The Presidential Economic Advisory Council appointed last year has released its January Advisory Briefs. In support of South Africa’s G20 leadership, the Council focused on both global and domestic aspects of the transition to a green economy and fiscal debt issues.  It has not yet brought its considerable expertise to bear on South Africa’s pressing investment, growth, employment and social development challenges. 

South Africa’s second Presidential Economic Advisory Council (PEAC) has published the “Advisory Briefs” prepared for its inaugural meeting in January this year. As in the past, these have been posted many months in arrears, and do not reflect the council’s advice on the global trade and financial uncertainty of recent months.

We are advised that the council met on 28 August and that it again discussed climate change financing issues and South Africa’s budget strategy, while also discussing informal sector employment. 

Although the press release that accompanied the council’s January meeting indicated “the need to position South Africa for growth in a rapidly changing global environment,” the published briefs do not address the country’s investment, social development and employment challenges. They focus mainly on global and industrial policy aspects of the green transition, while also putting the spotlight on rising debt, fiscal policy, and low-cost administrative “fixes”. 

The only other publication by the council so far this year has been a Business Day opinion piece jointly drafted with the National Planning Commission and the Presidential Climate Change Commission that endorsed blended finance approaches to South Africa’s Just Energy Transition Investment Plan (JET-IP). The JET-IP, approved by Cabinet in October 2022, is an ambitious R1.5-trillion proposal to mobilise domestic and international funding for South Africa’s energy transition, including investment in green hydrogen and electric vehicle production. Although its strategic intent has been endorsed, progress has been much slower than envisaged in the initial plan.

The PEAC website contains both the presentations made during the January meeting and a 40-page consolidated report. The advisory briefs are summarised below, followed by a few remarks on how the council might better serve its intended purpose.

Current state of the global economy and priorities for the G20
In its advice on priorities for South Africa’s leadership of the G20, the council focused on global climate finance and the need to mobilise financial flows to low-income countries, which will bear much of the burden of adjustment to higher temperatures. 

Esther Duflo, Dani Rodrik and Vera Songwe, eminent international members of the council, argued that the G20 should take forward COP29 arguments for “loss and damage (L&D)” compensation to poor countries. The central argument is that low- and middle-income countries will see rising deaths over the years ahead because of emissions attributable to rich countries, for which L&D compensation estimated at USD 518-billion a year should be paid. To raise funding of this order of magnitude, reforms are proposed of the international corporate tax system, together with wealth taxes on the world’s richest people and recycling of Special Drawing Rights issued by the International Monetary Fund. They also note a need to strengthen carbon-disclosure standards and carbon pricing and market mechanisms.    

Global tax and financing options and enhancement of carbon market operations have been on the agenda of the G20 and other multilateral forums for several years. But current geopolitical trends limit the prospects for international agreement on large-scale redistributive programmes. Trudi Makhaya broadens the analysis somewhat in arguing for “inclusive green industrialisation” to be prioritised in the “Compact with Africa,” co-chaired by South Africa and Germany and aimed at private sector investment and a trade facilitation fund to support African businesses. This sensibly puts the spotlight on collaboration for growth and development, rather than reliance on global redistribution measures.

The third PEAC input on priorities for the G20 was a presentation by Mariana Mazzucato, drawing on her published work on “mission-oriented” state policies and “directing growth and shaping markets.” She emphasises the priority of “development pathways that reconcile growth with the urgent climate action needed to limit global warming…” As in her January 2024 contribution, she argues for late minister Pravin Gordhan’s proposed state-owned enterprise holding company, and also for a new social compact and investment in state capacity. 

Influenced perhaps by the council’s emphasis on the green transition financing challenge in low-income countries, in March this year the National Treasury announced a 23-member “Africa Expert Panel”, chaired by former finance minister Trevor Manuel, to advise the G20 on Africa’s debt crisis and development priorities. It presented a medium-term report in July, emphasising the need to reduce borrowing costs faced by African countries and to strengthen multilateral cooperation. 

While one might hope to distil implementable proposals from the concentrations of expertise in the PEAC and the Africa Expert Panel, the outcome appears rather to be a high-level conceptual impasse. There is a set of ideas on the huge financing requirements for a “green transition” in Africa and other developing areas, and in response there are proposals for far-reaching change in global financial relationships. But advisory papers at this level of generality are unlikely to lead to either country-specific or collaborative projects and policy changes. We need to learn, rather, from what is being done: tax harmonisation and base-broadening efforts, investment in urban infrastructure and improved access to housing finance, logistics and trade competitiveness projects, and construction of durable water and power networks, for example. The challenges of urbanisation, global migration flows, regional conflicts and trade relations are immense. Progress requires a broad vision, to be sure, but also a pragmatic investment and reform path based on evidence, experience, and institution-building. The PEAC’s advisories on G20 priorities, while targeted at important global coordination problems, fail to identify implementable reform proposals.

Industrial policy, energy transition and skills development
In the second part of PEAC’s January report, industrial policy in South Africa comes under the spotlight. 

Antonio Andreoni presented a case for “strategic production-centred industrial policy,” supported by “reciprocal control and commitment mechanisms” between government and private firms to drive investment in targeted sectors – automotive electric vehicles, minerals and mining equipment, green hydrogen, and high-value agrifood industries. Kenneth Creamer goes further – he argues for tax incentives, investment in skills and public-private co-funding of industrial projects and removal of outdated tariff structures to promote “decarbonisation, digitalisation and diversification.” These are familiar themes. But the focus needs to shift to more specific aspects: what policies should change and how, what incentives or trade regulations should be adopted, how employment trends might respond to specific incentives or regulatory reforms, for example.  And to generate rising demand for South African steel and construction products and inputs into manufacturing and food production, we need more rapid implementation of infrastructure projects and far more effective trade and investment promotion. These are themes that the PEAC might usefully explore in collaboration both with relevant government departments and agencies and organised business forums.

Trudi Makhaya’s contribution on industrial policy argues for a massive scaling up of training to meet the needs of the green economy transition. Drawing on research led by the National Business Initiative, she argues that the green economy “project pipeline and demand” will open up 120 000-200 000 jobs by 2030 and up to 600 000 over the next 25 years, largely in the solar value chain. To train the required artisans, technicians and engineers, an “ecosystem approach to skills development” is proposed, led by a “strong nerve centre” to guide prioritisation, set standards and facilitate private-public partnership. However, recent evaluations of the skills development system have identified substantial shortcomings, in part associated with its sector-based architecture and centralised governance arrangements. A skills strategy narrowly focused on green economy needs is unlikely to succeed unless incorporated into a broader restructuring of the TVET college and skills training system, including greater emphasis on local and regional coordination and funding.

Fiscal priorities and investment-promoting reforms
The third section of the PEAC January advisories comprises an input on South Africa’s debt sustainability problem by Isaah Mhlanga and three suggestions on “fixing what is broken” by Alan Hirsch.

Mhlanga illustrates the steep rise in national government debt since 2010, driven primarily in his view by rising pro-cyclical spending, poor spending choices, non-conditional bailouts of state-owned entities, and market responses to high debt levels and inflation, including higher long-term interest rates and a weaker currency.

He concludes that fiscal policy must focus on reducing debt-servicing costs. Much of this is underway, including more short-term borrowing, floating-rate note issues, fundraising from international development banks and drawdowns on accumulated GFECRA balances. Mhlanga argues for greater crowding in of private investment in infrastructure and adoption of a legislated fiscal rule to improve policy certainty.

This is well-aligned with the Treasury’s “fiscal consolidation” stance that has characterised recent annual budgets. It underplays, however, the scope for expenditure rationalisation as part of a growth-oriented fiscal strategy. Key reforms include extension of treasury expenditure control to extra-budgetary funds and entities, where much of the growth in spending has occurred in recent years, and restructuring of local government grants to strengthen urban investment and housing.

In the PEAC’s concluding note, Alan Hirsch highlights three low-cost “fixes” that would contribute to improved government performance and savings. 

The first concerns the core immigration and population register functions of the Department of Home Affairs and recommendations of the Lubisi committee which exposed disarray and abuse of these systems. In the Treasury’s February budget proposals, a substantial upward allocation was made for Home Affairs for its digitisation systems and human resource needs over the three-year medium-term expenditure period, but in the final May budget over R7 billion in these provisional allocations was withdrawn.

The second proposed fix is a re-think of the role of the State Information Technology Agency. Its outdated infrastructure and dysfunctional procurement processes were identified in a 2022 Public Service Commission report. The key reform needed is to allow departments to use alternative IT service providers, while also overhauling SITA’s procurement functions. The PEAC, rather quaintly, poses a question as to whether this is happening.

The third fix is to address outstanding issues that have held back South Africa’s removal from the international Financial Action Task Force greylist. This includes steps to counter money-laundering and to improve investigations and prosecutions of serious financial offences and terrorism financing activities. The Treasury has reported progress on these efforts over the past year, and South Africa is expected to come off the greylist soon. 

Conclusion
While its focus on global considerations is understandable in the context of South Africa’s chairing the G20 this year, PEAC’s January advisory briefs seem, in retrospect, overly preoccupied with green transition issues. The South African government is already well-advised in this arena by the Presidential Climate Change Commission and the National Business Initiative. Though these are important long-term transitions, if South Africa’s growth and employment challenge is not prioritised now the resources needed for the climate change transition will be unavailable. In the context of South Africa’s immediate development challenges, PEAC needs to put the spotlight on growth and investment priorities that underpin employment creation and rising living standards. 

The key question is whether the Government of National Unity intends to give the PEAC real policy coordination responsibilities. The signs, so far, are not encouraging. The previous council’s end-of-term report set out 13 recommendations aimed at strengthening its future work. The Presidency has been silent on whether these will be implemented. 

Though the PEAC has considerable expertise in its 19 members, it lacks dedicated research and support capacity. The result is that much of its 2025 advice draws on generic and outdated research, in some cases citing data more than five years back. It is not that there is a lack of economic capability on which to draw – there are excellent research teams at the SARB, universities, and the larger financial institutions. There are well-established research programmes at ERSA, TIPS and SA-TIED, amongst others. It is time to appoint a chief economist and to mobilise a team of full-time secondees to give the PEAC policy coordination responsibilities reporting directly to Cabinet. 

Written by Andrew Donaldson, Econ3x3