Poverty, unemployment and inequality an existential threat to SA’s democratic constitutional order

Let’s start with a few known facts.

Since the 2007/8 global economic crisis, South Africa’s economy has not been growing. Failure to grow the economy leads to high rates of unemployment and low tax revenue, thus making it difficult for government to carry out its functions.

There is agreement among a broad and diverse range of constituencies that current levels of poverty, unemployment and inequality are both morally unacceptable and are an instability that presents an existential threat to South Africa’s democratic constitutional order. There is therefore also agreement that fundamental reforms are needed to revive economic growth and development.

Operation Vulindlela, a joint initiative of the Presidency and National Treasury established some two years ago is an intervention intended to address this mammoth task through accelerated implementation of structural reforms as a basis for transformation and change in the way that our economy works.

Well then, if so, what are some of Operation Vulindlela’s successes?

The energy sector is a prime example. Appreciative that the energy shortfall represents a binding constraint on growth, we are now witnessing a rapid transformation of the sector in a short space of time. The process of restructuring Eskom into separate entities for generation, transmission and distribution has gathered pace since the Eskom Roadmap was announced in 2019. This will be further supported by the resolution of Eskom’s unsustainable debt burden.

The published Electricity Regulation Amendment Bill will establish an independent transmission, system and market operator and enable the emergence of a competitive electricity market for the first time. While the transmission network will remain state-owned and Eskom will continue to play a key role in generation, this reform will allow multiple generators to compete on a level playing field as is already the case in most other economies.

In the meantime, regulatory reforms have already unlocked a massive pipeline of private investment in electricity generation. Private participation in energy does not mean price liberalisation. Energy prices, like administered prices, will still be regulated by Nersa.

Since the President’s announcement about raising the licensing threshold for generation projects to 100MW, this pipeline has grown to 98 confirmed projects with a total capacity of 8,465MW, including over 2,600MW that will connect to the grid by 2024.

To put it into context — this represents more than double the total wind and solar capacity that exists in South Africa today. The procurement of new generation capacity, mostly from solar, wind and battery storage, has been accelerated with the doubling of capacity for Bid Window 6 and a new Ministerial Determination to procure over 18,000MW of new power.

All of these changes will fundamentally transform the energy sector. Indeed, the sector will look completely different in just a few years’ time.  These will also drive a sustained increase in private fixed investment in years to come and be the leading edge of economic growth over the next decade.

We also need to pay close attention to climate-friendly industrialisation as part of structural reform in a manner that will increase the manufacturing contribution to South Africa’s GDP. This industrialisation of the 21st century should also produce the necessary inputs for the generation of new sources of energy such as renewables and solar.  Macroeconomic and social policies should be subordinated to this industrialisation programme.