President Cyril Ramaphosa has secured nearly R370-billion in financing from the Chinese government towards an economic stimulus package.
The massive financial input is expected to largely fund government’s planned financial stimulus, speed up infrastructure development and rapidly increase the rate of South Africa’s industrialisation.
International Relations and Co-operation Minister Lindiwe Sisulu said government had initially been very cautious about accepting financial assistance from China but had come to the realisation there was “no way we can grow our economy on our own”.
Sisulu was part of the South African delegation at the Forum on China–Africa Co-operation last week. The minister said South Africa needed to access finance that would help it grow the economy faster and China, whose interest rates are not exorbitant, was available.
Of the $60-billion China pledged towards Africa to finance key development projects, $15-billion is earmarked for South Africa. Following Ramaphosa’s visit to Beijing, a further $10-billion has been secured.
As a response to the economic downturn, the economic cluster has been tasked with providing a concrete turnaround plan for the South African economy.
Government insiders told the Mail & Guardian Ramaphosa was unimpressed with the presentation made by ministers in the economic cluster this week as he was not convinced that the proposed measures would be able to resuscitate the economy.
Government leaders have been working on developing a model for the stimulus packages since Ramaphosa announced their planned rollout in August. A clear plan on how the packages will be structured is expected to be announced during the medium- term budget speech in October.
South Africa will need more than R40-billion for the rollout and was looking at a number of countries as a source for some of its funding.
This week the economic cluster presented its proposed model for the stimulus packages to the political committee, headed by National Assembly speaker Baleka Mbete.
Ramaphosa, who is also a member of the committee, was present at the meeting and, according to government insiders, was not impressed with the proposed interventions.
“The president rejected it [the proposed stimulus]. He said there is still more work to be done. He was not convinced that those things [proposed solutions] would stimulate the economy,” an insider told the M&G.
South Africa looked to follow the example set by China, once a developing country and now one of the largest economies in the world. Sisulu said this, as well as not wanting to be “tied to a particular market because historically and geographically we were tied to Europe”, helped sway government’s decision.
“The Chinese are saying it’s about time that we got our independence … We would like to tap into that,” she said.
Sisulu said South Africa had a huge infrastructure backlog and it would be beneficial for the country to work with China, which could assist with this better and faster than the state.
“Most of the infrastructure we [Africa] have has been with the support of the Chinese government and they have become very adept and good at it,” said Sisulu.
She dismissed concerns about the quality of goods from China, saying government had been specific about the quality of products it would buy.
“Most countries have a narrow view of what China is able to offer; they think of China as that country that produces cheap goods. That is because their capacity to produce is so large that some of it may not even be regulated,” said Sisulu.
“The regulated trade that we are dealing with is of the quality that we can depend on.
“If we want to industrialise, at the rate that we would like to industrialise, we would like to do it on the back of somebody that we can depend on and we have to industrialise to be able to grow our economy,” she explained.
There has, however, been some scepticism about whether a stimulus package will produce the type of long-term intervention required to boost the economy.
Iraj Abedian, chief executive of Pan-African Investment and Research Services, said government should forget about a stimulus package and talk about a turnaround strategy because the country’s recession was not cyclical.
“A stimulus package suggests that the economy’s recessionary environment is due to a cyclical downturn and therefore the stimulus package should cater to that. The problem with South Africa’s economy at the moment is it has a structural recessionary environment,” said Abedian.
He said all the major productive sectors, such as agriculture, mining, manufacturing, energy and municipalities, were not investment ready and remedying that would be the first condition for a successful turnaround strategy.
Lumkile Mondi, a senior lecturer at the Wits School of Economics and Business Science, said government had no room to manoeuvre in creating an economic stimulus package and the only solution to revive the economy would have to be a long-term solution that brings certainty.
But Mondi ruled out tax incentives and Reserve Bank interest rate cuts as options to stimulate the economy. “If we were to cut our revenue by offering tax incentives, we won’t have much money to meet our social commitments. So really we are between a rock and a hard place,” he said.
Mondi added that the only solution now would be one that brought about policy certainty over the expropriation of land without compensation and certainty in mining policy, both issues that have stifled investment from the business sector.
At the time of going to print the presidency was not available to comment on the proposed additional investment from China.
However, the small business development minister, Lindiwe Zulu, said she was aware of these plans to source more funding from China, which she believed was a “good idea”.
“I think it’s going to be a good idea, we’re just going to have to use it [the money] optimally,” she said.
“South Africa is looking to friends to help it build its economy and help to create jobs. So part of what you see with China has been going on for a long time. Our relationship with China didn’t start yesterday. They’re just stepping up in supporting us where they can,” she added.
Concerns have been raised, however, about China’s increasing level of investment in South Africa. The manufacturing sector has taken a knock from the import of cheap Chinese-manufactured products, which are affecting the viability of local industries such as textile manufacturing.
Trade and Industry Minister Rob Davies, however, said China did not pose a threat to the survival of local industries and employment.
Of allegations that China often insisted on using its own workers on Chinese-funded projects, Davies said: “They might have that reputation in other countries but they don’t do that here. They don’t bring a skilled labour force in South Africa where there are people who are capable of doing the job.”
He said increasing investment and trade with China would be a positive step towards unlocking different aspects of South Africa’s economic potential.
“Our biggest objective is to promote investment-led trade. We’ve been saying to [the] Chinese that if we want to increase our trade, there is a limit to how much it is going to increase just by us supplying raw materials and them supplying produced goods to our market,” Davies said.
“So if they invest in developing our productive capacity, then we will create a basis or a new type of trade that will be sustainable,” he said.