BLSA’s CEO’s Weekly Newsletter – GNU signals capability of accelerating SA’s economic recovery

28/07/2024

I’ve been encouraged by the brisk pace at which legislation is being approved – and that it is continuing post-elections after the President signed numerous bills just before the elections on 29 May. This is a welcome change from the lethargy we’ve been used to in the past.

New appointments in key government departments are also generating a sense of excitement with many announcing new plans or measures to accelerate implementation of existing ones.

Still in its infancy and facing many risks, the government of national unity so far does seem to be a vehicle capable of accelerating the country’s economic recovery. And investors are showing interest: Bloomberg reports that SA’s bonds have already returned 9.3% in dollar terms this year, more than any other local-currency sovereign debt. India is next best with 5.5% and the average return for emerging markets is just 0.1%.

Apart from the political trajectory, investors are also impressed with the improved energy security situation marked by reduced loadshedding while inflation and monetary policy are moving in the right direction, Bloomberg notes, quoting analysts who expect the bond market to continue its rally.

The continuation of policy reform is also an important factor for investors and two of the more recent pieces of legislation signed by the president are both important for business: the Climate Change Act and the Public Procurement Act. And on Friday a raft of amendments to the Companies Act were also approved. These address the issuing of new shares, providing financial assistance to subsidiaries and share buybacks. But they also make it easier to disqualify directors, mandate remuneration disclosure and require all public and state-owned companies to prepare and present a remuneration policy for shareholders’ approval which must include pay-gap disclosures listing the highest paid and lowest paid employees.

The Climate Change Act, 2022 was signed into law on 18 July but will come into effect on a date fixed proclamation in the Government Gazette, according to law firm Bowmans. Within a year, the Department of Forestry, Fisheries and the Environment, has to publish the greenhouse gas emitting sectors and sub-sectors that will be subject to sectoral emissions targets; and allocate carbon budgets for emitters, who in turn have to submit a greenhouse gas mitigation plan.

The legislation sets carbon reduction targets on a sectoral basis, guiding industries and large emitters towards net zero, with the timing aligned with the carbon tax and carbon trading regimes. All industries that emit greenhouse gases, including coal mining, must submit annual progress reports to the minister of forestry, fisheries and the environment.

The act makes it an offence if a business fails to submit a mitigation plan. It is also an offence to fail to provide the minister with information or fail to comply with emission reduction measures. Bowmans notes, however, that “missing from this list of offences is any consequence for a failure to achieve a carbon budget or sectoral emission target”.  It says this would arguably do the most to assist South Africa in achieving emission targets necessary to achieve net zero.

The act goes beyond emission targets – it establishes the Presidential Climate Commission as a statutory body and gives powers and responsibilities to all layers of government to manage emissions targets on a sectoral and sub-sectoral basis. It also sets up an adaptation resilience fund and requires the state to undertake adaptation financing and resilience, which is extremely important given the expected increase in severe weather events due to climate change.

This is a good time to take a step back to remind ourselves that the overall goals of the Climate Change Act are, first and foremost, to protect the planet for today’s children and future generations. These steps are necessary on a global scale as we attempt to limit the increase in the earth’s temperature to 1.5°C above pre-industrial levels.

From a South African perspective, however, there is much at stake if we don’t meet our Nationally Determined Contribution (NDC) targets, not least of which is the $8.5bn pledged in funding by international donors to support the country’s Just Energy Transition Implementation Plan.

I believe most BLSA members already have comprehensive emission reduction plans in place or are developing them. Compliance is important as it also aligns the country with the EU Carbon Border Adjustment Mechanism that will introduce an import tariff on carbon-intensive products from 2026.

The Public Procurement Act is an ambitious piece of legislation that attempts to establish a single framework for sourcing, buying and paying for goods and services by all organs of state, with a strong emphasis on transformation. It establishes designated groups for preferential procurement: black people, women, people with disabilities, military veterans, youth, small enterprises and co-operatives. Business Day reports that it also includes provisions for bids to apply a designated minimum threshold for locally produced goods or goods with local content in designated sectors of the economy.

Noble in its intent, there are serious concerns that local capacity may be insufficient to meet the act’s local content provisions, particularly when it comes to manufacturing. There also appears to be a risk that a bidder that meets the act’s requirements is accepted even if it is far more expensive than other bids.

The legislation attempts to address weaknesses in the current procurement system – and indeed, endemic corruption in state tenders – by funnelling all procurement centrally through the finance minister and the framework applies to departments, constitutional institutions, municipalities, municipal entities and public entities, according to Business Day. Procuring institutions will have to develop their own procurement policies.

Whether that is sufficient to combat corruption remains to be seen – I encourage the new government to ensure the checks and balances that accompany tender assessment processes are thorough and efficiently enforced.

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BLSA is a business organisation that believes in South Africa’s future and shares the values set out in the Constitution. BLSA is committed to playing its part in creating a South Africa of increasing prosperity for all by harnessing the resources and capabilities of business in partnership with government and civil society to deliver economic growth, transformation and inclusion.

Issued by the BLSA, 28 July 2024