:13,960 --> 00:25:19,800 we saw with toll roads, is quite a difficult thing to do. You need contracts, you need 268 00:25:19,800 --> 00:25:24,640 banking agreements, you need financial arrangements. Now in the case of roads, we've worked it 269 00:25:24,640 --> 00:25:29,680 out in other areas we haven't worked it out. And some areas don't lend themselves to it. 270 00:25:29,680 --> 00:25:36,080 I don't think you can use, for example, private finance to do a school in a poor area. It 271 00:25:36,080 --> 00:25:41,080 just doesn't lend itself to it. But a couple of things have happened. The first is when 272 00:25:41,080 --> 00:25:45,160 the president became president, he pushed the idea of the infrastructure fund. It took 273 00:25:45,160 --> 00:25:51,240 three years to get that going. He started with it in 2018. By 2021, the thing was established 274 00:25:51,240 --> 00:25:57,560 and operational. In this year's budget, Treshtree has allocated quite a few billion rand to 275 00:25:57,560 --> 00:26:04,080 it. I think the total for the period for the three years that the budget rolls is 13 billion 276 00:26:04,080 --> 00:26:08,160 or more. And they've committed themselves to a hundred, Treshtree has committed itself 277 00:26:08,160 --> 00:26:13,040 to a hundred billion over 10 years. And the idea is that you mix in the infrastructure 278 00:26:13,040 --> 00:26:18,160 fund, money from Treshtree, from the taxpayer and from the private sector. Now what has 279 00:26:18,160 --> 00:26:25,000 changed now is that the first seven projects have been approved by the infrastructure fund. 280 00:26:25,000 --> 00:26:30,760 The total investment will be about 21 billion, of which only 2.6 billion, a little bit more 281 00:26:30,760 --> 00:26:36,240 than 10% is coming from the infrastructure fund or from the taxpayer. The rest is coming 282 00:26:36,240 --> 00:26:42,440 from private players and development institutions. Now that tells you something about the ability 283 00:26:42,440 --> 00:26:48,960 of the infrastructure fund to leverage. If you can do 21 billion with 2.6 billion, then 284 00:26:48,960 --> 00:26:53,280 you're clearly in a new game. That's the same story. You allowed the private sector to come 285 00:26:53,280 --> 00:26:58,840 in to help to finance infrastructure. So I think that that was quite an important shift 286 00:26:58,840 --> 00:27:03,120 that took place. The second shift that took place is that the budget for the year that 287 00:27:03,120 --> 00:27:09,480 just ended is 22% higher in terms of government infrastructure spending than what it was in 288 00:27:09,480 --> 00:27:15,720 the previous year. And in fact, we are now at the level where the rands being allocated 289 00:27:15,720 --> 00:27:21,080 are more than what it was before COVID. So there's clearly a comeback in terms of infrastructure 290 00:27:21,080 --> 00:27:27,280 spending. But I think the most important dot in this area of infrastructure, Rudha, is 291 00:27:27,280 --> 00:27:33,760 the dot where government last year said very clearly and unambiguously, the state cannot 292 00:27:33,760 --> 00:27:38,560 do infrastructure. They have to involve the private sector. They have to develop skills 293 00:27:38,560 --> 00:27:44,000 and capacity. Now that recognition is a little bit like when you're an alcoholic. The road 294 00:27:44,000 --> 00:27:49,120 to recovery begins with admitting that you're an alcoholic. And what is happening at the 295 00:27:49,120 --> 00:27:54,240 moment is you're both at the infrastructure fund and at the unit called Infrastructure 296 00:27:54,240 --> 00:28:00,160 SA, which is in particular the Laws Department, precisely through its technical advice team, 297 00:28:00,160 --> 00:28:06,360 is busy developing the capacity and skills of people to build project pipelines. And 298 00:28:06,360 --> 00:28:12,160 that's why I think the dial is beginning to move here. We are not nearly as far advanced 299 00:28:12,160 --> 00:28:16,120 as we are in energy, but I think the movement is clear. 300 00:28:16,120 --> 00:28:22,200 So let's do a so what in the middle. What does all this mean? Why is it so important? 301 00:28:22,200 --> 00:28:29,440 Why do you write about it in such detail? Well, common sense tells you that if you allow 302 00:28:29,440 --> 00:28:36,000 the private sector into previous state monopoly areas, you would expect in theory an increase 303 00:28:36,000 --> 00:28:41,560 in investment and you would expect in theory an increase in productivity. And that is exactly 304 00:28:41,560 --> 00:28:47,600 what Treasury modeling has indicated. Treasury modeling indicates that these changes that 305 00:28:47,600 --> 00:28:54,240 we've been talking about can add as much as 1.7% to annual GDP growth. Now our growth 306 00:28:54,240 --> 00:29:01,080 rate up till now has been around about 1.5%. So if you can add 1.7, you basically double 307 00:29:01,080 --> 00:29:09,080 growth rate. You take your growth rate from 1.5 to 3.2. 3.2% growth is double the population 308 00:29:09,080 --> 00:29:14,880 growth rate of 1.6%. So you're now getting back on track. You're now getting back to 309 00:29:14,880 --> 00:29:20,080 where we were in the first 10, 15 years after democracy, where the economy grew much faster 310 00:29:20,080 --> 00:29:25,920 than the population. And that generates extra resources that can be used to develop. Basically, 311 00:29:25,920 --> 00:29:31,600 I think we are busy going back to where we sort of ended, if I may use that word, in 312 00:29:31,600 --> 00:29:38,280 2008. South Africa had a lovely run, also economically and politically, until about 313 00:29:38,280 --> 00:29:44,840 2008, 2010. Then the Zuma era kicked in with full force and we all know what happened there. 314 00:29:44,840 --> 00:29:52,600 Now, I think we, with a growth rate of 3%, 3.25%, double your population growth rate. 315 00:29:52,600 --> 00:29:57,280 We're going back to where we were before the Zuma era struck us. 316 00:29:57,280 --> 00:30:04,720 One thing that comes to mind for me, it sounds as if the famous or infamous trust deficit 317 00:30:04,720 --> 00:30:11,520 between the government and business or the private sector is being closed. 318 00:30:11,520 --> 00:30:17,880 I wouldn't say that at this stage. Let's give it a little bit more time. The private 319 00:30:17,880 --> 00:30:23,040 sector, in my view, doesn't appreciate the fact that they've got, really for the first 320 00:30:23,040 --> 00:30:28,000 time since Mandela, they've got a business friendly president. I don't think that penny 321 00:30:28,000 --> 00:30:32,480 has dropped yet. If you look at some of the things that are being said by business leaders 322 00:30:32,480 --> 00:30:38,800 and so on, they're not there yet. The government, on the other hand, doesn't have a full understanding 323 00:30:38,800 --> 00:30:46,040 yet of what it means to have the private sector participating. What conditions, what payback 324 00:30:46,040 --> 00:30:53,320 periods, what return on capital, what carrying of risk is digestible and whatnot. 325 00:30:53,320 --> 00:30:57,440 You've got problems on both sides. Business people don't appreciate what they've got 326 00:30:57,440 --> 00:31:02,680 in a business friendly president and the administration doesn't yet quite appreciate what it takes 327 00:31:02,680 --> 00:31:08,520 to run a business. I think we'll have to slog a bit more to overcome that trust deficit. 328 00:31:08,520 --> 00:31:15,040 The last thing that worries the whole of South Africa, of course, is the unemployment. Is 329 00:31:15,040 --> 00:31:18,880 the government doing anything which will shift that? 330 00:31:18,880 --> 00:31:24,200 As I said earlier, one of the eight pillars, seven of them deal with the economy. The eighth 331 00:31:24,200 --> 00:31:30,640 pillar deals with what I call social employment. This is essentially employing people in all 332 00:31:30,640 --> 00:31:36,040 kinds of what you can call artificial ways. Not because that's a permanent solution, it's 333 00:31:36,040 --> 00:31:43,400 not, but because it brings temporary relief. Here, the most important one is public employment. 334 00:31:43,400 --> 00:31:49,820 In October 2020, when COVID was really at its most merciless, the government announced 335 00:31:49,820 --> 00:31:54,160 that 800,000 people will be employed in a public employment program. Now, these are 336 00:31:54,160 --> 00:31:59,000 not civil servants. Let's just be clear about that. When you say public employment people 337 00:31:59,000 --> 00:32:05,000 immediately jump to civil service positions, that's not what it is. It's positions which 338 00:32:05,000 --> 00:32:09,640 gets a stipend of about three to three and a half thousand grand a month. It's not a 339 00:32:09,640 --> 00:32:15,880 civil service job. It's usually temporary. Now, at the moment, there are 850,000 people 340 00:32:15,880 --> 00:32:21,480 in this program, more than the 800,000 target. There's money in the budget for the next three 341 00:32:21,480 --> 00:32:26,640 years to take that up to a million people. Now, if you have a million people in public 342 00:32:26,640 --> 00:32:32,200 employment, then have you shifted the numbers on the 12 million unemployed in the country? 343 00:32:32,200 --> 00:32:37,760 No, not really, but you are putting a lot of money through 3,500 grand a month. You're 344 00:32:37,760 --> 00:32:42,960 putting a lot of money into the poorest people of South Africa in an effort to help. Then 345 00:32:42,960 --> 00:32:48,200 there are a couple of other initiatives that was also launched under this program. The 346 00:32:48,200 --> 00:32:55,600 one is the SA Youth Mobi platform, which has got 2.3 million young South Africans registered 347 00:32:55,600 --> 00:33:04,160 on that platform and 600,000 of them, 25%, have been placed in jobs. Then the National 348 00:33:04,160 --> 00:33:08,720 Youth Service, which has been around for a long time, but has completely collapsed, has 349 00:33:08,720 --> 00:33:14,360 been revitalized and they will probably employ 50,000 people this year. That is what has 350 00:33:14,360 --> 00:33:19,840 been budgeted for and what is planned. Now, again, will 50,000 people change the 12 million 351 00:33:19,840 --> 00:33:26,360 unemployed? No, it won't, but it will help 50,000 households. It will help 50,000 people 352 00:33:26,360 --> 00:33:31,600 to start getting into the labor market. There are four or five of these initiatives, what 353 00:33:31,600 --> 00:33:36,960 I call artificial initiatives, but they help to get people into the labor market. That's 354 00:33:36,960 --> 00:33:42,720 the important point. In the end, there's no substitute. If you want to employ more people, 355 00:33:42,720 --> 00:33:46,920 if you want to bring that down, that 12 million unemployed, you need more economy. You're 356 00:33:46,920 --> 00:33:51,800 not going to employ 10 million more people in the same size economy. You need a bigger 357 00:33:51,800 --> 00:33:57,440 economy to employ more people. That is where the structural reform measures come in. Until 358 00:33:57,440 --> 00:34:02,680 such time as the structural reform measures have kicked in and start having an effect, 359 00:34:02,680 --> 00:34:07,760 you need these kinds of short-term relief measures to combat poverty and keep stability 360 00:34:07,760 --> 00:34:14,840 in the country. If you step back and you look at the big picture, what are the main things 361 00:34:14,840 --> 00:34:19,720 that these dots tell you? I think the main thing that it tells me is a point that I've 362 00:34:19,720 --> 00:34:26,440 already made, and that is that I think we're going back to where we were in 2008, 2009, 363 00:34:26,440 --> 00:34:32,400 at the end of the Mbeki period, when we had a long run, a successful run in our economy, 364 00:34:32,400 --> 00:34:38,000 where the economy grew faster than the population, where we increased incomes. Because we increased 365 00:34:38,000 --> 00:34:42,720 incomes more, money was available to be spent. I think we're going back there. We're leaving 366 00:34:42,720 --> 00:34:48,840 behind us the stagnation that we've had over the last couple of years. That's the first 367 00:34:48,840 --> 00:34:54,800 point. The second point is, it was Bill Emmett, who was the editor of The Economist. He's 368 00:34:54,800 --> 00:35:02,960 now retired in Italy, I believe, who said that the journalist, like the instant analyst, 369 00:35:02,960 --> 00:35:09,680 is constantly at the risk of over-interpreting the short term and under-rating the longer 370 00:35:09,680 --> 00:35:15,960 term. I think there's a lot of that in South Africa. We are so carried away by the news 371 00:35:15,960 --> 00:35:21,560 headlines of the morning, never mind what will come this evening, that we run the risk 372 00:35:21,560 --> 00:35:26,280 of instant analysis and coming to the wrong conclusions. That's when I think a longer 373 00:35:26,280 --> 00:35:33,480 term view, which you can get by connecting the dots, is such an important input. I think 374 00:35:33,480 --> 00:35:37,760 the other thing that I want to say is, it was at the second investment conference in 375 00:35:37,760 --> 00:35:42,800 2019, I think, where I was in the audience and I listened to the president, and he made 376 00:35:42,800 --> 00:35:47,560 a comment which, for me, summarized what he was busy with. It was the beginning of his 377 00:35:47,560 --> 00:35:53,880 tenure before COVID, but you can see that that's how he governs. He said, there's an 378 00:35:53,880 --> 00:35:59,760 old saying that a man who moves a mountain begins by carrying away the small stones. 379 00:35:59,760 --> 00:36:05,800 A man who moves the mountain begins by carrying away the small stones. I think that's what 380 00:36:05,800 --> 00:36:10,920 the Ramaphosa administration has been doing. They've been carrying away the small stones, 381 00:36:10,920 --> 00:36:16,680 which became bigger and bigger and bigger. You see it beautifully illustrated in energy. 382 00:36:16,680 --> 00:36:22,040 You're beginning to see it in transport, in ports and railways. You've seen it in 383 00:36:22,040 --> 00:36:27,360 spectrum. I have no question that the stones will get bigger through a process of structural 384 00:36:27,360 --> 00:36:34,660 reform, and eventually we will move the mountain. 385 00:36:34,660 --> 00:36:39,800 Thank you for listening to the So What Podcast. If you enjoy this content, please don't forget 386 00:36:39,800 --> 00:36:44,720 to leave a review and a rating, and please consider subscribing so you don't miss any 387 00:36:44,720 --> 00:36:50,200 future episodes. Also, tell your friends. Remember, you can find a written version of 388 00:36:50,200 --> 00:37:08,400 all JP's content at jplandman.co.za.