South Africa touts progress on structural reforms due to ‘Operation Vulindlela’

By Xolisa Phillip, in Johannesburg
Posted on Thursday, 25 August 2022 11:44

South African Finance Minister Enoch Godongwana speaks during a side event at the G20 Finance Ministers and Central Bank Governors Meeting in Nusa Dua, Bali, Indonesia, Thursday, July 14, 2022. (Made Nagi, Pool photo via AP)

With cautious optimism, tempered with a healthy dose of scepticism, the South African business community has welcomed the government's latest progress report on structural reforms to the economy.

On 5 August, Mondli Gungubele (minister in the presidency) and Enoch Godongwana (minister of finance) released the second quarter report on accelerated growth-enhancing structural reforms being implemented under Operation Vulindlela. The joint initiative of the presidency and the national treasury was established in 2020 to address constraints on South Africa’s economic growth and job creation.

“People are no longer prepared to give [the authorities] the benefit of the doubt. Seeing is believing,” says Martin Kingston, chairman of the Business for South Africa (B4SA), an umbrella group of trade associations. “That’s what is going to build trust and confidence, and generate the appetite for investment.”

Sectoral reforms

Operation Vulindlela has identified 26 structural reforms in the sectors of telecommunications, energy, water, and transport (rail and ports). The reforms include South Africa’s long-delayed migration from analogue to digital broadcasting, the auction of high-demand radio frequency spectrum, and addressing the country’s energy supply crisis.

In addition, the government has prioritised clearing the backlog of applications for water use licences, and is opening South Africa’s freight rail and ports to private sector participation.

The speed of implementation of these reforms continues to be a cause for concern

“We’ve found … good progress in a number of areas,” says Kingston, who is the former deputy president of Business Unity South Africa, the country’s apex business organisation. However, he says, the progress is “not necessarily as comprehensive as it appears at first blush”.

The presidency and the national treasury have been “quite honest in the challenges that they’ve met in the work they have performed”, Kingston says. He called Operation Vulindlela “an appropriate way of dealing with specific constraints and challenges around structural reform”, adding that the B4SA “broadly speaking” is “aligned” with what Gungubele and Godongwana are saying.

Although pleased that the auction of spectrum has gone through, Kingston noted, however, that “it took longer than it should have”.

Race against time

During a staff visit to South Africa in June 2022, the IMF said the country urgently needs“to remove obstacles to private sector investment and encourage competition to reignite economic growth in the medium term”.

“The speed of implementation of these reforms continues to be a cause for concern,” Kingston says. “But what is clear is that the disciplined and focused approach of Operation Vulindlela is what is required.”

“It will take time to build up a momentum that gives everybody the confidence that is required,” he tells The Africa Report. “People have become sceptical and … cautious.”

Global finance is taking notice.

In a recent review of the sovereign, S&P Global Ratings said it could raise South Africa’s sub-investment grade rating “against a backdrop of structural and governance reforms”.

Moody’s Investors Service has also signalled it would consider an upward revision of the country’s short- and long-term foreign and local currency credit ratings if the country “demonstrated significant progress towards alleviating structural constraints on growth”.

Powering ahead

Gungubele acknowledged, at the second quarter progress update, that the report “reflects on the challenges experienced with some reforms, such as the delay in [completing] digital migration”.

“However, where such challenges are experienced, action is being taken,” he said.

The focus during the past quarter has been on addressing the electricity crisis, Gungubele said.

Actions taken include lifting the licensing threshold for embedded generation from 1 megawatt (MW) to 100MW and reviving the renewable energy procurement programme. This has resulted in the pipeline of embedded generation projects expanding to more than 80, with a combined capacity of more than 6,000MW, Gungubele said.

It’s something to celebrate

To support investment in new generation capacity, Gungubele said a joint task team led by Godongwana has implemented key changes, including “designating these projects as strategic infrastructure projects and streamlining regulatory requirements”. Those efforts have resulted in the National Energy Regulator of South Africa now taking 19 days to register new projects instead of four months.

“It’s something to celebrate,” said Gungubele.

By the numbers

Godongwana said nine reforms have been completed and 11 others are in progress.

A backlog of nearly 1,000 water use licences applications has been cleared, according to Godongwana, which is expected to “unlock billions in new investment in agriculture, forestry, and other sectors”.

Regarding the freight rail network and ports, Godongwana flagged security problems, infrastructure challenges, inadequate investment in equipment, and poor operational performance as issues that require attention. However, Transnet ⁠— the state-owned freight transport company ⁠— is “improving its performance”, Godongwana says, while passage of the Economic Regulation of Transport Bill is expected within months.

The bill will pave the way for the creation of a Transport Economic Regulator that should “enable regulated, non-discriminatory access to the [rail] network,” he said.

Transnet has also indicated it will soon issue requests for proposals to shortlisted private sector participants for its programme to upgrade the key ports of Durban Pier 2 and Ngqura Container Terminals.

“This is a step to enable experienced international terminal operators to invest in the expansion of infrastructure and improve the management of port operations,” Godongwana said.

Port partners

On 27 July, during Transnet’s annual results presentation, Group CEO Portia Derby vowed to make Transnet Port Terminals a world-class operation and the “Number One terminal operator on the continent”.

On 12 August, Transnet said it has shortlisted 10 respondents for the Durban Pier 2 programme:

  • Terminal Investment Limited and Remgro Limited;
  • Star Classic Investments Limited and Abu Dhabi Ports;
  • Red Sea Gateway Terminal and MMC Port Holdings Sdn Bhd;
  • APM Terminals AMI Management DMCEST;
  • International Container Terminal Services, Inc;
  • Grindrod Freight Services and Hamburger Hafen Und Logistik Aktiengesellschaft;
  • Global Ports Services;
  • DP World Limited;
  • COSCO Shipping Ports Limited; and
  • China Harbour Engineering Company and Guangzhou Port Co.

For the Ngqura Container Terminals programme, Transnet has shortlisted:

  • APM Terminals AMI Management DMCEST;
  • Red Sea Gateway Terminal and MMC Port Holdings Sdn Bhd;
  • Star Classic Investments Limited and Abu Dhabi Ports; and
  • Terminal Investment Limited and Remgro Limited.

The aim is to create a 25-year special purpose vehicle between Transnet Port Terminals and the winning bidders, according to the company. Transnet says it expects to appoint preferred bidders for each terminal by February 2023.

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