No More Slide for Construction and Unemployment: Infrastructure Investment Plan in Full Swing

Minister Patricia De Lille and Dr Kgosientsho Ramokgopa on Economic Reconstruction and Recovery Plan (ERRP)

22 Feb 2022

Statement by Minister of Public Works and Infrastructure, Patricia De Lille and Head of Infrastructure South Africa, Dr Kgosientsho Ramokgopa

We will provide an update on some of the 62 projects in the Infrastructure Investment Plan which was approved by Cabinet in May 2020 and contains projects form all three spheres of government, state-owned entities and the private sector.

I will also be speaking to some of the key issues within the mandate of the Department of Public Works and Infrastructure (DPWI) as highlighted by the President in the 2022 SONA.
 
Background
The Infrastructure Investment Plan forms a central part of the Economic Reconstruction and Recovery Plan (ERRP) aimed at stimulating economic growth and job creation as announced by President Ramaphosa in October 2020.

The projects within the Infrastructure Investment Plan were gazetted as Strategic Integrated Projects (SIPs) in line with the Infrastructure Development Act in July 2020 enabling them to follow an expedited path to ensure implementation.

The projects have been gazetted as SIPs to contribute to economic growth by reviving the construction sector and creating much needed jobs for people.

The Infrastructure Investment Plan was highlighted as the “flywheel to economic growth” by the President and contains 62 projects across the country in various sectors which are at various stages.

It must be noted that most of the government projects in the Infrastructure Investment Plan are implemented by the respective government departments, spheres of government and SOEs with DPWI and ISA playing a co-ordinating role of oversight and to assist with raising funding from outside of the fiscus and assist with any blockages on projects.

Through the SIPs, government is leading by investing in infrastructure and creating the conditions conducive to create the crowding in effect by the private sector to create jobs.

Infrastructure Fund
In August 2019, following a Cabinet approval, the Infrastructure Fund was announced as a ring-fenced division of the Development Bank of Southern Africa (DBSA).
The Infrastructure Fund was operationalised in 2020 with a commitment of R100billion from government over a ten year period and has been capacitated with the requisite skills and capacity to enable it to achieve its blended financing mandate.
Over the next three years, R24 billion has been allocated to the Infrastructure Fund for blended financed projects.
The Infrastructure Investment Committee has met several times with myself as the chairperson of this committee.
 
Projects are approved by the Infrastructure Fund for blended finance with contributions from the fund and the remainder to come from the private sector.
The below Infrastructure Fund pipeline projects were submitted for Budget Facility for Infrastructure (BFI) for consideration.

• For the 2021 Adjustment Budget: Four student housing infrastructure projects delivering 9 500 beds at a cost of over R3 billion was considered. The BFI approved amount was R900million from the Infrastructure Fund over two financial years.
• For the 2022 Budget, the following projects were considered by the relevant BFI committees:
• Social Housing Programme (SHP): Total project cost = R1.1 billion. BFI Approved amount R304.5million over the next two financial years from the Infrastructure Fund.
• Lepelle Northern Water (LNW): Total project cost = R4.5 billion. BFI Approved amount R1.4billion over the next three financial years from the Infrastructure Fund.
   

Progress on SIPS
A number of the projects have been launched and are progressing well especially in the human settlements and transport sectors and we highlighted a number of these with site visits last year.

We are not just making announcements, we will only launch projects after all processes have been completed such as the financing.

In the coming weeks we will be visiting more projects which have started, starting with the N2 Nodal mixed residential development in Nelson Mandela Bay Municipality, the Sondela Phase 2 and the Jeppestown Human settlements projects in Gauteng. I encourage the media to join these visits to see the progress first hand.

Last year we visited the following projects which were progressing well:

• SIP 24c: The Lufhereng Mixed Use development in Soweto,
• SIP 21 f & g: The N3 Road Upgrades in KwaZulu Natal,
• SIP 21 b: The Musina Ring Road in Limpopo 
• SIP 21 m: The Small Harbours Repairs and Maintenance Programme at the 13 proclaimed fishing harbours in the Western Cape such as Hermanus and Saldanha Harbour.

Transport Sector Projects:

The Department of Transport’s projects with SANRAL as its implementing Agent, is progress well in terms of the delivery of National Roads in South Africa. Of the SIP 21 Gazetted projects, the following projects are completed:

• SIP 21 a: N1 Windburg Interchange Windburg Station: Free State
• SIP 21 c: N1 Polokwane Eastern Ring Rd Phase 2: Limpopo
• SIP 21 d: N1 Ventersburg to Kroonstad: Free State
• SIP 21 e: N2 Mtunzini Toll Plaza to Empangeni T-Junction: KwaZulu Natal
   

Projects in Construction:

• SIP 21 b: N1 Musina Ring Road: Limpopo (This project is expected to be launched in the first quarter of 2022)
• SIP 21 f: N3 Cato Ridge to Dardanelles: KwaZulu Natal
• SIP 21 g: N3 Dardenelles to Lynnfield Park: KwaZulu Natal
• SIP 21 j: N3 Ashburton Interchange to Murray Road: KwaZulu Natal

Projects in Procurement stages include:

• SIP 21 h: N3 Paradise Valley to Mariannhill Toll Plaza: KwaZulu Natal
• SIP 21 i: N2 Edwin Swales to South of EB Cloete Interchange: KwaZulu Natal
• SIP 21 k: N3 Mariannhill Toll Plaza to Key Ridge: KwaZulu Natal
• SIP 21 l: N2 EB Cloete Interchange: KwaZulu Natal
   

Small Harbours Repair and Maintenance Programme: SIP 21 m

Phase 1 entails the redevelopment of the 13 proclaimed fishing harbours in the Western Cape currently being implemented by DPWI which includes the refurbishment and upgrades of the harbours to an 80% operational efficiency. The repair programme is just over 97% completed and is expected to be fully completed by March 2022.

This programme is being implemented at the following harbours:

• Kalk Bay
• Gordons Bay
• Hermanus
• Gansbaai
• Struisbaai
•  Arniston
• Lamberts Bay
• Laaiplek
• St Helena Bay
• Saldanha Bay
• Pepper Bay
• Hout Bay
• Stilbaai
   

To date, this project has created 894 job opportunities and empowered local SMMEs to the value of R114 million.
In April 2021, Dr Ramokgopa and I conducted a site visit to the Saldanha Bay harbour Project and in December 2021, we opened the refurbished multi-purpose centre at the Hermanus Harbour which is being utilised by local traders as part of efforts to stimulate local economic growth and create jobs for the surrounding coastal communities.

Phase two of the Small Harbours SIP includes the new small harbours identified in the Eastern Cape, Northern Cape and the KwaZulu-Natal which is currently in the project preparation stage.

Human Settlements Sector Projects

The Human Settlement Sector is progressing at an accelerated pace with Social Housing receiving much of the attention in the past year.

The Social Housing Regulatory Authority has worked closely with the Infrastructure Fund where they were able to unlock R305 million approved funding over two years for the Priority Social Housing Projects.

I will now go into some highlights of human settlements projects rolled out in the past financial year.

• SIP 24 i: Fochville Extension 11 in the West Rand District Municipality, Gauteng. The proposed development will consist of 2,198 residential units, out of which 258 will be Social Housing Units (SHU). This project is expected to create 953 jobs.
• SIP 24 k: Hospital Street in Mujuba District Municipality, KwaZulu-Natal. The proposed development consists of 53 four-storey building blocks consisting of 1,056 units. This project is expected to create 3384 jobs. Construction activities are currently underway on site, the boundary wall, guard houses, office and refuse building have been completed. 54 platforms have been filled, stormwater, water and sewer reticulation has also been completed.
• SIP 24 j: Germiston Extension 4 in Ekurhuleni Metropolitan Municipality, Gauteng. The project has planned 201 SHUs to accommodate 601 people. This project is expected to create 847 jobs.
• SIP 24 m: Kwandokuhle Social Housing Project in Gert Sibande District Municipality, Mpumalanga. The project involves construction of a total of 492 SHUs in Govan Mbeki Local Municipality in the Gert Sibande District Municipality, Mpumalanga province. This project is expected to create 1544 jobs.
• SIP 24 l: Hull Street Phase 1 in Francis Baard District Municipality, Northern Cape. The Hull Street Social Housing Project envisions delivering a total of 600 SHUs in two phases. This project is expected to create 1152 jobs.
• SIP 24 p: The Willow Creek Project is located in Ermelo, in the Msukaligwa Local Municipality in the Gert Sibande District Municipality, Mpumalanga province. The project entails the construction of 360 SHUs in the Ermelo Central Business District (CBD). This project is expected to create 1062 jobs
• SIP 24 o: Sondela Village Phase 2 in Gauteng is now 100% completed, all 177 units have achieved Practical completion. Tenants have moved into 96 units, this equates to 54% of occupancy.
• SIP 24 r: The Jeppestown Project in Johannesburg is also progressing well at 37% completion rate with 95 units targeted with an estimated 500 job opportunities being created.
• At Greencreek SIP 24 g, one of the private sector projects gazetted, 3 872 units are targeted with 412 units already constructed and 361 units already occupied. The project is intended to create over 3 000 job opportunities.
• The Mooikloof Development SIP 24 h is also progressing well.

 
In total 18 housing projects have been gazetted as SIPS to the value of R129 billion which together will produce more than 190,000 housing units and is estimated to create over 263 000 jobs.

Water & Sanitation Sector
Under the Strategic Integrated Project 19: Water & Sanitation, the sector has a total investment value required of approximately R115bn. The projects are expected to create more than 20 000 jobs during construction and over 14 000 jobs during the operational phases. The projects that are ready for investment include:

• SIP 19 a:  Lesotho  Highlands Water Project (Phase 2 (Gauteng/Lesotho): Advance works are under construction. Tender design for the main contracts is complete; award of the main contracts is now dependent on finalising the loan agreements. The project is intended to create around 3 500 jobs during construction.
• SIP 19 b: Phase 2A of the Mokolo Crocodile River (West) Augmentation Project (Limpopo): Raising of long term debt for the project is underway. The Infrastructure Fund is exploring the possibility to partner with the Trans-Caledon Tunnel Authority (TCTA) to raise R5 billion Standby Credit Facility to credit enhance the debt raising prospects of the transaction. The project is in Procurement and is intended to create approximately 2 000 jobs during the construction period.
• SIP 19 i: Berg River Voelvlei Augmentation Scheme (BRVAS) (Western Cape): The final draft BRVAS Agreement was circulated to the Users for consideration by the Municipal Councils and Irrigation Boards. Finalisation of the agreement will pave the way for long-term funding. The project is in Procurement with the potential to create approximately 400 jobs during construction phase.
• Other Water and Sanitation SIPS such as the uMkhomazi Water Project, SIP 19 c is in procurement preparation stage and the Mzimvubu Water Project, SIP 19 f is in the stage one construction phase.

 
Energy Sector Projects: SIP 20

• The Risk Mitigation Independent Power Producer Procurement Programme (SIP 20a), with an approximate investment value of R50 billion Financial close has been extended to end of March 2021.
• Local Content was a key qualification criterion with a requirement to demonstrate at least 40% threshold to pass the qualification criteria for the selected preferred bidders. The project is intended to create over 15 000 job opportunities during the operations phase alone.
• On the Embedded Generation Investment Programme of 400MW (SIP20c), the Development Bank of South Africa (DBSA) has issued a Request for Proposals (RFP) for the programme on the 31st July 2021, with application submissions received by the 30th of September 2021.
• It is expected that the project can ensure 700 000 tons of emissions per annum reduction in RSA once projects are completed. This forms part of Green House Gas emissions reduction plans.
• Bid window 5 with an estimated capacity of 2583MW was also recently announced by the Minister of the Department of Mineral Resources and Energy. Financial close is at end of April 2022.

Special Projects
The Welisizwe Rural Bridges Programme, SIP 25

This is one of the 12 special projects also gazetted as SIPS and this programme involved the implementation of bridges in the rural areas to assist communities to access social amenities and economic opportunities, especially during inclement weather.

As we know many rural communities are severely impacted by flooding and lack of access where we see many community members especially young children having to cross dangerous river streams to get to school or clinics and places of work.

The Welisizwe Rural Bridges Programme is implemented between the DPWI, the Department of Defence and provincial Transport and Public Works Departments.
 
A number of bridges have been installed in the Eastern Cape and KwaZulu Natal in the past two years. Four bridges have been completed in the Eastern Cape and 12 in KZN.

The Department of Defence has a capacity to deliver 95 bridges per year, hence the announcement by the President at SONA to upscale the programme by 95 bridges per year and we look forward to the budget speech by the Minister of Finance to confirm the funding to enable the delivery of 95 bridges for the new financial year.

Given the pending committed of budget from National Treasury, the Welisizwe bridges will be up scaled and rolled out in six provinces namely, Mpumalanga, the Eastern Cape, KwaZulu Natal, Free State, Limpopo and North West) in the 2022/23 financial year.

This programme is has also been instrumental in providing jobs and on-the-job training to qualified artisans and professionals in the department.

The DPWI is in the process of recruiting 360 Qualified Artisans, 300 Artisan Trainees and Engineering Trainees from the participating provinces for Welisizwe Programme. Some these trainees are already in the Department.

The recruitment process will concluded by the 31 March 2022. EPWP participants will be recruited from the community where the bridge is constructed.

SIP 28: PV and Water Savings on Government Building Programme (Integrated Renewable Energy and Resource Efficiency Programme – iREREP)

On 20 September 2021, I announced the opening of the Request for Information (RFI) process for the Integrated Renewable Energy and Resource Efficiency Programme (iREREP) to test the market for ideas which comprehensively looks at ways to deliver mutual value through strong partnerships across Government and the private sector.

The RFI process for ideas from the market opened on 20 September and by the closing date on 27 October, 58 submissions had been received.
We are now drawing up the specifications and the Request for Proposals (RFP) will go out in the first quarter of the new financial year.
Also known as the Photovoltaic (PV) and Water Savings on Government Buildings Programme (SIP28), this project was also gazetted as SIP 28.
The programme will be the largest programme for the procurement of renewable energy and resource efficiency for public facilities.
 
The DPWI as the largest landlord and facilities manager in the country, has a responsibility to not only deliver and manage quality infrastructure but to combat climate change and sustainable development through its mandate – such as providing buildings for government service delivery. 

Recent studies places annual electricity and water consumption at an estimated 4021 Gigawatt hours 39 million kilolitres respectively.

SIP 26: Rural Roads Programme
The South African road network is estimated at a total of 750 000km, the 10th longest road network internationally. This is a combination of both paved and unpaved roads.

Of the 750 000km, approximately 592 000km is gravel (unpaved). The backlog of upgrading the entire gravel road network in South Africa amounts to R5.3 Trillion.

There is a need to incorporate labour-intensive methods in the designs of the gravel roads upgrades projects in order to create jobs and decrease the unemployment rate South Africa is faced with.

We aim to upgrade at least 50% of rural roads in the next three years using block paving. The bricks used in the upgrading and maintenance of these rural roads will be sourced from local suppliers.

The rural roads programme will cover mostly the rural provinces of the Eastern Cape, KwaZulu-Natal, Mpumalanga, Limpopo, North West and the Free State. ISA and the National Department of Transport continue to work together with provinces to the rural roads to be upgraded.

Refurbish Operate and Transfer Strategy
DPWI is also the owner of many unutilised buildings and assets and in order to reduce the cost of letting in buildings from the private sector for use by government departments, we are now going to use more government buildings for government departments.

The methodology we are going to use is that we have come up with the Refurbish Operate and Transfer Strategy. We will start a pilot for five buildings bringing the private sector on board to do a proof of concept on five buildings.

The private sector will put in the resources to refurbish and repair the buildings and repurpose them for office space for government.
 
Also as part of the ROT strategy, it will also include repairs and maintenance. In return government will lease the buildings to the private sector for a long term period but for use by government departments.

We will also be packaging another 200 buildings for the same purpose that will go out to the market in the next financial year.

Dr Kgosientsho Ramokgopa: Funding
As a recap, the Sustainable Infrastructure Development Symposium of South Africa, which was launched in 2020 identified a large number of projects of which 50 was gazetted as earlier mentioned by Minister de Lille.

29 of the 50 projects are either completed or in implementation to the value of R119 billion out of the R340 billion as announced during the SIDSSA of 2021.

During the SIDSSA 2021 in October, an additional 55 projects were showcased with a total investment value required of R595 billion with an investment gap of R441 billion.

40% of these projects are still in Preparation stages.

Infrastructure South Africa is working closely with the Project Sponsors and the Provinces in providing technical support to the project owners to accelerate the projects through the preparation stage to an investment ready and bankable project.

The implementation of some of these projects are due to the lack of adequate bulk infrastructure which is curbing private sector investments.

As such, and as mentioned by the President in his SONA, government will be providing fiscal support to finance bulk infrastructure that will enable key catalytic private sector projects.

An initial fiscal injection of R1.8bn will be made available unlock to support seven private sector projects to the value of R133 billion.

These are brownfield projects which include the N2 Nodal Development in the Nelson Mandela Bay Municipality and the Keystone Industrial Park in eThekwini. These 7 projects have jobs promise of approximately 344 000 direct quality jobs.
 
Social infrastructure delivery mechanism
President Ramaphosa also made reference to government introducing an innovative social infrastructure delivery mechanism to address issues that afflict the delivery of school infrastructure.

The mechanism will address the speed, financing and funding, quality of delivery, mass employment and maintenance. The new delivery mechanism will introduce a Special Purpose Vehicle, working with prominent Development Finance Institutions and the private sector, to deliver school education infrastructure.

The pace of delivering social infrastructure is determined by Departments capacity to implement the infrastructure programmes and the availability of funds for implementation. The challenges in implementing social infrastructure can be categorised into four groups:

The funding challenge where the pace of implementation is limited to the available funds.

• The capacity to perform integrated planning, stakeholder engagement and management and institutional capacity to implement projects at a large scale. This results in underspending and lack of co-ordination within the department and with stakeholders.
• Monitoring and evaluation, due to inadequate monitoring and evaluation the department is not able to report accurately on the progress of the programme and this impacts planning, budgeting and coordination.
• Facility management and maintenance, there has been a huge drive to build new schools however the maintenance of existing infrastructure has been neglected. This will not only impact existing schools but will also have an impact on new builds, if robust maintenance schedule and programme is not implemented and funded.

The new delivery mechanism will introduce a Special Purpose Vehicle, working with prominent country development finance institutions (DFIs), to deliver school education infrastructure with the Northern Cape and Eastern Cape Provinces being the pilots.

The Eastern Cape has 61 Schools ready for construction at a cost of R3.7bn while the Northern Cape requires approximately R2.1bn to develop 28 schools. This innovative programme initiative will seek to create a private sector supported fund to accelerate school infrastructure roll-out across the country.
 
Minister de Lille
Those are the updates in terms of the Infrastructure Investment Plan SIPS and as mentioned earlier, Dr Ramokgopa and I, along with other Ministers and stakeholders will be visiting many of these projects throughout the year to show progress.

I will now turn to some other key issues mentioned in the SONA which fall within the ambit of DPWI:

Land Releases for Land Reform Programme
The DPWI as the custodian of many parcels of state-owned land is also a key department in government’s land reform programme and is often requested to release land for human settlements development, land tenure, land restitution and redistribution.

President Ramaphosa made reference to DPWI releasing just over 14 000 hectares of human settlements development purposes.
This was in line with a Cabinet Memorandum of 2019 which identified 14 000 hectares of land under the custodianship of the Department of Public Works and Infrastructure (DPWI).

I can report on those 14 000 hectares as follows:

• Following a high level verification on the availability of the identified land parcels, it was established that Sixty Three (63) land parcels are currently in use by the Department of Defence (DOD) which constitute of Four (04) Military Bases and 01 land parcel used by SAPS in the Western Cape. The total extent of these land parcels is 556.8805 hectares.
• The size of the military bases alone amounts to 542 hectares.
• Of the 14 000 hectares, we have so far approved and issued Special Powers of Attorney for 27 land parcels measuring 2088,8 hectares emanating from the Cabinet Memorandum.
• A land reform Inter Ministerial Committee (IMC) was convened by the Deputy President on the 26 February 2021 where, the unavailability of some of the aforementioned land parcels was discussed.
• A resolution was taken for an onsite visit to determine the optimal utilisation of the land parcels allocated to DOD.
• On 27 February 2021, I undertook an onsite visit to the military bases in Cape Town with the Ministers of Defence: Minister Mapisa Nqakula and Minister of Agriculture, Rural Development and Land Reform, Thoko Didiza.
• It was decided that a Cabinet Memorandum on the military bases land should be done by Department of Defence to submit to Cabinet to make a decision and we await this Cabinet Memorandum and Cabinet’s decision on the way forward with regard to the military land.
• A vacant portion of land measuring approximately 36.6756 hectares within the Wingfield Military Base has been identified as possible alternative area for Human Settlements development. Currently, the HDA is in a process of conducting a development feasibility studies.
• Other Land Releases for human settlements development purposes by DPWI apart from the 14 000 hectares
• Additionally, 13 land parcels not included in the Cabinet Memorandum measuring 531, 9 hectares have been approved by DPWI and Special Power of Attorney issued to the Housing Development Agency.
• Therefore, in total between May 2019 and February 2022, DPWI has released
• 40 land parcels measuring 2620, 7 hectares for the human settlements development. All of these land parcels have been spatially mapped by the HDA in support of the Priority Housing Development Areas.
• DPWI has also approved the release of land in Stellenbosch measuring 17, 7 hectares in Western  Cape  to  the  Housing  Development  Agency (HDA). This parcel of land and was identified by Passenger Rail Agency of South Africa (PRASA) and the HDA as an alternative land for the relocation and resettlement of communities illegally occupying the rail reserve of the Central line in the Western Cape. The Power of Attorney is in progress of being issued and will be finalised by end of February 2022.
• I am further committed to approve an additional 21 land parcels measuring 440, 6  hectares  before  the  end  of  the  financial  year  for  human  settlements development purposes.

Land Releases for the Land Reform Programme

• Since May 2021 to date, DPWI has approved for release 125 properties measuring over 25 500 hectares of agricultural land for redistribution across all nine provinces.
• Since May 2019 to date, DPWI has released 204 properties totalling over 28 845 hectares in various provinces for restitution purposes.
• For land tenure, in May 2021 we also handed over 189 hectares of land and title deeds issued to Tafelkop black farmers in Limpopo.

GBVF Shelter Properties
In addition, with regards to DPWI’s contribution to the fight against Gender-Based Violence and Femicide, the department has since 2019, released 12 properties for use as shelters for victims of GBV. Six in the Western Cape, two in Johannesburg and four in Pretoria have been handed to the National or Provincial departments of social development and are being used as shelters to provide a safe haven to abused women and children.
We are finalising work with the Department of Social Development (DSD) on 14 other properties in the Northern Cape, KwaZulu Natal and Mpumalanga to be refurbished and handed over for GBVF shelters.

Parliament Fire Independent Assessment
Just over a week ago, I issued a statement with regard the Coega Development Corporation which was appointed by DPWI to conduct an independent assessment of the fire damage at Parliament.

National Treasury assisted the department to expedite the process to procure the independent specialist engineering team as expeditiously as possible and COEGA was appointed on Friday 11 February 2022.
 
Following the DPWI Engineering Services’ recommendation that specialised structural engineering assessment work be undertaken in order for the buildings to be made safe for access, a scope of works was generated from the DPWI’s Engineering Services team for this work.

The scope of work for the assessment by COEGA includes:

• Assessment of the fire damaged buildings in the parliamentary precinct to pronounce on the extent of the damage
• Provide professional advice on the safety of the structures.
• Provide measures to temporarily make the structure safe to allow the investigations to proceed unhindered
   

Deliverables:

• Initial Assessment report: Upon completion of the assessment, the service provider is to submit a report within one week of appointment.

COEGA has delivered their initial assessment report which revealed the following:

• The Coega team has completed the bulk of the preliminary assessment and report on the fire damage to the New National Assembly Building and the Old Assembly Building following the fires of 2 and 3 January 2022.
• The basement floors of the New Assembly Building are flooded and more inspection work needs to be done in this area.
• The assessment confirmed that the fire in the National Assembly building caused significant damage to the central structural elements from the 2nd floor up to the 6th floor, but the structural integrity is such that the structure is not vulnerable to collapse.
• The Coega final structural assessment report has designated 3 zones within the New National Assembly Building. They are designated as Red, Amber and Green Zones. The colours designate areas within the buildings and their status with respect to SAPS access for their imminent investigations.
• Green zones represent areas which are fairly lightly damaged structurally and which may be accessed almost immediately by a properly inducted SAPS teams following defined safety protocols.
• Amber zones are badly damaged zones which may be accessed almost immediately by properly inducted SAPS teams following defined safety protocols, provided they are accompanied by a member of the Coega structural team.

 
Red zones are severely damaged “no-go” zones which may not be accessed by SAPS teams.

• Should the investigation trail render access to specific areas within the “no-go” zones to be very desirable, then the structural engineers will advise on special temporary access structures to be constructed. Where possible, to allow the investigators access, with due regard to safety, without applying loads to the severely compromised parts of the structure.
• The Coega structural engineers have recommended certain short- to intermediate- term safety measures be put in place to safeguard personnel and certain remaining portions of the structure. These measures are recommended to be put in place after the conclusion of the SAPS investigation.
• The Coega team is on track to commence with the second phase comprising of the detail assessment to determine the extent of damage for full restoration of the building including providing a cost and time estimate for such works. The latter will commence after the forensic investigations and should take three weeks to conclude.

Coega’s detailed assessment report will be communicated to the media and public as soon as it has been finalised and will include:

• Detailed assessment report indicating the extent of the damage and any other structural issues.
• Pronouncement on the residual strength of the structure (including all relevant tests and analysis)
• Proposed restorative measures with associated cost comparisons for restoration
• Proposed time estimate of the rehabilitation project
• Proposed preliminary cost estimate of the rehabilitation project
• Pronouncement on possible long term restorative measures

Debt owed to DPWI and DPWI amounts owed to municipalities
Over the past few weeks, there is has been a lot said and reported on government debt owed to municipalities specifically the City of Tshwane (CoT) with their campaign to switch off services to government buildings. The DPWI Chief Financial Officer and his team have been engaging with all municipalities for some time on an ongoing basis to resolve all payment matters.

According to the latest age analysis that was received by City of Tshwane (CoT), a total amount of R82m was reported to be outstanding, with R77m current and within 30 days and R53m more than 60 days.
 
The DPWI has processed payments to the value R464 million to CoT since April 2021 to date in line with the invoices received for this period.
This is a demonstration that the department remains committed to paying all verified invoices on time.

The disconnections of services experience by our client departments were as a result of private landlords that are not paying the municipality for the services, rates and taxes due.

The issue of private landlords not paying for municipal services in buildings leased for government departments affected two landlords mainly.
One of these landlords had credit with the city and they were able to arrange set-offs against those credits to ensure that services were restored.
Through the department’s interaction with CoT, we were provided with the individual invoices for cases that were disconnected and managed to process payments for leased buildings.

All other landlords have managed to settle their own accounts with the City of Tshwane. It must be noted that the CoT has not disconnected any state owned building to date. This confirms the effort the department is putting in paying all service providers including the CoT where the accounts are in the name of the DPWI. Over and above mentioned, the department has paid R1.5 billion and R2.3 billion in property rates and municipal services respectively directly to municipalities in the current financial year (2021/22).

Some of the known disputes that are still being addressed with municipalities through constant engagements are as follows:

• Non-allocation of payments made to municipalities;
• Transfer or change ownership on properties from the municipalities to the department; and
• Disputes over interest charged due to payments not allocated timeously by municipalities;
   

In relation to Eskom, as at 31 January 2022, the department received an age analysis with a total outstanding amount R13.6 million and R10.4 million for large and small power users respectively. The department has paid R417 million to Eskom since April 2021 to date.
 
In terms of municipal and electricity payments, the DPWI pays these accounts on behalf of all government departments to municipalities and Eskom and other government departments then have to reimburse DPWI for these payments.

As at 31 January 2022, the total debt owed to DPWI by client departments is R9 205 billion. The top 15 client departments owe 98% of the total debt. Included in the total debt is R4.703 billion relating to disputes.

To expedite the recovery of debt and to resolve the payment issues, the following actions are taken by DPWI:

• Meeting with Top 15 Client Departments that contributes to 98% of the total debt owed
• Resolve disputes raised by Client Departments;
• Present to Forum of South African Director Generals (FOSAD) quarterly on non-paying clients;
• Levy interest on outstanding amounts;
• Presentation of the required information is done to Clients Departments for shared savings;
• Continuous follow-ups are made with Client Departments to sign the billing agreement.
   

Members of the media, those are some of the key updates we can provide at this stage and we will continue to conduct site visits and host media briefings throughout the year to update you on progress and I urge media houses to join those visits to see progress on infrastructure projects and the job creation first hand.

Thank you and God Bless.

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How To Put It Back Together Again

Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
Four-score Men and Four-score more,
Could not make Humpty Dumpty where he was before

Samuel Arnold Juveline Amusements, 1797^[i]

BY LLEWELLYN VAN WYK, B. ARCH; MSC. (APPLIED), URBAN ANALYST

Humpty Dumpty is a character in an English nursery rhyme, probably originally a riddle and one of the best known in the English-speaking world. He is typically portrayed as an anthropomorphic egg, though he is not explicitly described as such. Its origins are obscure, and several theories have been advanced to suggest original meanings. I thought it particularly appropriate to describe the following article – what are the impacts on the global economy and how does it recover.

Impact and Response

Many commentators and economists are focusing on how governments go about rebuilding their national and city economies once the world has passed through what Christopher Joye calls the Global Virus Crisis (GVC).[ii] According to The Economist, policy response has generally been swift and decisive.^[iii] Globally central banks have cut interest rates since January 2020 and have launched new and substantial quantitative-easing schemes (creating money to buy bonds) while politicians are opening the fiscal taps to support the economy.

In the US, America’s Congress passed a bill that boosts spending by twice as much as President Barack Obama’s package in 2009. Britain, France, and other countries have made credit guarantees worth as much as 15% of GDP, seeking to prevent a cascade of defaults. On the most conservative measure, the global stimulus from government spending this year will exceed 2% of global GDP, a much bigger push than was seen in 2007-09. Even Germany, whose fiscal rectitude is a cultural cliché, is spending more.^[iv]

The analysts at The Economist caution though that to focus just on the quantitative changes misses something crucial, which is that there are important qualitative changes underway in how policymakers manage the economy—the responsibilities they have assumed for themselves, what is seen as a legitimate action, and what is not, and the criteria used to judge policy success or failure. On these measures, the analysts note, the world is in the early stages of a ‘revolution in economic policymaking’.

Central banks have in effect pledged to print as much money as necessary to keep down government-borrowing costs. The European Central Bank is promising to buy everything that governments might issue thereby reducing the gap in borrowing costs between weaker and stronger euro-zone members, which widened in the early days of the pandemic.

The analysts note that politicians, too, are ripping up the rulebook. In past recessions, enterprises could go bankrupt and people, too, become unemployed. Even in normal economic times, roughly 8% of businesses in OECD countries go under each year, while 10% or so of the workforce lose a job. Now governments hope to stop this from happening entirely. President Emmanuel Macron reflects the view of many when he vows that no firm will “face the risk of bankruptcy” because of the pandemic.

Boris Johnson, Britain’s prime minister, contrasts his government’s response with the one during the last financial crisis: “Everybody said we bailed out the banks and we didn’t look after the people who really suffered”. Larry Kudlow, the director of America’s National Economic Council, calls America’s fiscal stimulus “the single largest Main Street assistance programme in the history of the United States,” comparing it favourably with Wall Street bailouts a decade ago.

To that end the analysts note that governments across the rich world are channelling vast sums to firms, providing them with grants and cheap loans to preserve jobs and keep their doors open. In some cases, the government is paying the wages of people who cannot work safely: the EU has embraced this policy, while the British state will pay up to 80% of the wages of furloughed workers. The American package includes loans to small businesses that will be forgiven if workers are not laid off. Households across the rich world are being given temporary relief on mortgages, other debts, rent and utility bills. In America, people will also be sent cheques worth up to $1 200.

Most economists support these measures. Nominally they are temporary, designed to hold the economy in an induced coma until the pandemic passes, at which point the world is supposed to revert to the status quo ante. But history suggests that a return to pre-Covid-19 days is unlikely.

Two lessons stand out:

1. Governmental control over the economy takes a large step-up during periods of crisis.

2. The forces encouraging governments to retain and expand economic control are stronger than the forces encouraging them to relinquish it, meaning that a “temporary” expansion of state power tends to become permanent.⁵

Road to Recovery

The extent of the economic damage and the time it will take for the economy to recover is subject to a high degree of speculation, and new models have been created to project a recovery trajectory. For example, the recovery can be V-shaped (after the downward fall the recovery will follow a straight line back to the original growth trajectory); U-shaped recovery (like V-shaped but with a longer turnaround period); VU shaped recovery (an initial pop, or sugar hit (the V), which is then superseded by a second, much slower growth phase (the U) due to a huge increase in debt repayment burdens and big creative destruction-induced output gaps (or excess productive capacity) as the virus forces the global economy to effectively rewire itself); Z-shaped (recovery follows the V-shaped trajectory but overshoots the original trajectory due to pent-up demand before falling back to the original trajectory); W-shaped (recovery begins buts fall back before climbing back up again); and L-shaped (growth recovers but ends up lower than that of the pre-C-19 economic growth).

In a survey of 106 economists and real estate experts conducted by Pulsenomics and Zillow, 41% of panellists expect the US recovery to follow a “U” shape, with the recession lasting several quarters before returning to growth.^[vi] This prediction is in line with how the experts expect the US economy to recover overall. Forty-one percent said they think the economic recovery will follow a “U” shape, and 33% say it will be a bumpy, multi-year return to trend growth. Both patterns are characterised first by a sharp decline and then match how experts see transaction volume recovering, with the consensus generally being a more gradual journey back to normal.

Whatever the final shape may turn out to be, Eswar Prasad and Ethan Wu, writing for the Brookings Institution, warns, “The world economy is on the precipice of its worst crisis since World War II. As the newly updated Brookings-FT TIGER (Tracking Indexes for the Global Economic Recovery) makes clear, economic activity, financial markets, and private-sector confidence are all cratering. And if international cooperation remains at its current level, a far more severe collapse is yet to come.”^[vii]

A wide variety of economic and survey data suggest that the economy will recover slowly even after the government begins to ease limits on public gatherings and allow certain shuttered restaurants and shops to reopen. Many economists and business owners say there will be no rapid economic rebound until people feel confident that their risks of contracting the coronavirus have fallen, either through widespread testing or a vaccine.^[viii]

Prasad and Wu argue that while the current extraordinarily sharp downturn could prove to be relatively brief, with economic activity snapping back to previous levels once the Covid-19 contagion curve is flattened, there is good reason to worry that the world economy is heading into a deep, protracted recession. In their view, much will depend on the pandemic’s trajectory and whether policymakers’ responses are sufficient to contain the damage while rebuilding consumer and business confidence. They do not believe that a rapid recovery is likely due to ravaged demand, extensive disruptions to manufacturing supply chains, and a financial crisis already underway.

They, like many other commentators, draw a distinction between the 2008-09 crash, and Covid-19. Unlike the 2008-09 crash, which was triggered by liquidity shortages in financial markets, they point out that the Covid-19 crisis involves fundamental solvency issues for firms and industries well beyond the financial sector. In addition, they note, the current shock is simultaneous and universal. During and immediately following the 2008 crisis, some emerging markets, not least China, and India, continued to register strong growth, pulling the rest of the world economy along. But this time, no economy is immune, and no country will be able to lead an export-driven recovery.

Today’s collapse has increased deflationary and financial risks in the advanced economies and struck a significant blow to commodity exporters.

On top of it all, oil prices are plunging even more than they otherwise would, due in large part to Saudi Arabia and Russia flooding the market. In their view all told, the economic and financial carnage wrought by the coronavirus could leave deep, lasting scars on the global economy. While they recognise that central banks are stepping up to the challenge, they point out that central banks cannot offset the fall in consumer demand or stimulate investment by themselves. With both conventional and unconventional monetary-policy tools already stretched to the limit, fiscal policymakers will have to do more.

They suggest that well-targeted fiscal measures can soften the blow to consumers and businesses—especially small and medium-sized enterprises, which typically have minimal financial buffers—thereby helping to sustain employment and demand. In these desperate times, such measures should be fully embraced by all governments that currently benefit from low borrowing costs, even if they already have high levels of public debt.

They also emphasise that low- and middle-income countries that have inadequate health systems will need substantial support from the international community, potentially including concessionary debt relief.

But there is an elephant in the room: unfortunately, the world’s inability so far to forge a common front attests to the erosion of international cooperation, which is further damaging business and consumer confidence. They too, like many other commentators, call for this to change.

The world urgently needs honest and transparent information-sharing by national leaders, coupled with aggressive steps to contain the pandemic, extensive stimulus to mitigate the economic fallout, and a carefully calibrated strategy to restart economic activity as soon as it is safe to do so.

Christopher Joye agrees with the sentiments expressed by Prasad and Wu. Joye sees the global economy being burdened by a great deal more public and private debt because of the enormous fiscal policy responses that will need to be serviced through tax revenue and corporate/household earnings. This he argues will drag on future global growth after the initial pop in activity as businesses restart and the working-age population gets back into their day jobs.

On the matter of whether this precipitates a sovereign debt crisis, he believes that ultimately the central banks can cauterise this problem by continuing to do what they are currently doing: i.e., funding their domestic treasuries by buying government bonds via quantitative easing (QE).

After all, he notes central banks were originally created to fund governments during times of war (that term again), and that is arguably where the world finds itself now in terms of response.

On the question of inflationary shock, he expects the deflationary impulse of the GVC via the huge sudden increase in labour supply to overwhelm the inflationary impulse of the crisis over the short-to-medium term (in the next year or two) noting that the near-term inflation pressures obviously come through supply-chain rigidities as labour is taken temporarily offline.

He foresees a key consequence of the GVC as compelling much greater internalisation of supply-chains, especially those that service critical infrastructure and security-sensitive goods and services. In terms of changes, it is suggested that the GVC will result in permanent economic damage akin to a form of creative destruction where the virus kills off weak companies as well as unproductive employees. This he suggests is because many businesses will come back looking different, shedding low-quality workers, and closing unprofitable activities/subsidiaries.

Some industries will be permanently changed in both positive and negative ways, for example, entire communities are being forced to get much more comfortable with online shopping and the associated delivery process, reducing at the margin the demand for traditional retailing.

The cinema industry will be irreversibly damaged as consumption shifts away from theatres to on-demand digital platforms like Apple and Netflix, which will, in turn, allow these distributors to capture more of the value-chain in the same way Amazon did with bricks and mortar retailing. The commercial property sector is also likely to feel this change as there is a possibility of a permanent decrease in the demand for both office and retail space. Many companies may conclude they can save overhead by remaining disaggregated (not renting office space). This will result in a decline in the value of commercial properties, and the risk associated with commercial property debt could increase sharply.

Commercial property lenders’ LVRs might suddenly jump because of this. Indeed, he argues that a lot of distress in commercial property debt portfolios can be expected over the next 12 months.

The embedding of Zoom, or cheap video conference technology may dissipate the value of face-to-face meetings and result in a permanent decrease in the demand for expensive business-related travel and accommodation, adversely impacting airlines and hotels, as companies seek to enhance their operating efficiencies.

Creative destruction

All this creative destruction could result in unemployment rates not returning any time soon to their pre-GVC levels which will, in turn, place downward pressure on wages. Ultimately, he concludes that this will result in a battle between the shock of the new – a virus that derails life as we knew it – and the opportunities presented by the gigantic stimulus afforded by fiscal and monetary policy.^[ix]

Some commentators are not as pessimistic: Paul Krugman, one of the world’s most influential economists and 2008 Nobel prize winner, is pretty upbeat about the economy. In a Q&A session with Noah Smith from Bloomberg, he suggests that even though this crisis is different from anything seen before, there is a rather good handle on the economics. In particular, he argues, enough is known to understand why conventional responses like stimulus or tax cuts are inappropriate, and why we should be focusing on safety-net issues.

On the issue of duration, Krugman argues that data would suggest a fast recovery once the virus is contained. But he provides some big caveats. One is that the duration of the pandemic is not known: if countries open too soon, it will extend the period of economic weakness. The second is that even if there were not big imbalances before, the slump may be creating them now. Business closures will require time to reverse. He also wonders how much long-term change will be experienced because of the virus. If there is a permanent shift to more telecommuting and less in-person retail, then there will be a shift of workers to new sectors, which will take time. All that said, he does not see the case for a multi-year depression.^[x]

Analysts at The Economist believe that some economies will suffer much more than others because economic crises expose and exacerbate underlying structural weaknesses.

They argue that three factors should help separate the bad economic outcomes from the dire ones:

1. a country’s industrial structure; the composition of its corporate sector; and the effectiveness of its fiscal stimulus. Regarding the first, those countries that depend on labour-intensive activities will be harder hit. This includes countries reliant on their construction and tourism sectors. Conversely, those industrial structures that enable more people to work from home should not be hit as hard.

2. Economies with a large share of small firms are likely to be hit harder because smaller enterprises tend to have few if any cash buffers, making it difficult for them to survive a drop in revenues.

3. The ability of the country to roll out large stimulus packages. Some countries have provided significant packages while others, especially those with high debt levels, are more constrained. The design of the stimulus also plays a part: some countries are providing support directly to households while others are subsidising wages.

Post-C19 Economic Structural Reforms

Analysts do not generally support government pledges to protect jobs as it prevents workers from moving from failing sectors to new emerging ones, thereby slowing the recovery. If the lockdown ends early some economies will be able to resume production quickly.^[xi]

A huge question remains however: what will be the lasting effects of Covid-19? Every day, in ways small and large, the spread of the coronavirus is reshaping politics.

John Cassidy, in a piece in Bloomberg.

As the death toll rises and the economic fallout spreads, he argues that measures once considered unthinkable are being adopted, and not just in the public-health sphere.

Analysts from The Economist believe that the size of the state will alter. In the short term, they foresee government debt rising sharply as spending jumps and tax revenues collapse. Thereafter, government attention will turn to repaying the debt.

They also see central banks’ innovations having lasting consequences. They, as do many other economists, do not see inflation rising any time soon, but do have a concern about deflation especially as central banks are pressured into lowering interest rates to zero to support government borrowing.

Then they see the possibility that this novel idea that the government needs to preserve firms, jobs, and workers’ incomes at practically any cost may become embedded in government, especially if the intervention proves successful in narrow terms. Although the policy may formally end once the pandemic has passed, political pressure for similar support schemes—from the nationalisation of tottering firms to the provision of a universal basic income—may well be higher the next time a sharp downturn comes along. If politicians can preserve jobs and incomes during this crisis, many people will see little reason why they should not try again in the next one.

In the same vein, they see calls for a more activist fiscal-monetary government coming against a backdrop of structurally higher demand for state spending. The public sector tends to provide labour-intensive services in which productivity improvements are difficult, such as healthcare and education, yet it must match the salaries of workers in other sectors to retain its own, even as they become less productive relative to the overall economy—a phenomenon which raises the cost of provision. Governments focus on social support during C-19 might raise expectations that it is the new normal, especially in the health sector. In the US, net support for Medicare for All—those who support it minus those who oppose it—has risen by nine points.^[xii]

In another significant development, the mass layoffs that have resulted from the pandemic have also laid bare the iniquities of the gig economy, in which Uber drivers and other online-platform workers, temp-agency workers, and a whole variety of freelancers do not have access to health insurance, sick leave, or unemployment insurance. During an appearance on CNBC, the investor James Chanos said he was selling short the stocks of gig-economy companies because their business model, which is based on classifying workers as self-employed to avoid giving them costly benefits, is likely to be challenged by both political parties.

The Economist’s analysts believe that the likely economic effects of the pandemic reach far beyond the role of the state. Countries could become even less welcoming to immigrants based on an argument that it will reduce any likelihood of infection from foreign arrivals.

Using the same logic, resistance to the development of dense urban centres could mount, thereby limiting the construction of new housing and rising costs. More countries may seek to become self-sufficient in the production of strategic commodities such as medicines, medical equipment, and even toilet paper, contributing to a further rollback of globalisation. However, they argue that the redefined role of the state could prove to be the most significant shift noting that the rules of the game have been moving in one direction for centuries.

Their conclusion: another radical change is looming.^[xiii]

Trend transformation

Scholars from the Brookings Metropolitan Policy Program on the other hand believe that a major transformation is unlikely and point out instead that the Covid-19 crisis seems poised to accelerate or intensify many economic and metropolitan trends that were already underway, with huge implications of their own.^[xiv]

One of those trends they foresee is automation. Mark Muro, one of the scholars, notes that while automation in the workplace has been spreading over the last decade, it will likely surge in the coming years because as firms’ revenues decline, workers become relatively more expensive. In this case, Covid-19 won’t so much change the automation trend as amplify it, increasing the vulnerability of young people, people of colour, and those with less education and further dislocating jobs in food service or cashiers as they become automated.

Another trend they ponder is whether the trauma of social distancing and the rise of telework will finally empty out the ‘superstar’ cities and lead to a decentralisation of the nation’s hyper centralised urban map. They believe this might happen.

Then there is the continuance of Big Tech itself: while it seems natural to assume that virtually every industry will be humbled by Covid-19, they think it is likely that the big tech titans—Amazon, Facebook, Google, Microsoft, Apple, Netflix, etc.—will emerge from the crisis stronger than ever.

These titans previously captured dominant market shares in the decade following the last recession and are likely to further capitalise as stay-at-home workers rely on their remote work tools, video calling, e-commerce, and video streaming. They point out that these giants are sitting on huge piles of cash and will be ready to snap up any choice tech or other properties that stumble.

Tracy Hadden Liu, another team member, argues that retailers, their landlords, and suppliers were already responding to multiple industry-wide trends before the coronavirus struck, including tariffs, a shift in consumer demand from products to experiences, e-commerce, and the sharing economy. The resulting strains that were already motivating these players to innovate or exit are simply accelerating the need to be creative and embrace new models to deal with the disruption arising from the pandemic.

In the property market, it is suggested that a 10-year commercial lease in a single-use building will no longer be standard: seasonal retailers were already experimenting outside of the big box, including markets and pop-ups in flexible spaces.

So were office tenants through WeWork and other co-working spaces. In addition to new formats and lease terms, profit-sharing leases will become an increasingly important tool to help new businesses get started, survive slowdowns, and provide a return to landlords who invest in their tenants’ success.

In the food sector, convergence and hybridisation will accelerate in food retail, which will return to be a revitalising force in urban life. Liu points out that IKEA was already a furniture showroom, warehouse, and restaurant. High-end grocers were encouraging shoppers to have a beer prior to the outbreak of the pandemic.

Restaurants were increasingly not just dine-in, but fast-casual or mobile food trucks. Whether through app-based delivery or prepared food from wholesalers’ people will return to eating much of their food prepared outside the home. In 2017, jobs in leisure and hospitality (which includes all bars and restaurants) grew to outnumber jobs in retail trade.

Liu believes that for commercial real estate and local governments, food retail will continue to grow in importance. Restaurants, in whatever format, will continue to be a growing share of tenants and sales tax generators as other storefronts are impacted by tariffs and e-commerce oligopolies. And the more people eat out, the more proximity to food retail will shape office and residential tenant demand, as well as home sales. Her summation: the pandemic is a setback, but not a reset.

Another pre-Covid trend raised is the housing crisis. Martha Ross and Jenny Schuetz, two members of the team, note that in the best of times—for example, when unemployment is below 4%— tens of millions of workers still earn barely enough to live on, meaning that basic costs like housing were already a stretch for these and other workers. More than 75% of low-wage workers are ‘housing-cost burdened,’ i.e., they spend more than 30% of their income on rent. The typical low-income renter household spends more than half of its income on rent.

In the Covid-19 era—with mass layoffs in hospitality, retail, and entertainment—earnings have simply disappeared for millions of workers and many households that previously strained to pay rent will now find it impossible.

People commonly reduce housing costs by “doubling-up” with family or moving into lower-quality housing. Given the thin financial reserves held by renter households, many people will be forced into one of these options. Notwithstanding a halt on evictions in some countries, stronger and more direct financial assistance will be required for households. While the housing affordability crisis predates the current health crisis, it will worsen in the short run if governments are slow to respond.

Inequality increases among older Americans is another trend identified by Annelies Goger and Nicole Bateman. They note that 40% of workers over age 62 earn low wages. Covid-19 is likely to have eroded savings across the board which means that many older workers may have to stay in their job out of necessity. It is possible that labour outcomes could worsen for older workers who lose their jobs in the sense that it will take much longer for them to find another job, and generally that will come with a pay cut too.

Covid-19 will accelerate yet another trend namely the declines in microbusiness employment. Microbusinesses with under four employees are only half as likely to add jobs as larger businesses already. Recent statistics demonstrate how microbusinesses have been on the losing end of long-run structural shifts in the US. The team estimates that about 2.9-million microbusinesses are in industries at immediate or near-term risk from Covid-19. How many of those microbusinesses survive will depend, they think, on the duration of social distancing measures and the success of countervailing policies. They do stress that without a robust policy response to not only mitigate small business damage in the immediate term but also support entrepreneurship more robustly in the recovery, the pandemic will accelerate the structural decline in microbusiness employment.

Humpty Dumpty Economies

At a more fundamental level, Kallis G., Paulson, S., D’Alisa, G., and Demaria, F. argue that the pandemic has laid bare the fragility of existing economic systems, and what will be required to become more resilient to crises – pandemic, climatic, financial, or political – is to build systems capable of scaling back production in ways that do not cause loss of livelihood or life: “We need degrowth” they suggest. Their argument is based on the observation that current economic systems are organised around the constant circulation, where any decline in market activity threatens systemic collapse, provoking generalised unemployment and impoverishment.

While they point to commentaries made by publications such as Forbes, the Financial Times and the Spectator who have been quick to claim that the pandemic has revealed the ‘misery of degrowth’, they argue that what is happening is not degrowth, but purposefully slowing things down in order to minimise harm to humans and earth systems and to reduce exploitation. In their view, degrowth is a project of living meaningfully, enjoying simple pleasures, communing, sharing, and relating more with others, and working less, in more equal societies.^[xv] 

New Green Deal

There is widespread support for the recovery spend to be used to simultaneously address the other elephant in the room – climate change. Many argue that the pandemic must not be a reason to weaken the commitments to net-zero emissions. In fact, the argument is made that climate action is vital protection against further global shocks, especially as governments plan their post-pandemic stimulus packages.

It will be tempting for some governments to overlook the climate change challenge in the rush to restart the economy. Anna Skarbek cautions that some governments are already eyeing the fossil fuel sector as a beneficiary of any post-Covid-19 stimulus. Not all governments have responded to a rising chorus of voices demanding a green economic recovery.

The International Monetary Fund has been tracking national stimulus and economic recovery plans. So far, only a handful of them directly targets climate change, the IMF reports. On the contrary, some spending is headed in the opposite direction through government fuel subsidies and other fossil fuel-friendly measures. The IMF’s Covid-19 recovery tracker notes a lot of global spending on electricity cost relief. Other measures the IMF has noted include fuel price discounts for aviation. Some governments are buying fuel for their fishing fleets, while others are extending economywide fuel subsidies instead of eliminating them as the United Nations’ top leadership has called for.^[xvi] The energy minister in Australia is flagging gas-fired power to stimulate the economy.^[xvii]

There is particular concern over how China will design an overall economic recovery plan. Following the global financial crisis of a decade ago, Beijing launched a massive round of infrastructure spending that saw its greenhouse gas emissions soar to new heights. China is now by far the world’s largest producer of heat-trapping emissions. In a recent study published in the journal Nature Sustainability, scholars in Malaysia and Australia expressed concern over China’s vaunted Belt and Road Initiative, noting that Beijing has already directed nearly $575-billion overseas in efforts often aligned against sustainability objectives. They see more to come and are urging receiving nations and financing arms to put restrictions on the funding to ensure greater protections for biodiversity and other “indicators of environmental governance,” according to the research team, led by University of Queensland professor Divya Narain.^[xviii]

For many countries, the lockdown response to Covid-19 has presented a horrific binary choice: economy at the expense of climate change, or climate change at the expense of the economy.

The socio-economic devastation the virus has inflicted is a reminder of our systemic vulnerability, and the importance of prevention and mitigation. As Anna Skarbek stresses, Covid-19 provides fresh evidence of the scale of economic shock the world faces if it fails to meet the targets of the Paris Agreement.

In a major study published in Nature Communications last month the dollar value put on the cost of climate inaction was between US$150-trillion and US$792-rillion by 2100 making the global shock even more financially catastrophic than coronavirus.^[xix]

Fortunately, there is a third way out of this binary choice: Don Hall posts that one of the most hopeful things he has stumbled across since this crisis began is A Green Stimulus to Rebuild Our Economy: An Open Letter and Call to Action for Members of Congress which was published by a team of 11 prominent academics, scientists, policy experts, and non-profit advocates. More than 1 800 individuals and organisations signed on within the first nine days of its release.

The overall approach of the Green Stimulus Letter is based on five main principles namely:

1) health as the top priority for everyone

2) providing economic relief to directly to people

3) rescue workers and communities, not corporate executives

4) make a down payment on a regenerative economy while preventing future crisis

5) protect the democratic process while protecting each other

These five principles are supported by four key strategies:

1) create millions of new family sustaining, career-track green jobs

2) deliver strategic investments like green housing retrofits, rooftop solar installation, electric bus deployment, rural broadband development, and other forms of economic diversification to lift up and collaborate with frontline communities

3) expand public and employee ownership

4) make rapid cuts to carbon pollution^[xx]

The research published in Nature Communications also points out that limiting global warming to 1.5°C would deliver a corresponding boost, with the global economy growing by US$616 trillion compared to inaction. Skarbek notes that research undertaken at Oxford University by Nobel-prize winner Joseph Stiglitz and climate economist Nicholas Stern concluded that climate mitigation actions deliver maximum economic growth multiplier benefits from a stimulus perspective.

The study catalogues more than 700 stimulus policies and makes comparisons with the global financial crisis of 2008. In the study they compared green stimulus projects with traditional stimuli, such as measures taken after the 2008 global financial crisis, and found green projects created more jobs, delivered higher short-term returns per pound spent by the government, and lead to increased long-term cost savings. Clean energy infrastructure construction is one example, generating twice as many jobs per pound of government expenditure as fossil fuel projects around the world. Others include expanding broadband so more people can work from home.^[xxi] Stern also warned that stimulating new jobs in heavily emitting sectors was short-sighted. “The jobs of the past are insecure jobs,” he said. “[To create future jobs] we need the right kind of finance in the right place at the right scale at the right price.”

Net-Zero Zero-Net future

The strategic targeting of stimulus funds is therefore critical: the greatest risk to a systemic change in consumption and production patterns is for governments to occur increasing debt through spending trillions of dollars on propping up business, as usual, leaving no economic capacity to invest in building resilient local communities and moving toward a low-carbon future.

Researchers from the University of Oxford, the London School of Economics and Political Science, Columbia University, and the University of Cambridge, undertook a survey of 231 central bank officials, finance ministry officials, and other economic experts from G20 countries on the relative performance of 25 major fiscal recovery archetypes across four dimensions: speed of implementation, economic multiplier, climate impact potential, and overall desirability. Their study identified five policies with high potential on both economic multiplier and climate metrics: clean physical infrastructure, building efficiency retrofits, investment in education and training, natural capital investment, and clean R&D.

To monitor the stimulus spend, a team of researchers from Johns Hopkins University has set out to measure what percentage of the billions of dollars that world governments are spending on the recovery might result in lasting reductions of greenhouse gas emissions. They note that studies of the impacts of past economic downturns, such as the recession of 2007 to 2009, provide scant information on what percentage of the recovery money spent delivered long-term benefits to the climate. Estimates of the 2009 recession show that somewhere between 5% and 16% had impacts on climate change-related issues.

They caution that information from the aftermath of earlier recessions shows that typically rebounds have more than offset greenhouse gas reductions from the recessions themselves and quickly surpass what might have been saved if it is not done well.^[xxii]

There is precedent from targeted directing of public funds that have worked in the past: President Obama was able to introduce a stimulus package stacked with incentives for green investment and tougher environmental regulation after the economic crash of 2008.

A post-pandemic economic reconstruction based on restructuring the energy map makes sense.

Enrique Dans

But for the Covid-19 event, signs thus far are mixed. The $2.2-trillion stimulus package agreed by the US Congress may have avoided sinking taxpayers’ dollars into a rescue plan for the country’s struggling coal industry, but it also failed to make any environmental requirements on those industries, such as the aviation industry, that were bailed out. Congress members have argued that in this case the holding up a desperately needed economic-rescue package in the name of climate action was an untenable proposition. However, care must be taken to avoid using that argument again.

The renewable energy sector is one of the sectors favoured by many commentators as a prime vehicle for stimulating the economic recovery while also mitigating climate change.

One of the concerns about RE in the past was its ability to carry the electricity mix, but as Tom Andrews, a senior analyst at Cornwall Insight notes, while the generation balance is likely to return to normal as countries come off lockdown, this has demonstrated that managing a grid with high renewable penetration is feasible. This may therefore become the new normal as more renewable generation is deployed across Europe.

Renewable energy is also supported by the International Energy Agency (IEA) who, in their Global Energy Review report, supported the view that renewables are the only power generation source that is experiencing rising demand and penetration amid the slump in energy demand brought on by Covid-19 industrial shutdowns. Due to priority dispatch for renewables and lower operating costs, the IEA expects solar, wind, and hydropower to experience uplift during the public health crisis and subsequent economic recovery.^[xxiii]

In a policy brief for policymakers, the IEA presents four strategic considerations:

1. Energy efficiency actions can support the goals of economic stimulus programmes by supporting existing workforces and creating new jobs, boosting economic activity in key labour-intensive sectors, and delivering longer-term benefits such as increased competitiveness, reduced greenhouse gas emissions, improved energy affordability and lower bills.

2. Governments can deliver stimulus at scale and speed by leveraging existing programmes and standardising designs, eligibility criteria and contracts; choosing shovel-ready options for retrofits and technology upgrades, and considering how energy efficiency can be built into all government stimulus programmes.

3. Important market considerations include aiming for high energy efficiency without constraining programme delivery; setting sufficiently attractive incentives to deliver high uptake without significantly increasing program costs and risks; considering the capacity of suppliers to scale up rapidly while maintaining quality and safety of products and services; and considering the consumer motivations and demand for products and services.

4. Government can facilitate better outcomes from large-scale investment programmes by addressing unnecessary regulatory barriers; turning short-term impacts into long-term transformations by raising energy efficiency standards; and considering the resource efficiency impacts and recycling sector opportunities as part of programme design.^[xxiv] It is argued that apart from the climate change benefits, solar and energy storage in particular offer swift, job-intensive opportunities for growth, with average ground-mount sites able to be built in a few months and rooftop installations often taking only a day or two.

The EU’s C-19 recovery plan aims to do just that: their €750 billion ($825 billion) recovery package for the coronavirus pandemic includes plans to address the other global crisis, climate change. European Commission President Ursula von der Leyen views the proposal as a vehicle to steer the continent toward carbon neutrality by 2050, a critical deadline if the world is to avoid the worst effects of global warming. The EU plan calls for investments in clean technologies and value chains and for increasing investments in renewable energy, energy storage, hydrogen, and carbon capture as well as storage technologies. Funds under the plan would be directed toward installing 1-million EV chargers. It also proposes a renovation wave of basic infrastructure investments to create millions of jobs in construction, renovation, and other labour-intensive industries.

Most of the EU’s plan would be paid for via debt raised in capital markets, loans with very long-term maturities, by new taxes, including taxes on carbon emissions, a new carbon border adjustment mechanism, and taxes on big companies that benefit most from the single market. ^[xxv]

France also announced an €8 billion bailout of its automotive industry. However, the French plan is to boost domestic production of electric vehicles and see France emerge, as President Emmanuel Macron put it, “As the leading producer of clean vehicles in Europe.” The subsidy plans include exceptional support measures to help consumers purchase battery hybrid and all-electric vehicles.^[xxvi]

South Korea ― the world’s seventh-largest source of planet-heating carbon dioxide ― too has set course to become the first East Asian country to reach net-zero emissions by 2050. The ruling party named its official climate manifesto the Green New Deal, becoming the biggest emitter yet to endorse moving toward the kind of industrial planning and social safety net expansion rarely seen outside of wartime. South Korea’s proposal includes ending public institutions’ financing of domestic and overseas coal projects, establishing a new program to retrain workers for green jobs, and making large-scale investments in wind and solar energy. The plan also pledges to research and consider a carbon tax.^[xxvii]

As Enrique Dans put it, a post-pandemic economic reconstruction based on restructuring the energy map makes sense. We know we must do it, and we know the reason we haven’t done it so far is because it challenges the interests of a powerful few. The time has come to abandon outdated concepts, to change our mindset, and to put the use of renewables at the top of our list of priorities.^[xxviii]

Some concern has however been expressed that a lack of a gender lens when designing the stimulus packages generally has favoured sectors dominated by men. In New Zealand, the Ministry for Women warned its minister that the stimulus package risked further exacerbating gender inequalities, particularly for wahine Maori, Pasifika, disabled and rural women. This is a likely unintended consequence of favouring infrastructure projects, a sector traditionally dominated by the male workforce. The ministry noted that women were just 14.4% of the construction workforce, and 24.5% of the electricity, gas, water, and waste services.^[xxix]

Other industries such as retail, tourism and hospitality – also hard hit by the shutdown – employ high numbers of women. Johnston makes the argument that investing in social infrastructure such as health, caring, and education would create more jobs than the same investment in construction. It is argued that the absence of a gender lens is reflective of budgets being prepared without investigating ‘who” would benefit from the investment.

Cities are also responding to the opportunity. Amsterdam is pursuing a unique approach by adopting the so-called ‘doughnut approach’ developed by British economist Kate Raworth from Oxford University’s Environmental Change Institute. This model forgoes the global attachment to economic growth and laws of supply and demand in favour of a set of minimum needs required to lead a good life as encapsulated in the UN’s sustainable development goals which include food and clean water to a certain level of housing, sanitation, energy, education, healthcare, gender equality, income, and political voice.

_{The model defines an outer boundary that represents the boundaries across which humanity should not go to avoid damaging the climate, soils, oceans, the ozone layer, freshwater and abundant biodiversity. What is critical about the approach Amsterdam is following is the desire to “not fall back on easy mechanisms” as Marieke van Doorninck, the deputy mayor of Amsterdam, put it.^[xxx]}

Raworth puts it more succinctly’ “The central premise is simple: the goal of economic activity should be about meeting the core needs of all but within the means of the planet. The “doughnut” is a device to show what this means in practice.”^[xxxi]She explains, “The world is experiencing a series of shocks and surprise impacts which are enabling us to shift away from the idea of growth to ‘thriving’.” This approach, she argues, recognises that our wellbeing lies in balance, and this is the moment we are going to connect bodily health to planetary health.

In the private sector, Covid-19 appears likely to reshape sustainable investing in part, because in the aftermath of the pandemic more focus will be placed on social factors, such as health and safety, and the treatment of staff. Some asset managers think that the pandemic will become an environmental, social, and governance (ESG) litmus test. They envision interrogating firms about their actions during the crisis to gauge the businesses’ sustainability credentials.

The pandemic may also help to focus the minds of private sector investors on other threats such as the impact of climate change. Few investors or companies took the risk of a pandemic seriously at the start of the year, and the threat of devastating floods or once-a-century storms often get a similar treatment, but C-19 may just change that.

Our wellbeing lies in balance, and this is the moment we are going to connect bodily health to planetary health.

And encouragingly a remarkable list of business leaders is adding their names to a call for stimulus funding to be invested in what they refer to as “the economy of the future.”^[xxxii] Chief executives, chairs and senior executives from major organisations are urging for massive investments in renewable power systems, a boost for green infrastructure and buildings, targeted support for low-carbon activities, and other similar measures.

In Europe, this call is aimed at making the European Union the ‘world’s first climate-neutral continent’ by 2050. In Australia, a leading business group is calling for the two biggest economic challenges in memory – recovery from the Covid-19 pandemic and cutting greenhouse gas emissions – to be addressed together, saying it would boost growth and put the country on a firm long-term footing. This group is among a band of community leaders and industry groups urging governments to back climate solutions in the pandemic recovery rather than projects that entrench or increase emissions. The Investor Agenda, a global group of institutional investors and managers in a statement said governments should avoid prioritising “risky, short-term emissions-intensive projects”, and that accelerating the shift to net-zero emissions could create significant employment and economic growth while improving energy security and clean air. As they put it, “The path we choose in the coming months will have significant ramifications for our global economy and generations to come.”^[xxxiii]

The Australian business group has identified a number of opportunities including improving energy management in homes and buildings by plugging drafts, modernising equipment and backing local electricity generation and storage; boosting electricity networks by rolling out smart meters and moving edge-of-grid customers onto mini-grids; helping shift heavy industry to run on clean electricity and hydrogen, and supporting large and small energy storage. On transport, the group said it was an excellent time to prepare cities and major corridors for mass take-up of electric vehicles by installing or preparing charging points at service stations, in public and government car parks, and at apartment blocks. They suggest governments would have different preferences on whether to use regulatory reform, tax incentives, grants, or other approaches but, using the example of electricity, urged government to settle on a sound long-term design for market rules and climate policy could do as much to boost investment as direct public financial support.

The public too is wanting to use this moment to recalibrate the structure of the economy. Polls taken in the United Kingdom finds that most Britons want quality of life indicators to take priority over the economy. As reported by Fiona Harvey, a YouGov poll has found eight out of 10 people would prefer the government to prioritise health and wellbeing over economic growth during the coronavirus crisis, and six in 10 would still want the government to pursue health and wellbeing ahead of growth after the pandemic has subsided, though nearly a third would prioritise the economy instead at that point.

The finding comes as millions of people face economic hardship because of coronavirus and the lockdown, while some measures of the quality of life – such as air pollution and the natural environment – are showing signs of improvement.^[xxxiv]

Perhaps Kallis et al (2020) summed it up best in their study when they noted: “As we move from the rescue to the recovery phase of the Covid-19 response, policy-makers have an opportunity to invest in productive assets for the long-term. Such investments can make the most of shifts in human habits and behaviour already underway.”^[xxxv]

Build, Build, Build: Investing in Infrastructure

Not surprisingly, most governments are including infrastructure development as part of their recovery plans: it makes economic sense to invest in asset formation rather than encourage consumer spending. However, there are debates about what type and scale of infrastructure to invest in. Some commentators are arguing for investment in housing, while others are looking for large-scale infrastructure investments.

As the US Congress and the White House contemplate the next phase of the government response to the coronavirus pandemic and its economic toll, legislators are increasingly raising the prospect of enacting a multitrillion-dollar infrastructure plan that, they claim, could create thousands of jobs. As the novel coronavirus ravages the economy, parties appear to be coalescing behind the idea of something akin to a New Deal-style jobs program to help the nation cope with what is expected to be a deep recession.

Speaker Nancy Pelosi of California outlined the contours of their proposal, building off a five-year, $760-billion framework. Among the new provisions are an extra $10-billion for community health centres fighting the spread of the pandemic and a programme that would provide federal grants to pay for drinking water and wastewater utility bills in low-income households during public health crises. Democrats’ infrastructure plan includes billions of dollars to expand the country’s passenger rail network, improve Amtrak stations and services, maintain ports and harbours, increase climate resiliency and further address greenhouse gas pollution. It would also dedicate funds to expand broadband access, a response in part to the extent that millions of Americans have depended on internet connectivity while staying at home to slow the spread of the virus.^[xxxvi]

It has long been argued that construction has a significant multiplier effect in terms of upstream and downstream job creation. At the same time, providing affordable housing appears to be a serious challenge for most governments. Paul Emrath marries these two issues together when he makes the case for investment in homebuilding based on the economic impact that residential construction has on the economy. The most obvious impacts of new construction, he notes, are the jobs generated for construction workers.

But, at the national level, the impact is broad-based, as jobs are generated in the industries that produce timber, concrete, lighting fixtures, heating equipment, and other products that go into a home or remodelling project. Other jobs are generated in the process of transporting, storing, and selling these products. Still, others are generated for professionals such as architects, engineers, real estate agents, lawyers, and accountants who provide services to home builders, home buyers, and remodelers. He found that in the US construction sector building an average single-family home created 2.9 jobs; an average rental apartment 1.25 jobs; and for every $100 000 spent on remodelling 0.75 jobs. The above numbers are for full-time equivalents, i.e., enough work to keep one worker employed for a full year based on average hours worked per week in the relevant industry.^[xxxvii]

The British Prime Minister, Boris Johnson, seems to favour a “dig yourself out of the hole” approach as well, according to The Economist. In a speech on June 30, he announced a plan to increase capital spending to 3% of GDP, the highest consistent level since the 1970s, and will speed up £5bn of repairs to roads, schools, and hospitals. But Colin Talbot of the Centre for Business Research at the University of Cambridge makes the point that calling for more infrastructure without answering the questions of why and for what makes no sense. For example, will ailing towns be best served by becoming attractive commuter hubs for neighbouring cities, or by trying to revive their industries? Henry Overman of the London School of Economics argues that what ultimately makes places prosperous is a high density of skilled workers, which means thinking hard about education, welfare, and public health.^[xxxviii]

There are however concerns about the quantum of funds needed to adequately fund infrastructure backlogs, notwithstanding the impressive numbers being quoted in government budgets. The findings of National League of Cities (NLC) new Covid-19 Local Impacts Survey of 1 100 US municipalities found that critical infrastructure is a key at-risk area as 65% of surveyed cities look to delay or cancel their infrastructure projects, which could create an “economic ripple effect” if actions aren’t taken to support capital expenditures and projects. As the vice-president of NLC put it, “I hate to say it, but the latest Covid-19 financial impact data we’re sharing with you today is painting a dire picture for our infrastructure future.”^[xxxix]”

Conclusion

As the world tries to deal with the ongoing challenges of Covid-19, it is worth reminding ourselves that infrastructure investment and climate action are both urgently need and that with the right approach, both goals can be achieved simultaneously. This article provides some indications of what the right approach may be.

Green Economy Journal Issue 48

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References

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[iii] Briefing, 2020. “Rich countries try radical economic policies to counter covid-19.” The Economist, Mar 26, 2020. Available from: https://www.economist.com/search?q=rich%20countries%20try%20radical. Downloaded: March 26, 2020.

[iv] Briefing, 2020. “Rich countries try radical economic policies to counter covid-19.” The Economist, May 26, 2020. Available from: https://www.economist.com/search?q=rich%20countries%20try%20radical. Downloaded: March 26, 2020.

[v] Briefing, 2020. “Rich countries try radical economic policies to counter COVID-19.” The Economist, March 26, 2020. Available from: https://www.economist.com/search?q=rich%20countries%20try%20radical. Downloaded: March 26, 2020.

[vi] Olsen, S. 2020. “Experts: Spring’s missing home sales will be added in coming years. Zillow, June 3, 2020. Available from: https://www.zillow.com/research/zhpe-missing-home-sales-27209/. Downloaded: June 5, 2020.

[vii] Prasad, E. and Wu, E., 2020. “Anatomy of the coronavirus collapse.” The Brookings Institution, Monday, April 13, 2020. Available from: https://www.brookings.edu/opinions/anatomy-of-the-coronavirus-collapse/?utm_campaign=Brookings%20Brief&utm_source=hs_email&utm_medium=email&utm_content=86296128. Downloaded: Thursday, 16 April 2020.

[viii] Tankersley, J. 2020. “Economic pain will persist long after lockdowns end.” The New York Times, 13 April 2020. Available from: https://www.nytimes.com/2020/04/13/business/coronavirus-economy.html?campaign_id=9&emc=edit_NN_p_20200414&instance_id=17621&nl=morning-briefing&regi_id=73055978&section=topNews&segment_id=25091&te=1&user_id=4c2641b64be4fbc96d3272bb1a96ae71. Downloaded: Wednesday, 15 April 2020

[ix] Joye, C. 2020. “Calling a ‘VU’ shaped recovery and creative destruction induced by GVC.” Coolabah Capital Investments, 7 April 2020. Available from: https://www.livewiremarkets.com/wires/calling-a-vu-shaped-recovery-and-virus-induced-creative-destruction-from-gvc?utm_campaign=8493&utm_medium=wire-page-share&utm_source=linkedin&utm_content=calling-a-vu-shaped-recovery-and-virus-induced-creative-destruction-from-gvc. Downloaded: Tuesday, 07 April 2020.

[x] Smith, N. 2020. “Paul Krugman is pretty upbeat about the economy.” Bloomberg, May 27, 2020. Available from: https://www.bloomberg.com/opinion/articles/2020-05-27/paul-krugman-is-pretty-upbeat-about-coronavirus-economic-recovery. Downloaded: Thursday, 28 May 2020

[xi] Finance and Economics, 2020. “How deep will downturns in rich countries be?” The Economist, April 16, 2020. Available from: https://www.economist.com/finance-and-economics/2020/04/16/how-deep-will-downturns-in-rich-countries-be?cid1=cust/ednew/n/bl/n/2020/04/16n/owned/n/n/nwl/n/n/A/452381/n. Downloaded: Friday, 17 April 2020

[xii] Cassidy, J. 2020. “The coronavirus is transforming politics and economics.“ The New Yorker, April, 6, 2020. Available from: https://www.newyorker.com/news/our-columnists/the-coronavirus-is-transforming-politics-and-economics?utm_source=nl&utm_brand=tny&utm_mailing=TNY_Daily_040420&utm_campaign=aud-dev&utm_medium=email&bxid=5be9f5bd2ddf9c72dc879e86&cndid=48809828&hasha=4c2641b64be4fbc96d3272bb1a96ae71&hashb=c9c1dba6c170b93151f4dd39d2d298d2cb950fd6&hashc=122c6030809ad6616af10d52091c32b56f95b8f727c69a827fdfdd7af1aa3c83&esrc=right_rail_magazine&utm_term=TNY_Daily. Downloaded: Sunday, 05 April 2020

[xiii] Briefing, 2020. “Rich countries try radical economic policies to counter COVID-19.” The Economist, March 26, 2020. Available from: https://www.economist.com/search?q=rich%20countries%20try%20radical. Downloaded: March 26, 2020.

[xiv] Muro, M., Loh, T., Ross, M., Schuets, J., Goger, A., Bateman, N., Frey, W., Parilla, J., Liu, S. and Tomer, A. 2020. “How COVID-19 will change the nation’s long-term economic trends, according to Brookings Metro scholars.” Available from: https://www.brookings.edu/research/how-covid-19-will-change-the-nations-long-term-economic-trends-brookings-metro/?utm_campaign=Brookings%20Brief&utm_source=hs_email&utm_medium=email&utm_content=86370408. Downloaded: Friday, 17 April 2020

[xv] Kallis, G., Paulson, S., D’Alisa, G., and Demaria, F. 2020. “The case for degrowth in a time of pandemic.” The Ecologist, May 18, 2020. Available from: https://theecologist.org/2020/may/18/case-degrowth-time-pandemic. Downloaded: May 31, 2020.

[xvi] Gronewold, N. 2020. “E.U.’s coronavirus recovery plan also aims to fight climate change.” E&E News, May 28, 2020. Available from: https://www.scientificamerican.com/article/e-u-s-coronavirus-recovery-plan-also-aims-to-fight-climate-change/?utm_s

[xvii] Skarbek, A. 2020. “Why it doesn’t make economic sense to ignore climate change in our recovery from the pandemic.” Available from: https://theconversation.com/why-it-doesnt-make-economic-sense-to-ignore-climate-change-in-our-recovery-from-the-pandemic-137282?onomic%20sense%20to%20ignore%20climate%20change%20in%20our%20recovery%20from%20the%20pandemic. Downloaded: Friday, 08 May 2020

[xviii] Gronewold, N. 2020. “E.U.’s coronavirus recovery plan also aims to fight climate change.” E&E News, May 28, 2020. Available from: https://www.scientificamerican.com/article/e-u-s-coronavirus-recovery-plan-also-aims-to-fight-climate-change/?

Downloaded: May 30, 2020.

[xix] Skarbek, A. 2020. “Why it doesn’t make economic sense to ignore climate change in our recovery from the pandemic.” Available from: https://theconversation.com/why-it-doesnt-make-economic-sense-to-ignore-climate-change-in-our-recovery-from-the-pandemic-137282? Downloaded: Friday, 08 May 2020.

[xx] Hall, D. 2020. “From what is to what if: A green stimulus and the importance envisioning the ‘impossible’”. Resilience, 22 April 2020. Available from: https://www.resilience.org/stories/2020-04-22/from-what-is-to-what-if-a-green-stimulus-and-the-importance-envisioning-the-impossible/. Downloaded: Saturday, 25 April 2020

[xxi] Harvey, F. 2020. “Green stimulus can repair global economy and climate, study says.” The Guardian, May 5, 2020. Available from: https://www.theguardian.com/environment/2020/may/05/green-stimulus-can-repair-global-economy-and-climate-study-says. Downloaded: Thursday, 28 May 2020.

[xxii] Fialka, J. 2020. “Researchers will track whether coronavirus recovery spending benefits climate.” E&E News, May 13, 2020. Available from: https://www.scientificamerican.com/article/researchers-will-track-whether-coronavirus-recovery-spending-benefits-climate/?Downloaded: Thursday, 14 May 2020

[xxiii] Hall, M. 2020. “COVID-19 weekly briefing: Evidence abounds of renewable energy gains at the expense of fossil fuels as the clamor for a green recovery rises.” PV-Magazine, 6 May 2020. Available from: https://www.pv-magazine.com/2020/05/06/covid-19-weekly-briefing-evidence-abounds-of-renewable-energy-gains-at-the-expense-of-fossil-fuels-as-the-clamor-for-a-green-recovery-rises/. Downloaded: Saturday, 09 May 2020.

[xxiv] IEA 2020. “Energy efficiency and economic stimulus.” International Energy Agency, 8 April 2020. Available from: https://www.iea.org/articles/energy-efficiency-and-economic-stimulus?utm_campaign=IEA%20newsletters&utm_source=SendGrid&utm_medium=Email. Downloaded: Monday, 20 April 2020

[xxv] Gronewold, N. 2020. “E.U.’s coronavirus recovery plan also aims to fight climate change.” E&E News, May 28, 2020. Available from: https://www.scientificamerican.com/article/e-u-s-coronavirus-recovery-plan-also-aims-to-fight-climate-change/?Downloaded: May 30, 2020.

[xxvi] Ibid.

[xxvii] Kaufman, A. 2020. “South Korea tackled the coronavirus. Now it’s taking on the climate crisis.” Huffington Post, May 8, 2020. Available from: https://www.huffpost.com/entry/south-korea-coronavirus-climate-crisis_n_5ea9e0d5c5b633a85444940b. Downloaded: Saturday, 09 May 2020

[xxviii] Dans, E. 2020. “In a post-pandemic world, renewable energy is the only way forward.” Forbes, May 5, 2020. Available from: https://www.forbes.com/sites/enriquedans/2020/05/03/in-a-post-pandemic-world-renewable-energy-is-the-only-wayforward/#55d0f9b517b6. Downloaded: May 6, 2020.

[xxix] Johnston, K. 2020. “Govt’s COVID-19 response slammed for ‘favouring men’.” The New Zealand Herald, 22 May 2020, A8.

[xxx] Boffey, D. 2020. “Amsterdam to embrace ‘doughnut’ model to mend post-coronavirus economy.” The Guardian, 8 April 2020. Available from: https://www.theguardian.com/world/2020/apr/08/amsterdam-doughnut-model-mend-post-coronavirus-economy. Downloaded: Thursday, 09 April 2020

[xxxi] Ibid.

[xxxii] Ibid.

[xxxiii] Morton, A. 2020. “Australian businesses call for climate crisis and virus economic recovery to be tackled together.” The Guardian, 4 May 2020. Available from: https://www.theguardian.com/environment/2020/may/05/australian-businesses-call-for-climate-crisis-and-virus-economic-recovery-to-be-tackled-together. Downloaded: Wednesday, 06 May 2020

[xxxiv] Harvey, F. 2020. “Britons want quality of life indicators to take priority over the economy.” The Guardian, 10 May 2020. Available from: https://www.theguardian.com/society/2020/may/10/britons-want-quality-of-life-indicators-priority-over-economy-coronavirus. Downloaded: Wednesday, 13 May 2020

[xxxv] Hepburn, C., O’Callaghan, B., Stern, N., Stiglitz, J., and Zenghelis, D. 2020. “Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?” Smith School Working Paper 20-02.

[xxxvi] Cochrane, E. 2020. “Infrastructure week returns as Trump and Democrats eye post-virus jobs plan. “ New York Times, April 1, 2020. Available from: https://www.nytimes.com/2020/04/01/us/politics/infrastructure-week-coronavirus.html?campaign_id=9&emc=edit_NN_p_20200402&instance_id=17271&nl=morning-briefing&regi_id=73055978&section=topNews&segment_id=23606&te=1&user_id=4c2641b64be4fbc96d3272bb1a96ae71. Downloaded: April 3, 2020.

[xxxvii] Emrath, P. “National impact of home building and remodeling: Update estimates.” NAHB, April 1, 2020. Available from: https://www.nahbclassic.org/fileUpload_details.aspx?contentTypeID=3&contentID=272642&subContentID=738975&channelID=311. Downloaded: June 16, 2020.

[xxxviii] The Economist, 2020. “Boris’s infrastructure plans.” The Economist, July 1, 2020. Available from: https://www.economist.com/britain/2020/07/01/boriss-infrastructure-plans?utm_campaign=the-economist-today&utm_medium=newsletter&utm_source=salesforce-marketing-cloud&utm_term=2020-07-01&utm_content=article-link-5. Downloaded: July 2, 2020

[xxxix] Musulin, K. 2020. “NLC: Financial impact data paints ‘dire picture’ of cities futures.” Smart Cities Dive, June 24, 2020. Available from: https://www.smartcitiesdive.com/news/nlc-financial-impact-data-paints-dire-picture-of-cities-futures/580383/. Downloaded: June 29, 2020.

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Roaring or meowing twenties?

By Old Mutual Wealth Investment Strategists Izak Odendaal and Dave Mohr

The world is experiencing a phase of rapid economic expansion as the vaccine-aided reopening of economies is supported by substantial fiscal and monetary support, particularly in the US and other rich nations.

If the 6% global growth forecast of the International Monetary Fund (IMF) is realised, it will be the best year in decades. This partly reflects the rubber band effect: it was stretched too far in 2020 and is now snapping back in the other direction in 2021. However, there is also strong underlying momentum that should carry over into next year. But what lies further ahead?

Chart 1: Past and forecast economic growth, %

Source: International Monetary Fund

Roar

Some have argued that we face a new decade of plenty, akin to the Roaring Twenties that followed the last deadly global pandemic a century ago. The theory is that having been through the distress of recession, lockdowns and social distancing, people will want to let loose.

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The 1920s, following the horror of World War I and the devastation of the 1918/19 flu epidemic, was famously the era of jazz and glitzy nightclubs. It was the age of Jay Gatsby and the Flappers. It was also the age of rapid technological change. Cars gave freedom of movement, while telephones and radios connected people like never before. The thrilling possibilities of commercial aviation became apparent when Lindbergh crossed the Atlantic in 1927.

Of course, the era also saw an epic stock market rally in the US, partly because new technologies made the stock market accessible to ordinary people for the first time. They jumped in with abandon. President John F Kennedy’s father Joseph famously realised the market was out of control and sold out near the peak after a shoe-shine boy gave him stock tips.

And of course, it all ended in tears eventually. The market crashed in 1929, and as the Great Depression unfolded and spread around the world, it kept falling.

Some of this already feels very contemporary. The urge to escape the confines of lockdowns is real. Technological progress has been rapid, and the pandemic accelerated the pace of adoption. Grannies now use Zoom, while entire businesses have permanently vacated their offices as people work remotely. And once again, the stock market is being democratised, this time through social media forums, free trading apps like Robinhood, and frenzied buying of crypto-assets. Over the last few weeks, Dogecoin, created in 2013 as a joke alternative to Bitcoin, briefly surged to a larger market value than established multinational corporations like Ford.

Blockchain may be overhyped as a world-changing technology, but there have been genuine technological breakthroughs, most notably the development of mRNA vaccines. The decline in the cost of solar and wind energy is providing hope in the battle against climate change, as does the increased sale of electric vehicles. There is also a greater focus on social justice and equality issues, as there was in the years after World War 1, when women were allowed to vote for the first time in several countries (UK in 1918, Sweden and the Netherlands in 1919, the US in 1920 and Ireland in 1922).

But historical parallels only take you so far. There are several issues to consider before concluding that the current boom will last.

Firstly, will households really go on a spending spree? Moody’s estimates that households in the rich world (again, particularly the US) have boosted savings by $5.4-trillion from 2019 levels. How much of this will be spent and over what timeframe? Or will the memory of the pandemic prompt households to maintain healthy rainy day funds?

Part of the answer depends on the distribution of these savings. The more affluent you are, the less likely you are to spend each additional dollar you earn. If you are poor, however, you have to spend every dollar just to stay alive, and saving is a luxury. The rising level of inequality in the developed world is probably one of the reasons behind the slow recovery from the 2008 financial crisis.

Secular stagnation

The post-crisis, pre-Covid era was characterised by interest rates and inflation persistently lower than expected, while GDP growth in the major countries was below long-term averages.

Chart 2: Real government bond yields, %

Source: Refinitiv Datastream

The overhang of private debt meant there was little appetite to borrow even at record low interest rates, while tightened banking regulations meant that the supply of credit was tight even where there was demand. It was a world of excess capacity, excess savings and sluggish growth, what some termed ‘secular stagnation’ or ‘Japanification’.

Moreover, even before former US president Donald Trump’s trade wars, it appeared that global trade was slowing relative to underlying economic growth. Perhaps the world had reached a natural saturation point beyond which it does not make much sense to stretch supply chains. Post-pandemic, supply chains are increasingly being redirected closer to home with a greater focus on reliability than efficiency.

Developed market outperformance?

The IMF’s forecast is that developed countries will rebound strongly and make up for lost ground relatively quickly. The US is even expected to end up somewhat better than in a no-pandemic scenario. This is of course thanks to its tremendous fiscal firepower and its pushing to the front of the vaccine queue. Developing countries will take longer to recover due to slower vaccine roll-outs and less fiscal support.

This is a reversal of the post-2008 experience when developing countries recovered quickly and strongly, at least initially. And while developing countries will benefit from stronger growth in the rich world, their central banks could be forced to hike interest rates sooner than they would want to if their peers in the developed countries, specifically the US Federal Reserve, decides it’s time to raise rates from near zero levels. 

China is expected to grow 8% to 9% this year, but its growth rate will drift back down towards 5% to 6% in the coming years, perhaps even lower. The economy is so large already that such rapid growth rates cannot be sustained without adding more and more debt every year.

The Chinese government specifically wants to move away from reliance on debt-fuelled real estate and infrastructure spending and focus more on services and high-tech manufacturing. It no longer wants to be the world’s factory for cheap junk. It also wants greater reliance on internal demand, as part of President Xi’s ‘dual circulation’ theory. China also faces a unique problem among emerging markets (if we can still call it that) of a declining work force due to its previous one-child policy. All this implies slower growth in the years ahead. Meanwhile the risk of a conflict with the US over Taiwan and other issues remains the biggest geopolitical threat.

Demographics is also at the heart of slower economic growth in the developed countries. Older populations spend less. Labour force growth is now driven almost entirely by immigration, and immigration has become a huge political hot potato.

Policy will be crucial. The Great Depression need not have become ‘Great’. It would have been a run-of-the-mill recession had it not been for a series of policy blunders across the world. Certainly, the Depression was not caused by the stock market collapse.

The post-2008 Great Recession was also characterised by a number of policy mistakes. The European Central Bank (ECB) hiked rates very prematurely in 2011, mistaking a higher oil price for sustained inflation. Another epic mistake was the turn to fiscal austerity in the US, UK and Eurozone around the same time.

By 2016, these mistakes had contributed to a shift to political populism, which led to a new round of policy headwinds (notably Brexit and Trump’s trade battles).

Today policy is extremely loose and supportive. Interest rates are low, central banks are buying bonds, and governments are spending. The IMF reckons there will be $16 trillion in fiscal spending in the wake of the pandemic, mostly borrowed. This is a giant experiment and we don’t know yet how it will play out. The key metric is not debt-to-GDP ratios, but debt service ratios, the portion of national income that is spent on interest payments. 

Apart from expansionary countercyclical fiscal policy (providing money to fill the hole left by Covid), there is also a renewed sense that governments can and should lead the way to “build back better”. The US Biden administration has been at the forefront with an ambitious social, infrastructure and climate change agenda. If implemented and replicated by other countries, it could boost global expansion and wellbeing.

Productivity puzzle

Finally, productivity growth is key. Productivity is what allows growth without inflation. Growth without productivity means the prices of resources (workers, raw materials, and equipment) are pushed up. Productivity means doing more with less inputs.

It remains a puzzle why all the technological progress of the past few years has not really boosted productivity growth, which is measured as output per worker, and which has only grown by about 1% per year in the rich world over the past decade, half the previous decade.

There are several plausible theories. One is that companies, faced with uncertainty and sluggish demand, have not invested enough in new technology and equipment. Another is simply that it can take time to work out how best to implement new technology to make a difference. For instance, the personal computer is a product of the 1980s, but only in the 1990s did it really change the nature of work. Commercial aviation, as mentioned earlier, only became widespread several decades after the Wright Brothers first took off at Kitty Hawk in 1903.

Chart 3: Productivity growth for the developed countries, %

Source: Refinitiv Datastream

To summarise, a Roaring Twenties scenario would require sustained productivity growth, policy tailwinds (or at least the absence of headwinds) and rising confidence. One would also expect somewhat higher, but not runaway, inflation which in turn implies higher interest rates.

From an investment point of view, a Roaring Twenties scenario sounds great for equity investors locally and globally as growth boosts corporate revenues, and productivity gains keep cost pressures in check and margins healthy.

But as in the 1920s, investors will need to be careful to avoid bubbles and be wary of using debt to gear up returns. This scenario sounds bad for bond investors. Even modestly higher inflation will erode developed market bond and cash returns given how low yields still are. South African bonds would be at some risk from upward pressure on global yields, but high starting yields provide a cushion, while stronger economic growth should allow the government to reduce borrowing.

Meow

The opposite scenario of a continuation of the secular stagnation symptoms – let’s call it the Meowing Twenties – should place persistent downward pressure on bond yields as excess savings look for a safe home. The 10-year US Treasury at 1.6% currently might be a good buy. It certainly was a good buy when the Japanese yield was at that level 15 years ago.

How this impacts the equity market is not straightforward. The previous decade showed how low bond yields benefited equities, but only those companies with an in-built growth momentum, specifically large technology platform shares in the US and China. Outside the US equity returns were nothing to write home about. Certainly South Africans should prefer the Roaring to Meowing Twenties. Another decade of sluggish growth should push government debt levels into even more worryingly high levels, though it should also continue to grind both inflation and short-term interest rates lower.

These are all big questions that lack clear answers. While some of these trends seem distant compared to the closer and noisier local politics, they ultimately matter more for longer-term investment returns. That said, one thing to remember is that equity markets are always changing anyway. The ten biggest listed companies in the world today are all technology companies (broadly speaking) apart from JPMorgan, the bank.

This is very different to the era before the financial crisis (when it was commodities and banks that dominated), or the 1980s (Japanese stocks), or the 1970s (industrials). Going all the way back to the early 1900s, the railway industry was by far the biggest global sector. Locally, our market is now also dominated by tech (Naspers), while gold mining is small. The top performing economic sectors tend to naturally find their way into equity indices, and it has usually paid to have broad long-term exposure.

While it is important to ponder how the world will change (or not) over the next few years, we need to accept that the future is inherently unpredictable. However, this should not put investors who need long-term growth off from investing in equities. It is quite possible that we will see elements of both Roaring and Meowing in the years ahead, and as always it will be diversification that ensures portfolios can benefit either way.

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President Ramaphosa | South Africa’s Economic Reconstruction and Recovery Plan

15 October 2020

Speaker of the National Assembly, Ms Thandi Modise,
Chairperson of the National Council of Provinces, Mr Amos Masondo,
Deputy President David Mabuza,
Ministers and Deputy Ministers,
Honourable Members of the National Assembly and the NCOP,
Fellow South Africans,

I have requested this sitting of the Joint Houses of Parliament to present the plan for the reconstruction and recovery of our economy and our country.

In contrast to the State of the Nation Address, where we address the broad programme of government for the year, today I want to focus on the extraordinary measures we must take to restore our economy to inclusive growth following the devastation caused by Covid-19 to our people’s lives and our country’s economy.

This is a plan through which all of us as South Africans should work together to build a new economy.

The objectives of the plan are clear:

– To create jobs, primarily through aggressive infrastructure investment and mass employment programmes;

– To reindustrialise our economy, focusing on growing small businesses;

– To accelerate economic reforms to unlock investment and growth;

– To fight crime and corruption; and,

– To improve the capability of the state.

All these objectives are linked to the vision of our country set out in the National Development Plan.

Madam Speaker,
Chairperson of the NCOP,

On this day seven months ago, we declared a national state of disaster to confront the greatest health emergency that the world has known in more than a century.

Since then, the coronavirus has infected more than 38 million people across the world and is responsible for more than a million deaths.

The reality that we must confront is that the pandemic will not be over soon.

Globally, the number of new Covid cases per day is currently at its highest level since the start of the pandemic.

This has far-reaching implications in every area of human development, from education to health, from food security to poverty alleviation, from the empowerment of women to social stability.

The pandemic continues to cause severe damage to the global economy, affecting trade, investment, production, international travel and global supply and demand.

No country has been spared. No economy has been unaffected.

This is also the case on our own continent.

In South Africa, the pandemic has caused great hardship and suffering.

In the 220 days since our first recorded case, more than 18,000 people are confirmed to have died from Covid-19.

The loss of these lives is not only devastating to the families who have lost loved ones but to the nation as well.

South Africa has over 700 000 confirmed cases.

At present, 90% of those infected have recovered.

As a result of the measures we took to delay transmission and to prepare our health facilities, we were able to withstand the massive surge of infections in the middle of July. At that time, new cases were being detected at an average rate of 500 an hour.

While the national lockdown in April had a significant impact on economic activity, the economic consequences of an uncontrolled surge would have been far worse.   

Due to the dedication and sacrifices of millions of South Africans, we were able to limit the impact of the pandemic on lives and livelihoods.

For the last month and a half, even as we have significantly eased restrictions on movement and social and economic activity, the average number of daily cases has remained relatively stable at less than 2 000 cases.

But it is far too soon to declare victory.

The World Health Organisation warns that many countries have had a significant resurgence of infections following 4 to 8 weeks of low transmission.

It has also advised us that South Africa is now entering a phase that requires high vigilance and heightened readiness to respond.

Rather than easing our prevention efforts – including social distancing and observing health protocols – we must intensify them further to reduce new cases to less than 1 000 a day.

Coronavirus will remain part of our lives for some time to come, and we need to adjust to this new reality and a new normal in all areas of life.

Our health system must remain adequately staffed, equipped and financed to ensure we save lives.

We must rebuild, repair and restore our country not after Covid, but in the midst of Covid.

Our country had immense challenges for a number of years before coronavirus.

The coronavirus pandemic has worsened these challenges. 

Poverty and inequality have deepened, threatening many South Africans with hunger and a sudden loss of income.  

Our economy, like other economies, has contracted sharply, businesses have closed and jobs have been lost.

Notwithstanding these challenges, we were duty-bound to respond as a government and the nation to this pandemic in a way that demonstrated our care for the lives and livelihoods of our people.

Our response to the pandemic was therefore three-pronged – firstly, a robust health response, secondly, social and economic relief and now economic recovery.

As we anticipated the impact of the pandemic on the livelihoods of the people, we responded by implementing a massive social and economic relief package to support companies, workers, households and individuals in distress.

We announced a relief package which, with a total value of R500 billion or around 10% of GDP, is the biggest on the African continent and compares favourably with other countries in the G20. 

Relative to the size of our economy, our social and economic relief response to Covid-19 is roughly on par with countries like Canada, Spain, the United States and Australia.

Through the special Covid-19 grants and the top-up of existing grants, close to R40 billion in additional support has been provided directly to more than 17 million people from poor households. 

Studies have shown that these grants were vital in reducing the impact of the pandemic on levels of poverty and hunger.

The evidence suggests that the expansion of social protection has kept more than 5 million people above the food poverty line during the past six months.

The Special Covid-19 Grant in particular represents a significant achievement, reaching more than 6 million unemployed people in a short space of time.

More than 960 000 companies have benefited through the UIF wage support scheme and through the grants and loans provided by various government departments and public entities.

More than 4 million workers have received R49 billion in wage support, helping to protect these jobs even while companies were not able to operate.

In addition to those businesses that have received direct support, many more companies have benefited from tax relief measures worth in the region of R40 billion.

The South African Reserve Bank acted swiftly to support the economy and protect the financial system, reducing interest rates to their lowest level in more than 50 years.

With a view to protecting jobs and saving companies that employ our people from bankruptcy, we introduced another important intervention in the form of a R200 billion Loan Guarantee Scheme. 

This scheme has thus far provided R16 billion in low-interest loans to almost 12 000 businesses.

Banks have together provided an additional R34 billion in debt relief to individuals and businesses.

Nonetheless, this is far short of what is needed and what is possible.

We are therefore working with the banks to ensure that more companies are able to access this assistance as they resume their operations, and that the full potential of this scheme can be realised.

The combined effect of the measures taken by government and its social partners has been to preserve our country’s economic capacity and lay the foundation for a more rapid recovery.

Despite these vital interventions, however, the damage caused by the pandemic to an already weak economy, to employment, to livelihoods, to public finances and to state-owned companies has been colossal.

More than 2 million people lost their jobs in the second quarter of this year.

Our economy contracted by 16.4% when compared to the previous quarter.

National Treasury expects a significant shortfall in revenue collection. 

This economic shock is unprecedented in our country, and it will take an extraordinary effort to recover from it.

As even the darkest of clouds has a silver lining, we need to see this moment as a rupture with the past and an opportunity to drive fundamental and lasting change. 

It is an opportunity not only to recover the ground that we have lost over the course of the pandemic, but to place the economy on a new path to growth.

We are therefore presenting before this joint sitting of Parliament and the country a reconstruction and recovery plan to drive growth that is inclusive and transformative.

The South African Economic Reconstruction and Recovery Plan builds on the common ground established by the social partners – government, labour, business and community organisations – through intensive and detailed consultations over the last few months.

It is informed by the work of Cabinet’s Economic Cluster working together with government departments and Cabinet itself and draws on the contributions of the leading economists who make up the Presidential Economic Advisory Council.

I wish to applaud the remarkable efforts, particularly from our social partners in NEDLAC, in reaching consensus on the actions required to rebuild our economy, and the firm actions that all social partners have committed to contribute to the country’s recovery.

We know from the examples of several other countries that social compacts are essential to effective and sustainable growth and development.

As we implement this plan, government remains committed to the agreements reached through the NEDLAC process.

Honourable Members,

The work that we have embarked upon to rebuild our economy after the devastation of coronavirus is guided by the vision to 2030 of the National Development Plan and the programme that was outlined at the beginning of the 6th democratic administration, where we set out the key priorities to drive change and transformation in our country.

The depth of the crisis caused by the pandemic has sharpened our focus and our determination to address the challenges that face us.

The creation of jobs is at the centre of the Reconstruction and Recovery Plan.

We must get our people back into the jobs they lost in the pandemic. 

We are determined to create more employment opportunities for those who were unemployed before the pandemic or who had given up looking for work.

This means unleashing the potential of our economy by, among others, implementing necessary reforms, removing regulatory barriers that increase costs and create inefficiencies in the economy, securing our energy supply, and freeing up digital infrastructure. 

This plan directly responds to the immediate economic impact of Covid-19 by driving job creation and expanding support for vulnerable households. We aim to do this primarily through a major infrastructure programme and a large-scale employment stimulus, coupled with an intensive localisation drive and industrial expansion.

The interventions outlined in this plan will:

– achieve sufficient, secure and reliable energy supply within two years;

– create and support over 800 000 work opportunities in the immediate term to respond to job losses;

– unlock more than R1 trillion in infrastructure investment over the next 4 years;

– reduce data costs for every South African and expand broadband access to low-income households;

– reverse the decline of the local manufacturing sector and promote reindustrialisation through deeper levels of localisation and exports;

– resuscitate vulnerable sectors such as tourism, which have been hard hit by the pandemic.

According to the modelling done by National Treasury, the implementation of this plan will raise growth to around 3% on average over the next 10 years.

Our recovery will be propelled by swift reforms to unleash the potential of the economy, and supported by an efficient state that is committed to clean governance. 

It will be transformative. 

It will be inclusive. 

It will be digital, green and sustainable, and it will invest in our human capital to lay the foundations for the future.

The economic reconstruction and recovery plan recognises that to support a rapid economic rebound, South Africa needs to focus on a few high-impact interventions and ensure they are executed swiftly and effectively.

The reconstruction and recovery plan has four priority interventions:

Firstly, we are embarking on a massive rollout of infrastructure throughout the country.

Infrastructure has immense potential for stimulate investment and growth, to develop other economic sectors and create sustainable employment both directly and indirectly.

We have developed a robust pipeline of projects that will completely transform the landscape of our cities, towns and rural areas.

By the end of June 2020, we had 276 catalytic projects with an investment value of R2.3 trillion. 

Moreover, a list of 50 strategic integrated projects and 12 special projects was gazetted in July 2020. 

These catalytic projects have been prioritised for immediate implementation with all regulatory processes fast-tracked – enabling over R340 billion in new investment. 

These projects are at various stages of the project life cycle. 

Those that are already in construction will see the future phases brought earlier for implementation, including some human settlements projects, which have already received bulk financing to unlock them. 

We are exploring the use of credit enhancing instruments to unlock bulk water infrastructure and national roads improvement projects.

Our infrastructure build programme will focus on social infrastructure such as schools, water, sanitation and housing for the benefit of our people.

We will focus on critical network infrastructure such as ports, roads and rail that are key to our economy’s competitiveness.

We have taken steps to remove the constraints that have hampered infrastructure delivery in the past.

To ensure that there is active implementation of our infrastructure built programme, we have established Infrastructure SA and the Infrastructure Fund with the capacity to prepare and package projects.

This approach is already encouraging private investors to help us build capability for infrastructure delivery within the state and to develop blended financing models.

The Infrastructure Fund will provide R100 billion in catalytic finance over the next decade, leveraging as much as R1 trillion in new investment for strategic infrastructure projects.

Several projects are already in construction.

These include human settlements projects such as Matlosana N2 in North West, Lufhereng in Gauteng, Greater Cornubia in KwaZulu-Natal and Vista Park in Free State.

Together these represent an investment value of R44.5 billion.

In total, we have gazetted 18 housing projects to the value of R130 billion, which together will produce more than 190 000 housing units.

Transport projects currently under construction include the N1 Polokwane and N1 Musina with a total value of R1.3 billion.

Within the next six months, we will:

– Embark on the modernisation and refurbishment the commuter rail network, include the Mabopane Line in Tshwane and the Central Line in Cape Town;

– Expand the national rural and municipal road rehabilitation and maintenance programme using labour intensive methods; and

– Fast-track the implementation of gazetted strategic infrastructure projects through the approval of credit enhancing instruments, provision of bulk infrastructure, and speedy processing of water use licenses, environmental impact assessments and township establishment; and

– Adapt the infrastructure procurement framework to enable public-private partnerships and unlock new funding.

Our second priority intervention is to rapidly expand energy generation capacity.

We are accelerating the implementation of the Integrated Resource Plan to provide a substantial increase in the contribution of renewable energy sources, battery storage and gas technology. 

This should bring around 11 800 MW of new generation capacity into the system by 2022. More than half of this energy will be generated from renewable sources.

In the immediate term, agreements will be finalised with Independent Power Producers to connect over 2 000 MW of additional capacity from existing projects by June 2021. 

The Risk Mitigation Power Procurement Programme will unlock a further 2,000 MW of emergency supply within twelve months.

The process to implement bid window 5 of the renewable energy programme has begun.

We are taking further steps to enable power generation for own-use.

The current regulatory framework will be adapted to facilitate new generation projects while protecting the integrity of the national grid. Applications for own-use generation projects are being urgently fast-tracked.

The work of restructuring Eskom into separate entities for generation, transmission and distribution continues and will enhance competition and ensure the sustainability of independent power producers going forward. 

To achieve this, a long-term solution to Eskom’s debt burden will be finalised, building on the Social Compact on Energy Security recently agreed to by social partners.

Through these measures, we aim to achieve sufficient, secure and reliable energy supply within two years.

Our third key intervention is an employment stimulus to create jobs and support livelihoods.

Large-scale job interventions driven by the state and social partners have proven effective in many countries that have faced devastation from wars and other crises.

We have committed R100 billion over the next three years to create jobs through public and social employment as the labour market recovers. 

This starts now, with over 800 000 employment opportunities created in the months ahead.

The employment stimulus is focused on those interventions that can be rolled out most quickly and have the greatest impact on economic recovery.

At the heart of the employment stimulus is a new, innovative approach to public employment which harnesses the energies and capabilities of the wider society. 

It uses the considerable creativity, initiative and institutional resources that exist in our society to respond to local community priorities. 

These activities will be locally driven, allowing participants to earn an income while contributing to their community.

Traditional forms of public employment are being scaled up and new forms of public employment created to meet the immediate need. 

We are going to expand our natural resource management programmes such as Working on Fire and Working for Water. 

We are going to create 300 000 opportunities for young people to be engaged as education and school assistants at schools throughout the country, to help teachers with basic and routine work so that more time is spent on teaching and enabling learners to catch up from time lost because of Covid.  

More than 60 000 jobs will be created for labour-intensive maintenance and construction of municipal infrastructure and rural roads. 

To support our healthcare system an additional 6 000 community health workers and nursing assistants will be deployed as we proceed with the implementation of National Health Insurance.

Public employment will be expanded at the provincial and city level, contributing to cleaner, greener and safer public spaces and improved maintenance of facilities.

In all of these programmes, we will ensure that recruitment is fair, open and transparent, and that opportunities are advertised widely.

To assist young people who are unemployed to access these and other opportunities, we will soon launch the national Pathway Management Network as a platform for recruitment and other forms of support.

Finally, the employment stimulus includes direct support for livelihoods and the protection of jobs in vulnerable sectors. 

Support is being provided to more than 100 000 early childhood development practitioners and to 75 000 small-scale farmers whose production was disrupted by the pandemic. 

Grant-making programmes are being expanded in the creative, cultural and sports sector, and funding has been allocated to protect jobs in cultural institutions such as museums and theatres. 

More than 40 000 vulnerable teaching posts are being secured in schools which have lost income from fees.

The implementation of the employment stimulus has already commenced. Each of these work opportunities is fully funded and ready for implementation.

The speed and urgency with which we are expanding employment programmes demonstrates our commitment to support those who are without work.

As these and other recovery measures are being rolled out, we need to do everything in our means to provide support to those in society who continue to face hunger and distress.

We will therefore be extending the Special Covid-19 Grant by a further 3 months.

This will maintain a temporary expansion of social protection and allow the labour market sufficient time to recover.

Our fourth key intervention is a drive for industrial growth.

This is in the context of a steady decline of our manufacturing base over many years.

To place our economy on a new trajectory, we are going to support a massive growth in local production and make South African exports much more competitive.

We will build on the work that was being done in several areas before the pandemic struck.  

Through the first two South African Investment Conferences, we managed to secure pledges of around R664 billion in new investment.

To date, just under R170 billion of capital expenditure committed during those investment conferences has been invested in projects for construction and buying equipment is essential to mining, manufacturing, telecommunications and agriculture.

Last year, South Africa recorded its first trade surplus with the European Union, driven by record exports of manufactured goods.

Our country produced and exported more motor vehicles last year than in any previous year.

Our agricultural sector has continued to grow, with a bumper maize harvest and the expansion of many high-value crops.

We have positioned South Africa as one of the most attractive destinations in the world for global business services.

Despite the weaknesses in our economy, despite the devastation caused by the coronavirus, these are some of the strengths on which we can build.

There are huge opportunities that we can seize through effective partnerships, targeted deployment of resources and the right policies.

South Africa currently imports around R1.1 trillion of goods, excluding oil, each year.

If we were to manufacture just 10% of these goods locally, it is estimated that we could add 2 percentage points to our annual GDP.

The rest of Africa currently imports R2.9 trillion worth of manufactured goods from outside the continent each year.

If South Africa were to supply just 2% of those goods, it would add 1.2 percentage points to our annual GDP.

And if we succeed in reaching our target of R1.2 trillion in new investment by 2023, it could add around 2.5% to our annual GDP.

It is to realise this huge potential that the social partners have agreed to prioritise a range of consumer and industrial products for local procurement.

Together with business and labour, we will soon be publishing localisation targets for goods in areas like agro-processing, health care, basic consumer goods, industrial equipment, construction materials and transport rolling stock.

We will enforce government policies to ensure that all public infrastructure projects use locally-made materials, including steel products, cement, bricks and other components. 

We will support the efforts by organised business, we are planning to establish supplier development programmes for large companies and in key sectors.

We welcome the commitment by trade unions to ensure their investment companies increasingly invest in companies that buy from local manufacturers.

The NEDLAC agreement commits all companies and government entities to publicly disclose in their annual reports the value of procurement from local producers and on steps to be taken to improve localisation.

The social partners have also agreed to support a massive ‘buy local’ campaign for this festive season, with a particular call to support women-owned enterprises, small businesses and township enterprises.

We call on every South African to contribute to our recovery effort by choosing to buy local goods and support local businesses.

This is one way that each and every one of us can contribute to building a new economy.

A vital part of growing our industrialisation effort are the sectoral masterplans, which bring all partners together to agree on specific measures to improve productivity, investment and competitiveness.

There are currently masterplans in the automotive, clothing and textile, poultry and sugar sectors.

We are now working to finalise masterplans in the digital economy, forestry, agriculture and agro-processing, creative industries, aerospace and defence, renewable energy, steel and metal fabrication and furniture.

A central pillar of this work is the transformation of our economy, creating space for new black and women entrants and take deliberate steps to change ownership and production patterns.

In promoting localisation and industrialisation, we will be focusing in particular on the development of small, medium and micro enterprises.

This will take place alongside the development of rural and township economies, 

There are between 2.4 million and 3.5 million SMMEs in the country, with the largest number in the informal and micro sectors.

They offer the greatest untapped potential for growth, employment and fundamental economic transformation.

Through a focused support programme, we will support SMME participation in the manufacturing value chain.

This will include the targeting specific products for manufacture by SMMEs for both the domestic market and for export.

It will also include the provision of business infrastructure support, financial assistance through loans and blended funding, facilitating routes to market, and assistance with technical skills, product certification, testing and quality assurance.

Economic growth cannot be realised without the inclusion and active participation of women.

Among the other measures we have outlined, we will be working with women-empowered companies to progressively reach our target of directing at least 40% of procurement spend to such enterprises.  

This is also a vital part of our programme to end gender-based violence and femicide, which is fuelled by gender inequality, particularly economic disparities between men and women and gender-non conforming persons.

In addition to these priority interventions, we will create enabling conditions for a competitive, inclusive and fast-growing economy.

We are fast-tracking reforms to reduce the cost of doing business and lower barriers to entry.

The current timeframes for mining, prospecting, water and environmental licenses will be reduced by at least 50% to facilitate new investment. 

The Petroleum Resources Development Bill will be finalised to unlock our country’s enormous untapped potential in upstream oil and gas reserves.

Although international tourist travel is likely only to recover in the medium term, our efforts are now focused on implementing an efficient e-visa system and extending visa waivers to new tourism markets.

To support tourism over this peak tourism season, we will shortly be publishing an expanded list of countries from where resumption of international travel will be permitted, which will be supported by targeted marketing in partnership with the private sector. 

We urge South African to continue to explore their country in support of the tourism recovery as one of the hard hit sectors by the Covid-19 pandemic.

We will shortly publish the revised list of critical skills, occupations in high demand and priority occupations to enable highly skilled individuals to be speedily recruited, and expedite the issuing of special skills visas to support local firms.

We are promoting greater private sector participation in rail, including through granting third-party access to the core rail network and the revitalisation of branch lines. 

We will establish a single economic regulator in transport as a matter of urgency to promote competition and efficiency.

Work is underway to improve the efficiency and capacity of the ports of Durban, East London, Ngqura and Cape Town. 

The release of high-frequency spectrum by March 2021 and the completion of digital migration will reduce data costs for firms and households.

This process is being managed by ICASA and will promote transformation, reduce costs and increase access.

We are developing innovative new models to provide low-income households with access to affordable, high-speed internet through connection subsidies for broadband and support for public WiFi hotspots.

Decisive action against crime and corruption is essential to inclusive growth. 

Criminal elements in our country have taken to the illegal occupation of construction sites and soliciting protection money from businesses.

To combat these practices, a Joint Rapid Response Team at a national and provincial level will respond to the problem of violent disruptions at construction sites and other business activities.

A well-functioning revenue service is central to our economic recovery programme.

The turnaround at the South African Revenue Service has begun in earnest, and significant areas of tax evasion and tax fraud have already been identified. 

SARS is rebuilding its capacity to reverse the decline, improve compliance and recover lost tax revenue.

We are working to clamp down on the illegal economy and illicit financial flows, including transfer pricing abuse, profit shifting, VAT and customs duty fraud, under-invoicing of manufactured imports, corruption and other illegal schemes. 

The decisive action we have taken to prevent, detect and act against Covid-19-related corruption will strengthen the broader fight against crime.

The Special Investigating Unit has made significant progress in probing allegations of criminal conduct in all public entities during the national state of disaster.

The work of the SIU continues and the outcomes of the investigations will be made public once all the due process have been completed. 

Law enforcement agencies are being strengthened and provided with adequate resources to enable the identification and swift prosecution of corruption and fraud. 

We wish to assure all South African that there will be no political interference with the work of law enforcement agencies.

We will strengthen the framework to ensure that political office-bearers at all spheres of government do not do business with the state and we welcome the agreement at NEDLAC that all social partners will act decisively against corruption and fraud in their ranks.

The Public Procurement Bill will be fast-tracked and transversal contracts put in place for large-volume items.

We will soon finalise and begin implementation of the new National Anti-Corruption Strategy, which will improve transparency, monitoring and accountability in government and across society.

Through these actions, we will ensure that every Rand of public expenditure is spent productively to benefit our people and support our recovery effort.

All of these actions will be taken within a supportive macroeconomic framework, which balances the need to restore fiscal sustainability with economic growth. 

A critical pillar of this plan is the fiscal framework that will be outlined by the Minister of Finance in the Medium Term Budget Policy Statement.

Among other things, this framework will provide a path of fiscal consolidation, debt reduction and reprioritisation that is supportive of growth and recovery.

We cannot sustain the current levels of debt, particularly as increasing borrowing costs are diverting resources that should be going to economic and social development.

That is why we are urgently implementing the economic reforms that we have agreed with our social partners at NEDLAC to unlock investment, stimulate economic activity and generate revenue for the fiscus.

In reducing government expenditure, we are ensuring that funds are reprioritised towards poverty alleviation, infrastructure investment, support for economic development and fighting crime and corruption.

We are also reducing the reliance of SOEs on the fiscus by intensifying efforts to stabilise strategic companies, accelerating the rationalisation of SOEs and, where appropriate, identifying strategic partners.

It is clear that implementation is going to be the key in giving effect to this recovery and reconstruction plan.

This requires a more effective and efficient state, with greater coordination and integration between national, provincial and local government.

Through the District Development Model, we are beginning to see progress in the alignment of the work of the different spheres.

To ensure focused and urgent implementation of the Plan, dedicated capacity is being created in the Presidency to drive progress and support departments and agencies in the implementation of their mandate.

To fast-track the delivery of economic reforms, Operation Vulindlela will be implemented as a joint initiative of the Presidency and National Treasury reporting directly to the President on a regular basis.

It will work closely with Cabinet’s Economic Cluster to ensure that the priority interventions and key enabling reforms are implemented rapidly and effectively and that those responsible for their implementation are held accountable. 

A National Economic Recovery Council comprising relevant members of Cabinet will provide political oversight and enable rapid decision-making.

The Department of Planning, Monitoring and Evaluation remains the backbone of government reporting on the five-year Medium Term Strategic Framework.

This will take place alongside the implementation arrangements which have been agreed among the social partners at NEDLAC.

We will be releasing the Nedlac Social Partner Economic Recovery Action Plan and the Social Compact for Energy Security. These contain very significant measures that we will be working with social partners to implement.  

A Presidential Working Committee, chaired by the President, will meet regularly to receive reports from each social partner on the extent to which it has implemented its commitments.

It will be supported by an Economic Recovery Leadership Team and working groups on particular areas of the recovery action plan.

Fellow South Africans,

In the aftermath of a fire, green shoots begin to emerge. 

The ashes enrich the soil, and new life takes root to replace what was lost.

Our country is emerging from one of the most difficult periods in living memory.

South Africans have suffered and have made great sacrifices, sharing in this hardship with people all over the world.

But as South Africans, we have a deep reservoir of resilience to draw upon.

We have endured much, and have always emerged stronger and more united.

We stand together at a crucial turning point in the history of our country.

Our ability to reignite our economy rests on the decisions we take in this moment, and the urgency with which we address this crisis.

We shall not rest until we have fulfilled the potential of our country.

We shall not rest until we have built a new economy based on fairness, justice and equality.

This is the task of our generation: to renew, to repair, to rebuild.

We dare not take a moment to pause.

Together, we will build a new economy.

The time is now. Ke nako.

I thank you.

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Green New Deal can stimulate economic recovery and create jobs

While lock-down inadvertently helped to reduce carbon dioxide emissions, it is critically important that the sustainability of the environment is at the heart of post-Covid-19 recovery efforts.

This is according to the South African National Energy Development Institute, (SANEDI).

“This is where the much-talked-about Green New Deal (GND) becomes crucial and while it’s no panacea to economic challenges, harnessing its benefits can help grow the economy and create jobs in a post-Covid-19 world,” says Barry Bredenkamp, General Manager Energy Efficiency and Corporate Communications at SANEDI.

The GND is a major globally-led government programme aimed at shaping socially and economically just, green and renewable energy-powered economies, with societies supporting human rights, while addressing poverty and inequality. There have been forecasts by unions, like the Congress of South African Trade Unions, for example, supportive of the idea that it could make a difference, creating at least 300 000 jobs – yet this has not happened. But post the pandemic, it provides an ideal platform to help stimulate the economy.

SANEDI is not alone in proposing such steps and is proud to endorse a call by what is being hailed as the largest ever UN-backed CEO-led climate advocacy effort in which 155 multinationals have reaffirmed a science-based commitment to achieving a zero carbon economy and urging governments to match their ambition to “prioritize a faster and fairer transition from a grey to a green economy”.

As South Africa eases towards a return to business, recovery must be premised on ensuring that the environment is key to a sustainable future. “Rebuilding initiatives premised on ensuring that the environment is key to a better future, can assist in addressing the effects of Covid-19, along with tackling poverty and job creation through a number of initiatives,” says Bredenkamp.

To this end, SANEDI supports several measures which could revitalise the post-Covid-19 Green New Deal initiative, these include:

• Putting climate change projects at the heart of recovery efforts
• Facilitating funding in green projects, supporting poverty alleviation and job creation
• Focusing on sustainable energy innovation for impact in urban and rural South Africa
• Advocating for green energy solutions that lessen reliance on finite fossil fuels, for example, and,
• Scaling up successful small endeavors, which, along with the above proposals, in turn can help grow the economy and create jobs. 

The platform, he says, is already available as South Africa is no stranger to the principles of a GND with elements of it featuring in the National Growth Plan, while the Green Fund established in 2012 through the Department of Environmental Affairs with an initial R800 million seed fund, is managed by the Development Bank of Southern Africa, (DBSA).

The call to bring about equal distribution of income and reverse decades of environmental degradation is not unique to South Africa. In 2019, the United Nations Conference on Trade and Development (UNCTAD) published its trade and development report calling for decarbonizing the global economy, arguing that it would require a significant rise in public investment, especially in clean transport, energy and food systems.

According to SANEDI,  integration of actions are key to achieving the Sustainable Development Goals on climate change, in particular meeting the targets of the National Development Plan (NDP), whose vision is by 2030 for the country to become fully engaged in the transition towards an environmentally sustainable, climate-change resilient, low-carbon economy and a just society.

Putting this into numbers, the goals in the NDP seeks to achieve a reduction of the country’s greenhouse gas (GHG) emissions below a baseline of 34% by 2020 and 42% by 2030. The reduction of GHG emissions can be achieved by reducing our overall reliance on coal-based energy generation, to increasing and accelerating the uptake of energy efficiency and renewable sources – a transition that could potentially create 300000 green jobs, through infrastructure development and enabling new opportunities, especially for the poor.

“It is clear, South Africa can benefit in a post-Covid-19 scenario, by harnessing the positives of a Green New Deal and making it work towards shaping a stronger economy and creating jobs,” concludes Bredenkamp.

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