Reflection Piece from the Office of the Resident Coordinator Series #1
25 November 2020
A UN Common Position on the SA Government Economic Reconstruction and Recovery Plan
The COVID-19 virus followed by the lockdown has had a devastating impact on the economy, and on the health, security and livelihoods of the people of South Africa. Latest projections by the National Treasury indicate a real GDP contraction of 7.8 per cent in 2020. The prediction is that it will take time to get the economy back to pre-pandemic levels. To mitigate the impacts of the COVID-19 crisis, the Government announced back in April 2020 a six-month economic support package of R500 billion. However, as this emergency response comes to an end, South Africa urgently needs a clear strategy to put it on a firm and sustainable recovery path.
The United Nations (UN) System in South Africa, therefore, applauds President Cyril Ramaphosa on his Economic Reconstruction and Recovery plan, which he presented to the Parliament of South Africa on 15 October 2020. On this occasion, the President stated that the plan “outlines immediate actions to rebuild the economy and to provide jobs and relief to the South African people.” This is exactly what the country urgently needs.
National unemployment had already reached the official rate of 30.1 per cent at the end the first quarter of 2020. As if this reality was not bad enough, over two million people lost their jobs during the second quarter. This has pushed many more South Africans into unemployment and economic inactivity. The crisis’ impacts have been felt most strongly by the most vulnerable, who had limited access to their socio-economic rights during the pandemic – that is, persons with disabilities (PWDs); people living in informal settlements; migrants (many of whom have lost their incomes); female-headed households and women subject to gender-based violence; older persons, children, youth and all other groups that are poor or otherwise disadvantaged. The pandemic, therefore, took South Africa a step back in the realisation of its citizens’ rights, be it civil, socio-economic, or political.
The UN South Africa sees the Government plan with hope. The plan was prepared in a collaborative fashion with the private sector, trade unions and civil society, building in the process broad based support. This support is a critical element for effective plan implementation. The UN welcomes the fact that the plan shows close alignment with the United Nations Sustainable Development Cooperation Framework 2020-2025. It has an important focus on youth, employment, the private sector and tackling corruption.
The plan correctly places great emphasis on rapid employment creation through public investments in infrastructure, the need to address concentration in specific industries, expansion of regional markets through regional integration, as well as industrialisation through localisation and support to labour-intensive industries. The plan’s diagnosis is that fiscal space is limited and thus identifies the private sector as a key growth driver and with capacity to generate jobs. The plan proposes a set of concrete measures to build private sector confidence and thereby encourage private actors to scale up investment in infrastructure and other growth and job creation sectors.
The UN welcomes the plan’s intention to create 800 thousand jobs through a public works programme. In addition to providing incomes and protecting livelihoods, the programme will mean that additional money will be injected into the economy, with income effects. These income effects are important, as a greater demand boost is needed to support recovery. One cannot forget that South Africa is a demand-side constrained economy.
Our assessment, based on available information to date, is that the proposed fiscal stimulus is rather small in view of the magnitude of the crisis the country faces. The UN recognises that the Government has limited fiscal space to act more incisively; that the debt dynamics is a real issue and that public debt sustainability should be a main policy objective in the long term. However, the size of the fiscal stimulus in the current context is key, as private sector investment alone will not be enough to revive the economy. The UN therefore hopes that, in the short term, the Government considers countercyclical public spending to ensure that South Africans in need have access to tangible economic support during this time of crisis. Such spending should also be linked to stimulating the productive sector and to skills and local enterprise development to ensure the sustained recovery of the economy and long-term sustainability of government interventions. Such interventions will be in line with the government’s obligations under the International Covenant on Economic, Social and Cultural Rights, which require the State to progressively realise the rights therein.
The UN system thus shares the view that the plan is strong on the economic front. However, it also believes that greater clarity on sources of financing, implementation, costing and timeframe would greatly help strengthen it. That is:
- Successful implementation requires details on costing and financing, which are still missing. (It is not clear what the total cost of the plan will be and what might be its possible financing sources.) Linked to this point, the questions are: Where will the money come from? Who will take responsibility? What is the time frame? How will the plan implementation be monitored and by whom?
- The UN notes that the medium-term budget policy statement does not indicate additional budgetary spending in relation to the Supplementary Budget of June 2020, implying that all budgetary resources in support of the first stage of the plan will be of repurposing nature.
- In addition, there is some overlap between different interventions and their costs. One implication of this lack of clarity is that it makes it harder to be able to figure out not just how much is additional resources but also what their macroeconomic impact will be.
- The plan alludes to green bonds, IPPs and PPPs but does not provide specific details on how these financing modalities will be deployed in support of the plan.
On the social front, the UN South Africa strongly believes that the plan should be properly calibrated towards leaving no one behind. That should be the guiding principle of implementation. Reconstruction and recovery should not just be about economic growth, but about inclusive and sustainable growth for human development.
The UN fully supports the plan’s intention to extend the Social Relief of Distress (SRD) Grant as well as workers’ protection through the Unemployment Insurance Fund. However, coverage gaps remain. In addition, the Government might want to consider more long-term solutions.
- In addition to the SRD, it is important to extend the top up to caregiver grants (i.e., disability grants; childcare grants).
- The UN hopes that the grant measures will continue beyond 31 January 2021 and, ideally, be followed by a gradual adoption of a Universal Basic Income Grant.
- Given the current situation, more targeted investment to the health sector is important , including expediting recruitment in the health sector to equip it with the human resources it needs to respond to the COVID-19 crisis and the country’s broader health needs. Measures to make healthcare affordable and accessible to each and every resident of the country is of utmost importance.
- Above all, the plan might consider support towards universal health coverage to ensure more equitable access to health care.
- There is also a need to have a clearly laid out beneficiary targeting strategy. The challenges faced with and the needs of target beneficiaries (unemployed, youth, women, older persons, PWDs, landless, small businesses, etc.) are not uniform and demand varied interventions. Understanding this variation helps in ensuring the effectiveness of the planned public spending.
- Although the government made efforts to mitigate the impacts of COVID-19 on education by providing free internet data to some categories of learners, many of them, especially those in disadvantaged areas, could still not complete the syllabus, due to inaccessibility to technology. The government could take this opportunity to harness the 4th Industrial Revolution and ensure that even those in the most disadvantaged areas have access to the internet and new technologies.
- The lack of job opportunities in neighbouring countries is driving people to cross borders into South Africa and it is important that the plan caters to these migrants.
- The government could adopt a human-rights based approach to public budgeting to ensure that the human rights of vulnerable groups are mainstreamed in the budgeting process and do not take the form of once-off initiatives.
The UN passionately backs the plan’s intention to support a transition to a greener economy. The UN has collaborated with the Government on initiatives that foster such a transition, including in agriculture, with a focus on agroecological practices, energy and transport. That said, the plan could delineate more concrete measures. Specifically, it could:
- Further clarify what green technologies will be prioritised in the energy sector and ensure these are renewable and not just less polluting.
- Ensure that these technologies will be as employment intensive as possible, thus translating into a maximum number of ‘green jobs’ created.
- Provide greater clarity on the adaptation strategies that the Government is pursuing such as building the resilience of communities as well as climate proofing of existing/new public assets.
- Specify concrete measures that support adoption of agroecological practices, including by small-scale farmers.
- Provide financial regulation incentives to reduce the financial industry resistance to lend to innovative green-related projects whose risks and returns the industry finds hard to assess due to lack information and track record;
- Champion initiatives on large-scale green projects thus playing a catalytic role.
Other countries are successfully integrating and greening their economies, and South Africa could certainly make rapid progress in this area as well. The UN South Africa thus stands ready to collaborate with the Government on the implementation of the plan and expresses congratulations for this valuable initiative.
The Inter-Agency Economists Group (Contact Person: Ricardo Gottschalk, Group Leader), Resident Coordinator’s Office