Uncertainty, coupled with high aggregate taxes and red tape, deters investment
More than 18 months into a global pandemic, African countries have been harder hit economically than other regions. Trade volumes are down, tax bases are under pressure and investment flows have taken a knock. While there are clearly green shoots evident with the recovery of global demand for commodities, much needs to be done to rebuild economies and rebuild investor confidence.
When policymakers rush green and white papers through without following due process, it leads not just to wasted time and expense, but also to damaged investor confidence. The more radical the proposals, and further from the current status quo, the more the potential damage. A similar situation prevails with regards to SA’s proposed National Health Insurance system. This policy was not accurately costed or simulated before being publicised, and independent analysts have estimated the budgeted shortfall at R112bn — more than three times the government’s estimate. Given that the state has no more room to borrow, this would have to be funded by excessive increases in taxes, in a country that is already taxed at developed-world levels.
Mining policy has been another fraught area in SA. Progressive legislation had already been introduced in the early 2000s, with provisions for empowerment and greater participation in the sector. Then in 2018, the new minerals resources & energy minister, Gwede Mantashe, introduced sweeping changes to the charter, among them a clause that excluded recognition for previous compliance with empowerment requirements.
According to calculations made on uncertainty data from the research arm of the St Louis Federal Reserve, the cumulative level of uncertainty in SA since January 2017 has beenthat in Rwanda for the same period. However, when one examines the policy environment in broader terms, these differences are underlined.
The second graphic compares the three-year changes for a similar set of indicators for SA and four other leading African countries — the Democratic Republic of the Congo , Kenya, Nigeria and Egypt.
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