The good times are back in South Africa… or there’s at least a glimmer that the bad times are ending.
This is the upshot of our investigation into the improved business optimism in South Africa, including in our own timber treatment industry.
The spark for this story was lit by a Gordon Institute for Business Science (GIBS) video in which Professor Adrian Saville interviewed three business leaders about South Africa’s economic outlook, the success of the first phase of Operation Vulindlela (OV), and the launch of its second phase.
Their conversation came against a backdrop of renewed business confidence. The South African Chamber of Commerce and Industry’s Business Confidence Index saw a remarkable year-on-year improvement in November 2024 – the biggest since Covid-19 restrictions were lifted. The positive mood is due, in large part, to post-election optimism and the promise of the Government of National Unity (GNU). It’s also a result of concrete improvements brought about by OV, a joint initiative of the Presidency and National Treasury.
“The first phase (OV1) focused on five key workstreams, including digital spectrum (auctioning off of spectrum and freeing up bandwidth), water, logistics, energy, and the visa regime,” said Sanisha Packirisamy, economist at Momentum Investments, in an interview with the Dolphin Bay Brief.
Remarkably, 89% of OV1’s tasks have been completed.
Speaking at the GIBS event, Citigroup Managing Director Gina Schoeman recalled the scepticism that greeted the OV1 launch in October 2020. “We’ve been looking at the economy for so long, and it has been all talk, very little action,” she said. “You almost have to be right at the coalface and checking on things all the time to guard yourself against that cynicism.”
However, the results – which include R500 billion in investment unlocked through reforms – speak for themselves. “I say to people, ‘If you find someone who works for OV at a braai or in a shopping mall or on the street, just give them a high five, shake their hand, give them a hug, and say: ‘Well done’, because what ended up happening was that their first phase was unbelievably successful,” Gina said.
Business Leadership South Africa (BLSA) CEO Busisiwe Mavuso, meanwhile, praised ministers in the GNU for doing their jobs as they should. “It’s been so inspiring to observe the fish swim,” she said. “Watching ministers, it’s like saying, ‘Wow! The fish swims.’ Of course it swims! That’s what it’s meant to do. But because we’ve been subjected to such mediocrity and incompetence for so long, observing people doing their job is so inspiring.”
“If you find someone who works for OV at a braai or in a shopping mall or on the street, just give them a high five… because what ended up happening was that their first phase was unbelievably successful.”
Our customers’ experience
For Dolphin Bay’s customers, OV1’s biggest success was the almost-end of nearly two decades of loadshedding to stabilise the country’s energy supply. Maintenance of power stations improved,private sector contributions were encouraged, Sanisha said, and 22 500 MW of private investments in renewable energy were added to the grid.
OV1 also undertook the splitting of generation, transmission, and distribution, allowing for that private sector participation.
The energy job is far from done. Distribution is still problematic and will require funding, Sanisha said. It will be crucial to ensure that transmission capacity is adequate for a stable electricity supply.
Municipalities still owe Eskom close to R89 billion, which it sorely needs.
“At the moment, there is appetite for more renewables, but the transmission grid cannot support this additional capacity in certain geographies in South Africa.”
President Ramaphosa announced the launch of OV’s second phase (OV2) during February’s State of the Nation Address. Here, the focus is on reforming local government and – as the President put it – “enabling Eskom, Transnet and other state-owned enterprises that are vital to our economy, to function optimally.”
“The immediate priority in OV2 is to sustain the momentum already developed and follow through on the implementation of these reforms to realise their full impact,” BLSA experts told the Dolphin Bay Brief in another interview.
“New areas of reform will be prioritised based on their potential impact in achieving more rapid and inclusive economic growth.”
“We’ve been looking at the economy for so long, and it has been all talk, very little action. You almost have to be right at the coalface, checking on things all the time, to guard yourself against that cynicism.”
Most municipalities in distress
National Treasury’s 2022/23 State of Local Government Finances Report (the latest available) found that 168 of South Africa’s 257 municipalities were in financial distress. At the time, 14 had negative cash balances while 190 “indicated that their cash and investments were inadequate to cover current liabilities.”
That’s bad for residents, and bad for business.
The BLSA experts we spoke to elaborated on this: “Municipalities across South Africa are characterised by numerous challenges including sub-optimal financial management (as outlined by the Auditor-General), and inadequate capacity, leading to infrastructural decay, non-payment of electricity and water, and so on.
“Addressing these structural challenges will go a long way towards improving the performance of municipalities and the viability of businesses.”
Sanisha said: “Business needs functioning municipalities and infrastructure to operate and to expand. Fixing the governance and functionality of the municipalities will also lower costs for the end consumer, allowing for some reprieve in administered prices in the CPI basket.”
Fixing our ports
The emphasis on fixing South Africa’s ports is also promising. Said President Ramaphosa in his recent SONA address: “Our immediate focus is to enable Eskom, Transnet and other state-owned enterprises that are vital to our economy to function optimally.
“We are repositioning these entities to provide world-class infrastructure while enabling competition in operations, whether in electricity generation, freight rail or port terminals.”
South Africa’s transport challenge is complex but the goals are clear, said Busisiwe. Speaking at the GIBS event, she related a conversation she’d had recently with Minister of Transport Barbara Creecy: “[The Minister] said, ‘The success of my ministry is going to be determined by five numbers: 250 million tonnes is the amount of freight that we need to move to deal with the capacity that industry has; at the moment we’re doing 149, so 90 is the gap that I have to plug.
“The second number is 25 to 30 cranes that will have to move per hour so that the long queues of trucks that are standing outside of the Port of Durban can be minimised; at the moment we’re moving about 15 to 18 cranes.
“The third number is 600 million passengers that we have to transport through Prasa; at the moment we’re sitting at 40. The fourth number is 30 million visitors coming in and out of our airports; and the last number is 1.2 million tonnes that we have to move by air freight.’”
“This is all very clear,” said Busisiwe. “She knows what success looks like.”
Said Bertus: “Dolphin Bay has taken a determinedly optimistic view for many years, and at last we are seeing that optimism justified. It’s highly encouraging that government and business are working together for the good of the country.
“If OV2 works, as Busisiwe Mavuso believes it shall, our ports and rail system will start to improve, which will be good for all business – including Dolphin Bay and our customers.”
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