Business leaders attending the fourth presidential investment conference this week condemned the red tape they said was still strangling growth in SA despite government pledges to eliminate it.
President Cyril Ramaphosa, addressing the conference in Sandton, announced that 80 pledges of investments totalling R332bn had been received, taking the total promised in four years to R1.14-trillion.
That is just R60bn, or 5%, shy of the R1.2-trillion target set at the inaugural investment conference in 2018. It's good news for a battered economy trying to emerge from the pandemic, during which 2-million jobs were lost.
“I expect that by next year we will not just reach our target — we will exceed it. The investment commitments that have been made here today are impressive,” Ramaphosa said.
Pledges included $2.8bn (R42.5bn) from the African Development Bank over the next five years to support private sector investment in renewable energy, agriculture, transport, youth empowerment, health and vaccine manufacture.
But attendees warned that SA still had much to do to smooth the path for growth, identifying bureaucratic bottlenecks, infrastructure backlogs and policy uncertainty as key problems.
Stefano Marani, CEO of helium exploration group Renergen, expressed cautious optimism that the economy was at a turning point but said: “The primary concern is the red tape of doing business in SA, it is formidable. The one thing I do remember from the first conference was that there was going to be a big focus in reducing the red tape.
The primary concern is the red tape of doing business in SA, it is formidable.
— Stefano Marani, CEO of Renergen
“While strides have been made, as a business in SA it has been extremely difficult to get things done. There is still a lot of red tape that needs to be dispensed with. Corruption is also a major issue, it is not going away easily,” he said.
Marani describes Renergen, which has regulatory approvals for a helium project in Virginia in the Free State, as a “10-year overnight success story”, albeit one that took a decade to realise.
He said the previous owner had sold the operation after seven years of exploration and preparation, and Renergen spent another 10 years to line up permissions and funding and start production.
This month Renergen announced an equity deal with Canadian group Ivanhoe, which has bought a 4.35% stake for R200m with an option to acquire a majority holding with an investment of $250m (about R3.6bn).
“The acquisition by Ivanhoe mines is a game-changer for helium production globally, and importantly for LNG [liquefied natural gas] in SA,” Marani said.
In his state of the nation address in February Ramaphosa announced the establishment of a special unit in the presidency to get rid of red tape and improve the operating environment for business. He appointed Sipho Nkosi, former Exxaro Resources CEO, to lead the effort.
According to Roger Baxter, Minerals Council SA CEO, the country's investment rate needs to be at 25% for the economy to grow to between 4%-5% a year and fixing red tape is key to turning the needle of economic growth.
BusinessLive quoted Absa strategist Mamokete Lijane as saying as a ratio of GDP, SA’s fixed investment spending has fallen to just 13% — lower than emerging-market peers such as China at 48% or Brazil at 16%.
Roger Baxter, Minerals Council SA CEO, echoed Maran's criticism of red tape, saying it was delaying more than 30 projects valued at over R60bn that the mining industry is planning to generate its own electricity.
“It is completely ridiculous that it takes 18 months to get an environmental licence for a solar project, as an example.
“Half the companies are stuck getting environmental authorisations and change of land- use authorisations instead of focusing on building the projects and solving SA’s energy crisis,” Baxter said.
He said that apart from the tangle of self-generation regulations, there were 4,500 outstanding applications for mining rights, prospecting rights and permit renewals awaiting final processing by the department of mineral resources & energy.
“That is holding back R30bn of extra investments. Those are mining projects that have been approved but the companies do not yet have the rights due to red tape,” he said.
What is important is that we build on exploiting the opportunity [to get] into the global marketplace while we can
— Roger Baxter, Minerals Council SA
Baxter also expressed dismay at the logjams at Transnet Freight Rail (TFR) at a time when commodity prices are at record levels due to soaring demand and the war in Ukraine.
He said that last year TFR's problems cost the mining industry R16bn in lost coal exports, R2bn in lost chrome exports and R17bn in lost iron ore exports.
“If Transnet had been able to meet its target we would have exported R35bn more of bulk commodities ,” he said.
The war in Ukraine had driven up metal prices and wheat prices — Russia and Ukraine are two of the biggest wheat producers in the world — creating an opportunity for SA to plug the gap in demand, Baxter said.
“Precious metal prices are going up, we have seen platinum, iron ore, coal and palladium all going up a lot. What is important is that we build on exploiting the opportunity [to get] into the global marketplace while we can.”
The decision in June last year to raise the regulatory cap on self-generation of electricity to 100MW was one of the measures the government has taken to try to address structural weaknesses.
It is also planning to establish the Transnet National Ports Authority as a separate entity and to allow third-party access to the freight rail network.
This month the Independent Communications Authority of SA concluded the first spectrum auction in close to two decades, potentially broadening access to the internet and cutting the cost of data.
In February the Treasury cut the corporate tax rate 1% in an incentive to investment.
Commenting on Ramaphosa's plan for a social compact between all sectors of society, including business, Baxter said such a move was a very important part of growth.
“We have recognised that we are in the same canoe. When the canoe has got a hole in it, and if all the parties in the canoe are paddling in different directions, we do not get anywhere. If we paddle together we can get to solid ground and fix the holes — red tape, infrastructure — and get the economy back on track.”
Anglo American Platinum CEO Natascha Viljoen said SA’s challenges could only be resolved if the economy grew but the government was putting its money where its mouth was, especially in terms of energy.
“We know that there are a number of commitments the government has made … The government has made the move on unbundling Eskom, it opens the opportunity for business, and for green energy not only in the energy sector but the broader economy,” she said.
Discovery CEO Adrian Gore said SA should fight pessimistic perceptions.
“The narrative is continuously negative yet the country is more resilient than people think. If you look at our GDP, we have crunched the numbers around the volatility of growth rates,' he said.
“Our GDP is growing way too slowly, but it is anything but risky. Yet the narrative is that it is highly risky. I think the economy is resilient and is better than what people give it credit for.”
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