Structural reforms lay the foundation, but investment confidence remains the missing link - BLSA

ONE OF the challenges of the structural reforms we have been working with the government to deliver is the patience required for the payoff.

- 

Reforms take time to translate into measurable economic outcomes, and the lag between implementation and impact can test the resolve of even the most committed stakeholders.

For example, the remarkable success in reforming our electricity sector will only really deliver in GDP growth terms when firms are confident again to invest and expand capacity.

A stable power supply removes a constraint, but it takes time for businesses to assess the new landscape, secure financing and commit capital to long-term projects.

Similarly, an efficient logistics system pays off when companies find they can efficiently supply new global markets and build the plant or expand capacity to do so.

The immediate benefits of reduced congestion at ports or improved rail availability are tangible, but the transformative impact comes when manufacturers can reliably promise delivery times to international customers, when mining companies can confidently sign long-term export contracts and when agricultural producers can get perishable goods to market without costly delays.

That is not to downplay the immediate and tangible benefit that the end of loadshedding and improved capacity at our ports and rail corridors can bring, but the real growth they enable happens when businesses are again able to confidently invest.

I was struck by comments from ratings agency Moody’s last week that it is expecting growth next year of 1.6%, after growth of 1% this year, while pointing out that investment remains the key constraint to getting the economy to grow at a higher level.

Also last week the International Monetary Fund revised its expected GDP growth forecast for this year from 1% to 1.1% in its World Economic Outlook and for next year to 1.2%.

These are modest improvements, but they underscore how far we remain from the growth trajectory we need.

What is it going to take to break sustainably onto a higher growth path?