COMMENT
A rock and a hard place
I
Source:
Building & Construction News
www.plantonline.co.za
n sharp contrast to the gloomy picture
painted by some of the country’s
largest construction companies, the
latest Afrimat Construction Index
indicates that South Africa’s building
sector appears to be improving. The
sector is poised for strong growth in
2019, especially after the general
elections, as the government is
expected to lift the veil of policy
uncertainty in a number of areas such as
land reform.
In his quest to stimulate the country’s
economy, President Cyril Ramaphosa has
been actively courting the private sector
to enter into meaningful partnerships
with government by establishing an
infrastructure fund aimed at reducing the
current fragmentation of infrastructure
spend and ensuring more efficient and
effective use of resources.
One of the focal policy objectives
outlined in the medium-term budget policy
statement is to promote an increase in
capital investment by the private sector.
And it’s a double-edged sword: Investment
is necessary to promote economic
progress and stability, while stability is an
important condition for investment. Talk
about a rock and a hard place …
Ian Matthews, head of business
development at Bravura, says that two
things are expected to rebound off the
infrastructure initiative. One: Government
will develop a framework for investors
to assess potential long-term returns on
public infrastructure projects. And, two:
Innovative financing solutions will develop
to support interventions, and could come
from development finance institutions,
commercial banks, and pension funds.
There is, however, a significant risk
that the weak financial condition of
state-owned companies will put major
pressure on public finances. And policy
certainty is critical to restoring investor
confidence. Although government
has reiterated that policy certainty in
areas such as mining and energy is
being restored, and the governance of
state-owned companies and entities is
being strengthened, there is continued
uncertainty around expropriation of land
without compensation. “The South African
Reserve Bank has included land reform
as a policy risk in its recent Financial
Stability Report. Additionally, although the
third Mining Charter has been gazetted,
certain aspects therein require further
clarification, which will be articulated in an
as-yet unseen implementation document,”
says Matthews.
And there we have it. The rock?
Structural reforms are required to
encourage fixed investment. The hard
place? New regulations that include
the increase in BEE procurement and
the provisions around divestiture in the
Competition Amendment Bill could
foreseeably have a negative impact on
the private sector, and government will
now be obligated to remove regulatory
impediments that stand in the way of
private-sector financed projects.
The real work now needs to be done
on delivering policy certainty and stability.
While policies need to be approached
carefully and thoughtfully, the speed
and the effectiveness of policy decisions
made from this point will determine
the speed of the country’s economic
turnaround.
Tarren
FEBRUARY 2019
1