DISCLAIMER: This webinar transcript was loosely edited and there may be inaccuracies.

Ziad Daoud Hi everyone, thank you for joining us today. Tim, the Growth Lab, everyone. Thank you for having me. To talk about Saudi Vision 2030. And I think as a result of that time, the sum total of that side of vision, 34 for multiple reasons. One of them is we’re eight years away from the launch of the Vision. So you already have enough data to monitor progress in some places in 2013. So 2024 is more than halfway and good just to assess, again, progress in terms of where Saudi is versus where it wants to be. As you may know, the Middle East is not the most stable or or calm regions. And thinking about Saudi, thinking about the stability of Saudi and the prosperity of Saudi and the successors is something that is important to anyone who is doing their studying or looking or monitoring the Middle East. And I think it’s important also to look at that in the context. And final thing is what happens. This is important for the global economy. It’s important because, you know, money that comes from Saudi and the rest of its neighbors can make or break some IMF deals and some of countries stabilize some countries money that Saudi is a major player in the oil market. So it actually today there was an A-plus decision which was made by the stuff I’m going to be talking about. And it is also it’s not just developing countries or commodity markets or how Saudi investors, its money and the rest of the see how they invest their money matters, even though the biggest economy in the world and the biggest market, the world asset markets. So these reasons you is great for the global growth up to arrange this and I thank them or for having me to discuss this. So what we’re going to be talking about this 20 minutes or so. I’m going to be making three claims. So the claims are the following first. I would claim that subdivision is about many things, but the single thing, single most important target that is important for subdivisions like that, which is the fact that they want to. Reduce the economy’s dependency. So that’s one thing.

The second thing I’ll be getting is I’m going to look at some demonstrator measures and I’m going to argue that Saudi has become more dependent on oil since 2016. And the third thing I’ll be making is I’ll look at the reasons why I’m more than happy to look at the spending that they’re making at the domestic politics in the social context, which is important. And I look at this because they chose to diversify into and how that overlaps with that. These are the same people in the making of 20 Minutes before doing this. I’m going to be you know, I’m going to be not only myself. That’s the implication. Question, but it’s also important to acknowledge that a lot of things are happening in Saudi Arabia since 2016. A lot of them are actually very good, as important to name them. Just before we go to the electrification question. So in name, you know, free samples. The first one is women participation in the regime. This has felt since 2016, in 2016, that female participation in Saudi Arabia was low at less than 80% of the working population. Today, this 36% has nearly doubled in eight years. And that is important not just for the economy, but that’s also important for the general society and the world as you look beyond that. The second big thing to happen in Saudi Arabia is that the government has actually increased its revenues. The oil revenues were $50 billion in 2016. Today, they’re all about under $1 billion in 2020. So revenues have more than doubled. And so that’s something that has to be acknowledged.

And the third thing that we see that happen in Saudi Arabia, many economists looking at this creation of results, we can’t do this. And data has improved significantly in Saudi Arabia since 60. They published more data. It’s broader. It’s more accurate, it’s more tidy. You can bet Saudi Arabia, Mabel neighbor, and see data for that and then the rest. Saudi Arabia is obviously a bigger economy, is a G20 economy. So there is still some way to go towards getting data up to the G20 standards. But you can see that the effort they’re making towards improving indicator and towards making some sense ultimately is it’s useful, especially for me as an economist. I’m sure you’ve got that. So so with that in mind and the result of this vision 2015, it is all a program. So one of the for example, the National Vaccination program has 96 goals. We’re not going about six goals. I think that the central target Vision 2030 is the idea of reducing the economic dependance on. Why do I say this is a point that was launched in 2016 2016 was to get all of us here was Saudi Arabia was was running a very large budget deficit. And it’s clear that the centrality of the idea of that restriction away from oil was front and center to the side target vision. It’s not just the speculate. It’s actually the vision itself or statements from Saudi officials. You can see that. So if you’re going to apply that to upsetting actually, Donald, the vision is a bullet this month. And that paragraph immediately mentions that was taken away from oil is you, as I mentioned, very high value. If you look at the statements when the vision was launched in 2016 or you see this quote from, again, respondents in Egypt is too small. It says, I think. But 2020 also speaks for not so of ambition in that statement.

There’s a lot of ambition inside the vision, but that’s not to account. The point here, this is intended to decouple investment performance from what I know is that’s what happens when a vision is lost. 2016 That hasn’t changed over the years. A recent statement by the finance minister committed to that, and that was in plain fantasy. And he said, Our aim is within the period to 2030 we don’t even look at. So again. Bush said in 2016. And that doesn’t change. The goal of Saudi Vision 2030 is to reduce the economic dependance on oil in Egypt. So if that’s the case, how has Saudi fared towards that goal? And I’m going to show you two measures. Or the first measure is the price of oil. That’s Saudi Arabian budget deficits. So if you think about the Saudi Egypt, the point in time, an all price of $50 per barrel to avoid deficits. And all the time, 81, is it 50 states more dependent on oil that costs? So. I’m going to calculate this number on the basis study publishes quarterly budgetary numbers, accompany that on a quarterly basis. Actually, some recently published their budgets for 2025, so we have the full estimates for 2024. And this is what it looks like. It’s the right one. So what might show us to Saudi Arabia today? This all meets an oil price of $9 per barrel to balance the budget. Now, a few things you can see. First, $93 to avoid deficits is higher than the current market price. The average oil price in the market this year is about 80. Today’s about 70 to 93. Saudi Arabia needs an oil price of $93 per barrel of oil price average $80 per barrel. And the market that means Saudi Arabia is running second.

The second thing you see is that not this is hardly the price that Saudi Arabia needs in 2016 to avoid this, which is not too low. So if you measure dependance by that price, then it has gone up slightly. And the third thing is, is the argument, which is so what is happening is that there is a lot of capital spending not happening just through the central government. What is happening to the sovereign wealth fund is public investment. It. And if you add domestic spending by the Public Investment Fund to the spending by the Minister of Finance and psychiatric, all price that is needed to spending that, so you get the auditing and that is about $108 for that. So you add all of this up, whatever you want to do with the sovereign wealth funds, not Saudi Arabia needs it all, plus $100 today to balance its budget versus 90 something about in 2016. It is higher. That indicates more oil dependance today, which is eight years ago. So that’s one measure of oil. The second measure and this is separately the government budget and we look at imports and exports. So this comes at the price that the whole of Saudi Arabia needs to fund this imports. So if you think about it, there’s money going back to Saudi Arabia to pay for imports. And because you have lots of foreign workers in Saudi Arabia, they send remittances. So these are the outflows from Saudi Arabia. And to offset these outflows with inflows from exports. Some of these exports are oil. Some of them are not. I was surprised that these two flows equal. And that’s what I guess you tell based on the balance of payments data which is published on a quarterly basis. The latest numbers we have out in the June this year alone, number $75 to about. And what you see here, you see that this number is the highest, almost the highest since 2004. This can sound like a massive 2016 or more dependance on oil on oil in Saudi Arabia today. That’s just based on these two sort of measures. And it’s explainable. That stuff is happening in the markets. You see it decided national. So, for example, Saudi Arabia is running a large deficit that is doing a lot of spending for the public investment fund. And also Saudi Arabia has been quite unusual markets this year raising debt. And so the Saudi Arabian sovereign is one of the most suspicious emerging markets. The public investment fund, Shin Bet in financial markets. But they’ve been sold shares in Saudi Aramco this year raising funds. You’ve got fundraising happening in Saudi Arabia. This chart basically explains it.

There’s also, if you think about the news today. So the idea of news that Saudi Arabia needs an oil price somewhere between 75 and $100 for coral either to fund this important deficit. But all of the security in all of society. And what do you do after this until ultimately the gap between the oil price that you need in the price that the market is giving you? You try and restrict supply and all the supply. And that’s what Opec+ did exactly today. Not for the first time. So this was supposed to increase oil supply to the market? Yeah. But you know that if need be, supply prices come down. So and they don’t prices to come down. So what did they do in October? It was supposed to increase all supply. Make it in December. In December. They didn’t do that to January. Did they debate that on January? April. And this these pictures tell you there is there is a price that Saudi Arabia needs for oil and there’s a price that they got between this is what is what is pushing this policy. Who was to step in to hike? Okay. So these are two measures of all kinds. Now, there is a measure of attendance that we should have. And the reason I mention it is because so often you hear that Saudi Arabia or another country in the region, a large share of the economy, most of the economy is not all that is all that, not all growth. The growth of not all this Saudi Arabia, it’s 4 or 5%. And that’s a sign, an indication of diversification or independence for all. They’re not use that much. Why is that? Think about the logic. Saudi Arabia exports oil, and he uses the money from Mexico to build new cities and to build new house and construction will go such as this all activity or as funded by almost all my close up construction activity was whether it was in Saudi Arabia, exports oil money from oil and cars or people. Public sector. Lots of services capped. That’s not what activity. But it’s clearly funded by all money, Microsoft. And this activity is going to slow down. So this is the logic of it. But also empirically, this holds when all prices are low, non-oil growth, which at first time the name suggests is low. So when Oprah when Oprah said 20 or $40 a barrel. You get a lot of growth of 1.6% when oil prices are high above $100 per barrel. You get not oil growth a second between these two numbers. Growth, not all growth rises along with ours. So going use not all the show on oil in GDP as a measure of diversification because not all activities inside the region in general is funded by oil. Okay. So I hope I’ve established a central theme of Saudi vision 2030 is diversification away from all of the convince you that if you look at two measures of devastation or dependance on oil, that Saudi Arabia is more dependent on oil today than it was in 2016 when the vision was launched. People like to and I’m I have a note with what can you just say a few words about why now the vision is or could left and the unknown. What what element is behind that vision? Or, for example, if they understand that the oil would be replaced, I turn out to be energy or.

So the vision was lost by 16 at a time when oil prices went on. Someone with source of supply. And if you saw any country in the region that you don’t want or prices are volatile for whatever reason, sometimes energy transition, sometimes its US shale, sometimes the global recession. And if fuel economy economic performance so coupled with oil prices it is people on the way down. I just got lay. But you get the pain. So this is the idea of that and that experience multiple times. It wasn’t just my experience multiple times and obviously looking ahead and that, you know, the challenge of energy transition and the move towards renewables is may or may not impact oil prices. It’s definitely. Not know. Okay. So Saudi Arabia wants to diversify away from oil. If you look at its measures, diversification, it doesn’t show. Sure, Saudi is more dependent on oil than 2016. Why has that happened? I’ll give you three reasons. The first one is that Saudi has been spending a lot post-pandemic. Remember, all revenues have more than doubled since 2016. Well, spending is up. It’s not already so basically increased on oil revenues by set amount. Spending has increased by more. So on that, not only does it have to as it need to fund the old spending, but also the new gap between spending. And this has contributed to the increase in the price of oil that Saudi Arabia needs to balance its budget when the government spends well, part of the spending is on domestic. Some of the stuff is on imports. And as you increase your spending, imports go up and the price of oil that you need to fund also goes. Now, one of the themes of this year has been that Saudi Arabia has realized this oil market is moving downwards, whereas this I mean, I saw images this year that Saudi Arabia is revisiting projects and saying, okay, this is a project project that’s going to continue this into this projects. But then all this project is do what doing of doing it slowly. These projects are beginning. So they’re trying to rationalize this. But it’s also important to note so this like the past and the present. But let’s look into the future. Saudi Arabia has major global events coming up. They become over the coming decade. Saudi Arabia is hosting the 2027 Asian football. Saudi Arabia is hosting the 2029 Asian Winter Cup’s in Neom, the futuristic city of Notes. And there will be a ski resort neon, and that requires some construction. Saudi Arabia is hosting the Expo 2030 and it is likely it hasn’t decided. The only candidate it will like to host the World Cup in 2034. A lot of events. It’s not the only country in the region that has done this. Other countries have done it. For example, other hosting the World Cup in 2022. So we can learn from Saudi Arabia in this instance. What is the other two things? One other was only to help an audience. And the Egypt issue too, is just part of the pitch. Those two things. One, hosting these events is. The other spent somewhere between 200 and $300 million in the build up to the outcome, all of it in the stadiums, obviously for the event of the new airport or the new network. You Metro not just for the World Cup’s been used before and after, but in the build up to the World Cup. Other economies must follow the Saudi’s two the billion dollar us and we’re talking about more than $1 trillion for Saudi Arabia’s economy. And eventually we can read the reports.

These are the numbers that people spoke about in terms of the pipeline of projects coming in and Saudi Arabia. So that’s a classic story of a building not stop its cost. Or a second lesson from other is that you may end up with access to us. So at a time when the whole JCC is booming, when real estate prices are going to close and are increasing gradually and real, and Saudi or real estate prices are actually stagnating. Falling. Housing inflation that is negative versus empty sentence savvy 70s of problems. So you do a lot of spending and there is a risk you might end up with assets. Doesn’t give you a ton, but they end up big that. So it doesn’t mean that Saudi Arabia will do exactly the same thing, but it still of risk. And hopefully you will learn from the experience of other that face understanding and doesn’t end up with success. So that’s the first reason why you had why you had basically Saudis wanted to do then was in crisis. The second reason is now the reasons why Saudi Arabia’s spending increased wasn’t just because they decided to spend on sports and think hosting global events. There is a strong push after that. Get Saudi Arabia to spend more aggressively. And this is the domestic politics. You see, also doesn’t just create an economy, just creates a social contract, both in Saudi Arabia and the region and Saudi Arabia. This is social contract. Is it something that will provide an alternative since the citizens will provide benefits to, let’s call happiness, an absolute one? And that social contract process is going to become, I would say, some implicit pressure on the government to increase. And again, this is not just Saudi Arabia as the whole beach. Oil doesn’t just create an economic system. It creates social context and creates political institutions questions. It’s political institutions are created by oil. Do they create a conducive for long term growth or not? Well, luckily, we have to help us win this decision. Mr. Ellis, what kind of political institutions waited for long term growth? They gave us the framework. So Ajimobi and others in Clovis nations felt that for long term economic development needed. First, you should satisfy two conditions. One, they need to be pluralistic. So at the end I relates to our society. And two, they need to be stable to protect property rights and to enforce the rule of law. How does the region fare? So this is my dissertation which Robinson as you go write to become more democratic, as you go up, you become more stable. So I’m going to suppose one of these finishes is basically stable, pluralist. So be and you can see most of the region actually. So the net, so most of them don’t have that to this reason that that is that are rents whether it comes from all other stuff covering this whole region but mostly the resources of Saudi Arabia.

So the political institutions that upgraded model. Are not conducive for long term growth. And you could see in multiple states in the country business spending and spending. You see the productivity on which are not so high. It was obvious by the International Labor Organization or by the IMF. I do. No matter how you slice it or the numbers are not great in the region. And this is one of the reasons why this is the case. Questions. Are there any plans to change? Yeah. So while there is I think there is a genuine or desire in Saudi Arabia to diversify away from absolutely obvious for the reasons that was mentioned that come through multiple, you know, all cycles, seeing what declining oil prices does. And they don’t do that again. They wanted to spoil it and will be going to change that. The fact that the political system is stable but lacking in plurality. So that’s why they are looking for is this stuff like oil. That’s why they are looking for mining of metals and they’re looking for renewables and they’re beefing up the sovereign wealth fund, giving them to turn that the stock clearly gets a lot of goes mainly to the government and doesn’t require much labor. So I mentioned two reasons why, you know, somebody has managed to as has increases dependance on oil rather than instead on of the spending. The second one is, is the political sort of institution. The last thing that you mentioned against. Or whole region. The whole of the six countries have gone for six months, so there’s 5 or 6 centers in the region. Everyone’s going everyone wants to be a financial everyone wants to be a destination for tourism. Everyone wants to move up the value chain towards that. So chemicals and stuff. All in all, it all comes along, mostly logistics and e-commerce and then technology center. And you know, if you think about it, it makes sense. So what happens to these countries? We consult with consultants. You know, it’s very similar. I do get the same answer, but the question is how many financial centers the City of Cooperation Council meets. I do have one in Dubai. That was one of them that has tried to be one really strong. To be one to should we mean 4 or 5 in a small sort of geography within the same almost similar time zone. I don’t know how many mega airports the region you may have two great data lines, maybe three. You really need more. I don’t know how many medical Dubai in Oman, in Saudi during treatment or if ports are done.

So this is the third reason. Instead of getting integration, you’re getting so everyone is trying to get into the same set. And what that creates regional competition. So you get something like Inside United since last year, it has impossible. But if you want to get contracts with the government, you need to have your regional headquarters in Saudi Arabia. This is exactly because everyone’s trying to move into the century, you know. So are spending social contract and regional competition are the reason why Saudi are more and today than 2011 2016. I’ll just summarize our concludes. I think the summary what I said is basically three numbers one, two and three. Think one, there is this one fundamental Gulf of Saudi Vision 2030, which is basically to reduce dependance on oil. There are two measures for oil dependance on both the southeast of more oil dependance and less. Over the last eight years. Now three reasons why that happened. Outstanding political institutions and regional cohesion. Now, to conclude this stop me. All prices come down tomorrow. We should drive those values out to it. I think one thing that you have seen in the region is you see the subtle agility in innovation. There is sort of this realization that is political constraints. And the region has been absolutely Saudi and the rest of the BRICs hasn’t actually good out at survival and at times of economic prosperity within these political constraints. So, for example, you look at Saudi and they realize that oil prices have come down. They need to build up a sovereign wealth fund. They’re getting most of the oil exports and so forth. I spent one zero. You look at, for example, a country like Bahrain when oil revenue started to come down. This stuff is becoming more land and generating more land and more income out of the clip and supplementation. In a country like Egypt, when you know it’s gas, you’re starting to stop it to dry up. And the Suez Canal started to lose revenue. They started selling land to foreigners and that helped them get over a crisis. So within the political constraints that imposed on the region, they impose themselves. I think they’ve been quite creative in generating new sources of revenue that gives them economic survival while maintaining the sort of political system. And I’ll stop here. Thank you very much for this.

Tim Cheston What? But I will share some reflections from some of our work that we have done with the Ministry of Economy and Planning in Saudi Arabia for the past year, since 2016. And then we will get into a Q&A. So I will keep this very brief. And I think it really highlights that this is not a conversation that the region is privileged to have. How do we define what we mean by the world economy, how it pertains to, but also in terms of the army? And I think that thinking about how we measure these problems is a major, not just a talking point, is a major need for the region and how we think about that. And it was a while ago, as a matter of fact, to score points of what it means to have an oil economy. It’s not just about the sectors and government spending, how it seeps into your form of the immigration system and how it seeps into all different areas of policy that what you’re trying to diversify away from oil complicates a picture even further, as was highlighted today. So this is perfectly aligned with what you just showed. Now, we need to be understanding what is the fundamental driver of the economy that the Saudi economy does not have many drivers of growth. It largely has had a and is also part of the challenge for Vision 2030 is that it’s not being driven by quantities of oil. If you actually measure the quantity of oil exports per capita out of Saudi Arabia now exports 60% of its peak in 1991. So oil quantities are not going to be a driver of growth in the medium term. So you have to therefore rely on oil prices.

We all know the challenge of oil prices as that as a fundamental factor of your economic growth itself. So then when we think of how oil seems to sway into that oil economy, very clear that the main driver of the non-oil economy, as shown here, is the level of net government expenditures, the very, very close correlation between the level of government spending or your fiscal impulse and the size of your non-oil. So again, this is how oil finally sits its way into the non-oil left, as was perfectly highlighted. We don’t have a system in which you have multiple drivers of growth and you actually have one central driver of growth and that is the level of your risk level. So that means very two very different effects. One is during periods of oil, high oil prices, as we saw from 2014 to 2011, you didn’t get a large level of government spending. That then allows the what we call the non-tradable sectors. This is your construction, your retail. This is the majority of the private sector in Saudi Arabia hits boom times as well, and they’re able to grow nicely. What happens during times of fiscal action? On the right side there, you see that as the government pulls back its spending, it is the non-tradable sector that also takes a bigger hit. And the only source of growth is your non-oil tradable sector. I would pose to you the challenge that Saudi Arabia faces in the medium term is that we are going to be observing in the right side picture of fiscal contraction, not in a picture of fiscal expansion. I despite the attempts to continue that fiscal spigot in the short term in the past couple of years. So in this context of fiscal contraction, the reason we need to focus on oil diversification is that that is going to be the only driver of growth and it is going to be much harder times for the non-tradable sectors of construction and retail. When the fiscal impulse is negative, as we expect it to be. So this this is further proof that we have not planned this presentation together. Because this is precisely the spy that sends Professor Ricardo House race, the last country to spend far beyond your means or just be spending at a consolidated rate of $112 when oil is at 80 is Venezuela. And we all unfortunately know how Ricardo has suffered watching Venezuela be half the size of the economy that it used to be. So this should be sending warning signals out there. And we need to carefully look at a consolidated public sector perspective. And that’s precisely a perspective that has been very hard to measure in the past, but one that can guide better actions and better policies moving forward. So I suppose my sense, if I had to summarize Vision 2030, I think it’s the right solution of diversification. But to an undefined problem. Why is diversification not required?

So again, if we have to define it, is because oil cannot be a fundamental driver of growth in the medium term. Quantities are falling per capita prices is not the way you grow an economy. And so, you know what then? How has Vision 2030 evolved? Well, initially there was a major push to say we want to focus on 2030 diversification. They had to confront the falling fiscal revenues that oil prices have fallen. And they needed to immediately turn the lens for a new priority. And that was fiscal balance. So the government came up with a fiscal balanced plan. One point I want to point out and quickly decided we need to put the brakes on spending and we need to restore fiscal balance as priority number one. This was around 2017, 2018. This became a priority for government. As you pull back your government spending, what happens to the non-oil economy? We had a recession. So what does the government then say? We restore short term growth. And as in the middle of all of this picture, we realize there’s a lot of short term stimulus spending is not achieving some of the 2030 diversification. So now we need to do Vision 20, 32.0 and create some of the new mega giga projects that are there as well. And then finally, throughout all of this picture is the challenge of certification that 83% of the private sector was is ex-patriot labor and labor. And how can we explain in a system with excess demand for labor the fact that we have Saudi unemployment? So the government put in many direct efforts to try to increase the rate of Saudis. And I think one of the fundamental challenges in Saudi today is the lack of recognition that these are competing objectives and they’re trying to achieve. One actually makes some of the other objectives more difficult. But the one objective here that actually is pointing in the right direction is the approach to diversification, that if you are able to achieve the most protection is more likely you would achieve higher association with achieve new sources to improve the fiscal balance and to stimulate growth. If you push heavy on sanitization, it is not obvious that you will achieve further diversification.

The Saudi workforce is a higher wage sector. So you’re posing a higher cost to your private sector that is not obvious that you’re opening more opportunities for diversification in that direction. And these are sort of the conflicting ways in which all of these positive objectives might actually come into competing goals, goals moving forward. The final tip that we want to share is how we get to growth. That think about what we call the product space or this kind of map of technological similarities, which we map all of the different products produced in the world. And then you see that those two products that are close together are often co-produced in the same locations. So we see textiles in the bottom right there. If you in shirts, the vice often knows how to proceed as Christians, but very far away from that is automotives in the sector. And so left electronics, so very few places that produce apparel also produce electronics. And then there are the eyes of the world. In the top middle, there is oil. So what that means is that very few places that produce spoil also produce some of the chemical sectors. Very few places that produce oil also produce plastics because the cost of labor, a regime that produces plastics in Bangladesh and Saudi Arabia, is that difference is higher than the cost of shipping oil from Saudi Arabia to Bangladesh. So what we learn by looking at this through a product lens perspective is that the lack of diversification also presents challenges in terms of how easy it is for you to take the know how you have today and to enter new opportunities at the low diversification and the fact that few industries require the same knowhow as digging a hole and and trying to find oil also complicates the challenges of what sectors will be easy for you to jump and used to know how you have to move into those sectors. So we also want to be thinking beyond the macro fiscal of this investment side. What is the challenge of coordinating diversification? Also sees a challenge on the on the House side of the equation as well. So those are a few reflections. And now we’ll have an open Q&A. We have some some nice questions from Zoom as well. And we will continue.

Guest Thank you Tim and Ziad, I really appreciate your valuable insights, especially the growth of complexity theory, which we are learning in the 130. I didn’t get quite I didn’t quite get why we’re disregarding the non-oil growth. As you know, it is a measure of economic diversification. So why should we care if the sovereign wealth fund is funded by oil or something else? Isn’t this a tool for economic diversification, as we’ve seen in Norway and other oil dependent countries that went through economic diversification to some degree? If we’re converting oil wells to infrastructure projects and, you know, other economic engines, that in the hope that we would steer away from oil, isn’t that economic diversification. So if you can think of it through why you think that this oil has become even more dependent on Saudi Arabia.

Ziad So the fundamental reason is that a lot of these sectors are funded by all money. All money trumps all prices from the these activities talk. So for. Construction was able to become self-funded on the date at the moment and construction sector is deck for the moment and all. But obviously that’s going to be a question of currency as we think that all the sectors in Saudi Arabia are heavily told. When oil prices are low, it gets easier and more robust. So high the high growth business.

Guest We naturally see. But I think that the projects after they materialize, that that’s that’s the road of this. Can either reciprocation.

Ziad In my mind or thinking about the future and things as they are now and as things stand. These sectors are linked to oil prices. Maybe in the future, this relationship will change. I’m monitoring this as as it no doubt has a tradable versus non-tradable that I think is. I spent years with ministers trying to sit down and just translate this concept. So it’s not oil. Not oil. It’s trade. All non-tradable debt at the supermarket. Saudi Arabia has to look at their access to customers. If you are shipping and if you are shipping in air conditioners, you can make those air conditioners anywhere and ship them to customers in Saudi Arabia. So these two sectors are going to depend on different sources of what we call aggregate demand, right? One is dependent on the level of domestic purchases for supermarkets, and a different one is a global demand for air conditioners. So if you start imposing higher Saudis issued restrictions, the non-tradable sectors will set off directly to consumers. But that air conditioner cannot pass up to consumers because it depends on global demand and global prices for air conditioners. They will either relocate or shut down operations or prices become too high. So this concept of how we think about different policies and how they affect different sectors, you need to narrow the lens to understand that those ideas start with all these sectors, like inside growth is growth that comes from global demand. And that is what we called an on the level tradable tradable sector. And that sector is very sensitive to policies and that sector is not necessarily the end goal of many of the current spending under certification type. So we think we can even think of tourism finance and those are still tradable services, but narrowing the lens to realize that construction is not one of those sectors and that right now the majority of employment in Saudi Arabia is in these non-tradable services means that will increasingly come into tension between the economy of the past and keeping that alive, which was a tension in 2019, 2019, the construction sector had gone through 16 consecutive sectors of negative growth because it’s so dependent on domestic spending, and domestic spending was negative during that period. So there are multiple sources of demand for the construction sector that is highly dependent on the fiscal impulse. We need to be thinking about diversification into the sectors that actually depend on global demand and have a natural continuing economic growth. And we want to take these questions and focus on.

Guest I love planet Earth, but I’m going to play the devil’s advocate for two minutes. I sometimes see policy practitioners falling into this trap of falling in love with the solution to diversification and then trying to apply it in every context. I think one key difference between economies in the Middle East and Venezuela, or even the economies and ajimobi use both is that the budget constraints of these countries don’t bind. They are wealthy. And so maybe a way to think about this would be to go along a different road us to think about how to take those oil revenues and invest them for the future, to invest them for the kind of development that Saudi wants to bring about, rather than trying to find new industries to develop from scratch right now. The example that comes to mind is something like Norway, where they put their oil reserves to a varying stream of users and industries. So what are your thoughts on taking that approach at all?

Tim Cheston Let’s take a couple of questions…

Guest So thank you very much for the talk. I really like this tradable non-tradable distinction, which I thought was very helpful for me to think about. My question is on the like kind of the sectors that are in that gray zone where oil derived non oil tradable. This one is very easy for Saudis to expand into because they kind of have a competitive advantage. But on the other hand, it’s ultimately dependent on oil. And then there’s other ones that might. Non-oil derived non-oil trade was the can. That’s very like Saudi might not have competitive advantages, but that can really truly diversify self away from all sectors. So even these two types of non-oil tradable sectors, where do you think they should focus on?

Guest And my questions brief I’m just curious if there’s a mega-project that you’re looking at right now that is a model maybe within trade in goods sector, something that you think is long term and sustainable, that maybe future planning administrations can think about replicating projects like that. That’s already up right now.

Ziad Because a couple of points, I think you mentioned that the budget constraints is not binding. I’ve been restricted on that, those constraints to 1%. And in 2016, Saudi Arabia’s planning a bunch of X in excess of 10% of GDP as $3 billion of cash today, Saudi Arabia in 2024. That’s one of the largest issues in emerging markets of the Atlantic. I think just talking about the two, two, one, two. And if you think about the old ones, just tells you a budget constraint was not binding, they would not be an option. You’ll be just watching from watching the all night set of increasing production and losing out to other competitors and don’t have to compare it to secondary education examples. Most of you don’t see the budget constraints on boards in 2021 and 2020. The kinds of same ideas that might give them a budget constraints clue came out. And if you look at the public debt ratios in the region, you saw a rise practically after 2014. Then there’s the question in terms of other projects, I just think in terms of projects and sectors, let’s think in terms of what what dimension. You know, let’s look at the environment and let’s look at the shutdown. And yes, I think the fundamental reason, which is also linked to the other question of the reason why the region does not export all exporters in the region, anxiety is not export non oil products as they don’t have two contracts with each other. But just in terms of the cost. I think the cost in the region, if you get this chart back in 2019, when you look at productivity and you just have wages and wages are too high and wages are too high, costs are too high and your costs are too high until the price is too high and your underemployment and in these trade centers. What is the solution? I think, again, you have to do it within the constraints of local population employment, but also you need to diversify away from oil. One proposal is basically to provide you to but to distribute all of one universal to all cities that basically and then you don’t stop doing public sector jobs that will bring the wage premium and the economy down, and that will lower the cost of production without impacting the wellbeing of individuals because they get the income that they get from their jobs isn’t what the other income they get can have additional income from their personal income. But as popular solutions and calls and people can criticize or adopt, we have a measurement of GDP or they just we have some questions we do want to get through.

Tim Cheston But I just want to reflect on this very nice point about what truly is not oil in the context of an oil producer. I think you’re spot on in saying Saudi Arabia risks getting into what we call a misreading, both if the actual export value of that chemical is less than the oil subsidy that goes into the chemical itself. So there’s been many efforts towards energy price reform in the country that would actually we would say we don’t actually know the competitiveness of the chemical sector today because we haven’t been able to tease out the oil contribution or subsidy contribution to those sectors. And Sabic continues to remain basic chemicals, which are often some of those dynamics. And the correlation with oil prices is strong in those sectors themselves. But but there are chemical laboratories in which trained scientists are there whose value added more oil component there. So it is by no means a one off and it is that exact perspective to share, which is how we differentiate between our oil contribution and the know how we’re buying contributions as the key players there. I think the megaprojects, you know, again, we would take that tradable on trade. Well, let me say that focusing on tourism and having fewer Saudi tourists go abroad and keeping vacations low will offer some potential to increase that sector. That sector is much larger globally than it has been in Saudi Arabia, with the exception of Libya. And there is significant potential to be increased to its own. There is that potential linking it? Absolutely not. So that this dynamic of not looking at tourism as a construction project, looking as a service based industry is a bit muddled in some of the current plans of some of those projects. And then there are some factoring zones and cities that have been planned that if diversification is to succeed, it will require a well-coordinated strategy towards entering these new sectors that we can have more hope in that space as well. Yes, please, let’s take some Zoom questions.

Yomna To the questions on Zoom, I’ll give you three questions. You know, this question was given the fiscal dynamics and social contract constraints, you explain how do you think investors in the capital market are taking this pressure into assessing Saudi Sovereign risk if they are taking them? For Tim, how do you think Saudi can measure the trade off between Saudiazation and diversification and then for both of you and the visual effects and not going great, it’s easy to criticize, but how can it work? What should Saudi do?

Ziad Right? So in terms of the risk from investors, I think the main the main can be looked at is the price of oil. And essentially our price of oil is high. These risks are limited. Oil prices drop. Sometimes people start to begin to budget deficit and we start looking at the future and the growth and so on. And so far, I think so much or so the sovereign risk is it’s fiscal crisis. In terms of the last question, which I cannot remember…

Yomna What can they do differently?

Ziad What can they do differently? So I think, again, I stop people because I want this to succeed. I once had iTunes, but I think it’s useful to do this analysis midway because I think you have a fundamental constraint. If you really want to diversify, you have to do something about productivity is to lower wages up to high. That to the productivity and it shows up in multiples and it shows an openness. And honestly. I still keep on thinking how going convince them. I need to bring it back. You need to bring the gap between productivity and wages closer to that, either by increasing productivity or you can do that by lowering rates. But again, that’s not the technical solution that requires thinking about the general communications with this. And that’s why it is slightly more difficult than increasing the intellect or, you know, things.

Tim Cheston And let me reflect on the Saudiazation versus the diversification question. So there you know, we think there’s different ways of measuring lines, right? And a lot of us say, no, the intensity of light is this light on. How bright is it? And what we’re trying to encourage is thinking of a spectrum of light. A light comes in very different, different colors that we actually think about this spectrum in terms of stylization right now, a lot of studies and policy assumes that there’s two inputs Saudi and X and says, okay, we have too many experts in this sector. We need to look more Saudis and assumes fundamentally the policies that they are substitutes. And what we have found is that expat workers and Saudi workers exist in different sectors, have different skill sets and have very little evidence of Saudi ready ability for Saudi workers to be able to substitute expat workers. So the growth that we think is in terms of that spectrum of right is that actually the alphabet has 26 different letters. And if you think of the world as a game of Scrabble in which you have all of these different areas or capabilities or knowhow that you have engineers is different than your employer is different than your dentist, and you’re actually able to understand the words that you’re able to produce using all of the different knowhow in different heads. And then we begin to say, you know, how, you know, essentially if you have an anesthesiologist without a surgeon is about as good as me, I can help put you to sleep. But I can’t operate that that operation. And so as we think about the world that way, you should be in an ideal labor market where if you don’t have a Saudi surgeon, you can simply replace that with an actor, which will not get to that policy. And to solve that Saudi surgeon to a policy that assumes that you can simply substitute that worker with a Saudi in the short run so that the focus of policy is not achieving. Is that constraints of diversification because it restricts your ability to solve for the missing letters in order to create more complex words in that location. So taking away from simply the intensity of life or how many calories and taking up the world in terms of we need different skill sets to be here and experts will play a significant role in trying to achieve higher wages and higher goals for Saudis. And how do we maximize complex industries we can be competitive in by bringing in that talent from abroad would be a different way of thinking of it. And I think something deserves credit for reforming the system and some of the other immigration systems and move precisely in this direction. And we think that there’s more that can be done in this space. We are overtime. Well, happy to stay and answer any additional questions, but very much thank everyone for joining, for Yomna for coordinating, for Ziad and for this very interesting talk that we should be having more at this hour around Harvard and around the world. Thank you.

DISCLAIMER: This webinar transcript was loosely edited and there may be inaccuracies.

Thabang MalaboMy name is Thabang Malabo. I’m a Harvard South African fellow at the Center for African Studies. I’m also a mid-career master’s in public admin candidate 2024-25, I’m also a Mason fellow at the Kennedy School. And in my work in South Africa, I work at the intersection of accountability, public financial management and service delivery. Working as a technical manager at the National Audit Office of South Africa, the Auditor-General of South Africa. These talks are a series of conversations with senior policymakers and academics who work in economic development. The Harvard Growth Lab, which is the frontiers of economic development and policy research, working closely with policymakers to create solutions and sharing our insights through teaching tools and publications, all to promote inclusive prosperity in our nations. We look forward to welcoming you to more of our events. Now back to today’s event. It is my great pleasure to welcome today’s speaker and Ann Bernstein, the executive director for the Center for Development and Enterprise, CDE for short in South Africa. For the past year, the CDE, the Center for Development and Enterprise, has been working on a major initiative called Agenda 2024. The priorities for South Africa’s new Government. Agenda 2024 sets out to end what is by far one of the most difficult, important, and compelling questions facing South Africa to date. And that is the question of what can the new government of South Africa do to get our country back on track after 15 years of stagnation and decline? Agenda 2024 builds on a project previously undertaken by the Growth Lab and supported, of course, by the CDE between 21 and 2023. Titled Growth through inclusive , sorry, Growth through Inclusion in South Africa. In this talk today, we’ll discuss South Africa. She’ll discuss the government of national unity that was formed following the May 2024 general elections and whether, indeed, they can deliver. We will start with a presentation from Ann, and then I will moderate with a few questions, and I’ll open up the floor for audience questions. Welcome once again to all of you, and I thank you for joining us today. Over to you.

Ann Bernstein Well, thank you very much, Thabang. It’s great to be here. And with a South African. So what I’d like to do is not talk for all that long. Just provoke you with some of the questions that I’m wrestling with and other South Africans are wrestling with. And then we can have a lot more time for discussion. I’m going to raise four big questions. What is the GNU? What has it achieved? What are the challenges? Can it turn South Africa around? So let’s start with the first one. What is the government of national unity? Well, it has 10 or 11 parties. That’s the most important one. So the ANC at 40% of the election, the voting in 29th of May and the DA 21 point something percent together, that’s a comfortable majority. But these are. Historic opponents across the aisle in parliament. But there are a whole range of other parties as well. No, we’ll see. An alternative to the G and U. I just throw it out. I think there was there was a possibility of just the ANC, the DA and the IFP, which would have been the IFP didn’t do as well as many people thought they would in the general election. But that would have been a much more manageable coalition in my view. We have something very different now which probably suits the ANC. Lots and lots of different parties to confuse the issues and there’s a lot to debate about this, But there was an alternative. Let’s call it a three-man coalition, a three-person coalition. There was another alternative, which was a minority government, that the 40% of the electorate, the ANC, was the largest political party in parliament. They could have governed not very easily with getting support from the D day, but possibly others. If they had gone a different route, much less solid, much less stable. But who knows? There’s a lot to discuss. Of course, the most important alternative was that the ANC could have gone in with, if you like, its offshoots of one kind or another, which is the EFA from the AK Party, a dreadful option for South Africa. So that’s the G and you? It was. There was talk at one time that it would flow through to metropolitan government and provincial government. What in the most important province and metros it hasn’t happened. And that’s another story we could talk about as well. So what about the second point, which is what is being achieved? Well, the. There’s a lot to say here. In a way you could say we’ve gone from a Hitler Monarch majority rule. Government agency for 30 years to something very different. They have to compromise and they are often being reminded by the media or their partners in government that you only have 40%. Don’t behave as though you have 50%. The voters didn’t give you 50%. That is a big shift, both in terms of power and mindset. You can imagine some 70 ANC MP lost their positions, had to find other jobs. This has been incredibly disruptive for the ANC. I think it’s very healthy. But you can imagine what it means for that political party and it’s still being played out. So that’s the one thing. The second is. This is a far better option than getting into bed, than the ANC getting into bed with what you might call the anti constitutionalists. And I think it was important that President Trump opposed and his very first statement said, we accept the results of the election. Mainly white people for a long time said, What will the ANC do when they start to lose votes? Well, he immediately said, We accept the results of the election. We are going to put together a combination of people who are committed to a democratic constitution, South African constitution and the rule of law. Very important in theory, but at least statements of the pillars around which to build a new government. It could have been very different. And there is no doubt there is a battle within the ANC on was this the right thing to do? You’ve gone into bed with the enemy the day and there were other alternatives. You’ve had all sorts of debates that are going on which are important that make sense. So one of the questions worthy of thought is how is the effect of the G and U playing out in different political parties? I’ve talked mainly about the ANC and the DA, the two big players. If we’re honest about this, because without the DIA, the ANC doesn’t get 50%. So they might be able to somehow cobble together a better but they don’t get 50% unless they get into bed with the anti-constitutional. Us, let’s call it. So how does this play out in the political parties themselves? Very complex. And he’s divided about this. How many people on this side or that side, what is going on in highlighting major problems for the economy, where it’s quite clear that there is a very different approach by the leadership of the ANC in highlighting they don’t have a government of provincial unity and they certainly don’t seem to even want one. Now what does all that mean? So a lot of questions to explore. And so that’s the second thing. We don’t have a much worse government that could have really been disastrous for the economy, for everything. I think those of us who committed to the democratic ideal in South Africa would have wanted would have been disastrous if the ANC had got into bed with imoke of Jacob Zuma party or with the EFF. But there’s more going on. Now, you can argue about that. The DEA gets as much as they might have done in the negotiations. That’s the role of the master negotiator of 1994. Outmaneuver the d.A. We can debate that. But the truth is that now there is debate in the government. There isn’t just one party. And just talking about the D.A., there is another group with a very different set of views of how to think about economic growth, how to think about markets, how to think about the role of the state. Not that they’re perfect or thoroughly thought through all of these issues, but it’s different. So you’re getting debate within departments, within the government. The D.A. has six ministers of state and six deputy ministers of state. And that’s been that’s interesting. So there’s a new kind of conversation. And certainly for Kddi, a policy think tank, suddenly we’re finding we’re not just dismissed. That’s sort of. Well, yeah. Okay. Reluctantly, Would you come and talk at a strategic planning for this department or that department? This is a whole new world. And I can go into a bit more detail about that. Now, the markets have responded very positively. The Johannesburg Stock Exchange, the bond market, all sorts of people. I think a lot of this is hype and hope. Some people weren’t happy. When I told the Financial Times, I thought there was a lot of hype and hope going on. But that’s positive and sentiment matters. But you’ve got to deliver. So this has meant the country is richer. The debt we are reaping is is less because the currency’s been boosted a little bit. And for the first time, there is a feeling of a window of opportunity. We haven’t had this for 15 years, really. So lots to talk about in that area. Actual achievements. Well, some changes in visa policy and some efficiencies there. The Department of Home Affairs run by the DEA that’s been, I think, very well, got a lot of media coverage and some positive shifts there. Some things the government said they wanted to do but they didn’t really want to do and they didn’t actually get around to doing it. But now the DEA ministers made some things happen. It’s early days yet. The. So that would be one shift. It’s a bit more openness in the Department of Trade, Industry and Cooperation. I was invited to go and talk to the strategic Planning session for the next five years of the G and U and well, they talked about all kinds of issues for the rest of the day. After we were we left, they were talking about this mad woman with different kinds of ideas. That’s healthy. There’s at least some debate going on. It’s not just business as usual. Department of Public Works and Infrastructure potentially important. I was a keynote speaker there at the strategy planning session, about 40 of the top managers with the minister. And again, I got a message later saying, what you said shaped the discussion. They didn’t say if anyone agreed, but he agreed. I think with a lot of the things. So there’s a lot of talk going on. At the same time, the president is signing things and there’s a feeling in the ANC of we going to continue implementing the policies and the legislation of the previous administration. So there’s a battle, always a battle going on, and it’s not quite clear yet exactly what’s being achieved. So we can talk more about that. What are the challenges? Well, there are a lot The country is in deep trouble. The economy is stagnant at 1%, 1.2, if we lucky. The third quarter results have just come out. And even though we now have no loadshedding at a national level from Eskom for the last eight months, eight, nine months, this isn’t turning into enormous vim for the economy. In fact, the last quarter we went back a little bit. So the country’s in deep trouble and there are lots and lots of things to fix from the ports to the railways to the general cost of doing business. And to pick a state which is incompetent in the economy. So all of this is still weighing down. South Africa’s chances of growth. How long will it last? Well, who knows? Could be five years. We have local government elections coming up some way between the end of 2026, November 26th to February 27th. They’ve told us. I think it’ll be November, I bet. But that’s just my guess. November 26th, The ANC has a big conference in 2027 where they elect the leader of the ANC. Now, at this convention, I think that you can’t have more than two terms as head of the ANC. What happens to Cyril Ramaphosa then? Do they flout convention or whatever? And then whoever is elected head of the ANC, do they leave Cyril Ramaphosa as head of the government of national unity? So some big fundamental questions along the way. Who succeeds President Ramaphosa? Some people like him, some don’t, But they think the alternatives are worse. That’s a debate we could have. So quite a complicated look beyond two years or so. Now, President Trump was, in my view, his future depends on a successful JNU. We can debate what success means, but unless you start to improve people’s lives. With half the population at least living in poverty with probably the world’s highest unemployment rate, some 12.23 million people in the workforce. Yeah. Well, we can go into that. He has to deliver. Otherwise I think he’s out as ANC leader and the party could move to. I don’t know. I like to call them the forces of evil, but whatever. EFA From the think so. So the stakes are very, very high to deliver. So let me turn to my last question. Which Thabang was most interested in. Can the G and U turn the country around? This very big question. Some people are saying, I know some day people may saying in 2029 we have to have improved the economy and improved employment. You say, great, that’s a big ambition. What are we going to do tomorrow? So how do you get there? How do you get there? And that’s partly what KD’s been thinking a lot about in this project, Agenda 2024, which I’m happy to go into if if people want to in more detail. So let me in then see nearly sort of 20 minutes. I’ll end with. A conference I went to recently. Former President Kgalema motlanthe has an annual conference weekend and the draw comes back. And this is kind of the parts of the ANC, if you like. That aren’t necessarily members but supporters closest to. I don’t know where CDE would sit as a sort of market oriented constitution supporting body. And 2 or 3 of the speakers kept talking about these words, and I didn’t fully understand exactly what they mean and they didn’t explain. So I’ll leave you with this, which is if the GM knew a vehicle or a destination. I’ll end there.

Thabang Malabo Thank you, Ann. Thank you so much. I think one of the most striking things that you said was around hype and hope. And I’m hoping we can delve in a little bit into what some of your research says about how we move the country forward. And I want to speak a little bit more about the agenda 2024. So having read the documents which are publicly available and I encourage everyone to go have a look at on the CDE website. There are five main areas that you believe that the new government should focus on. You speak about fixing the state driving growth and development by freeing up my kids in competition. You speak about building a new approach to mass inclusion, tackling the fiscal, the fiscal crisis and then strengthening the rule of law. I just want to get your initial reflections. It’s you know, these are areas that you say it should be focused on in the initial 180 days of cabinet. It is now day 153 today since the new cabinet came into office. And I’m interested on your initial reflections of the new government, the cabinet, its composition, its size. And I’m asking specifically in the context of two specific questions and actions that the c, d, e says the government needs to take. You speak about government needing to reorganize the presidency and the Cabinet. And there you were advocating for the appointment of two ministers that would be outside Parliament. Then you speak about appointing the right people in mission critical public sector jobs. So when you look at what we have in Cabinet in office, what are your initial reflections? Big G You.

Ann Bernstein Whoa, that’s a lot of issues. Great, great question. And. Okay. Let me start with when a country is in deep trouble, as South Africa is today, we could make a list very quickly, all of us, of. Crises that goes on and on across the whole blackboard. And but the challenge is to find is to discipline yourself, speedy as much as anyone else. If the government has to discipline itself and everyone trying to influence it on what are the catalytic priorities. If we get this right, a whole lot of other things will flow from that. So we say to ourselves, We should have started this March 2nd years ago, three years ago. But we didn’t. We got the funding for this agenda 2024 at the end of last year and we underestimated how long it would take us. And we have slowly moved away from the first hundred to the first first phase. We now vaguely say of the new government because we haven’t finished and change takes time. Reform takes time. I don’t think they are moving as fast as they should, but that’s easy for me to say sitting outside. So the first challenge, I think, when a country’s in trouble is where do you start? You want to start with the growth strategy. All of us would want to start there. The problem is you can’t. And if you read Ricardo’s report. From last year. He would talk about a number of things you have to do. So what we decided was you can’t develop a growth strategy when the ports don’t work. And so who’s going to invest then? You’ve got to say you’ve got to send some big, bold signals that there’s a new sheriff in town. That’s the first thing turning the Titanic around. And we chose five areas, partly coming out of the work Ricardo had done and our own work as well. The first is you’ve got to fix the state. And there are two documents on that. I’ll come back to the detail in a moment, which was one of Ricardo’s very And the growth labs. Big conclusion the state has has very little capacity. It’s not everywhere. They’re all pockets of capacity. But this is a very hard thing to think about when you don’t have a state that can actually do things. Who are you talking to? If you want reform and everyone in the country, business, everybody else would keep saying, the state with state is weak and corrupt. The state must do this. Then the next thing and you say, Well, put the two things together. It’s very difficult. So that was the first challenge. We said, fix the state and I’ll talk about what we chose there. Part of that is, well, everything’s part of that, the fiscal crisis. You’ve got to we spend more than we take in in revenue and we have a massive debt and the biggest, fastest rising item in our budget every year is debt repayments which instead of paying for better schooling or roads or whatever we’re paying. Update back. So that’s got to fix that. And you can’t be on the edge of euro if your country can’t manage its finances. Investors are going to say, should we go? B, what’s going to happen? Let’s go somewhere else with logistics. So it’s a big factor in growth. And then the third thing was, so that’s the second sort of big area. The third big area was the rule of law, which. Essentially the entire criminal justice system that isn’t working well. But if you think of state capture, this was all about these very clever crooks and elite looting the state. They were smart. They said we must deal with all the institutions that could catch us. We must weaken them. So the Revenue Service had a very effective unit to go after rich people and their ill gotten gains. They smashed that. The National Prosecuting Authority, which is the key body that can actually prosecute you in court. They smashed that. So what do you choose? We decided to choose two institutions, which I’ll come back to. The fourth area was. A very big area. We couldn’t just leave our growth and we said, well, the state is weak. You’ve got to free up markets. More business can do more markets, competitive markets, not particular companies. Competitive markets can do more. How do we do that? So that was not a growth strategy. And then the fifth thing was very important was basically employment. How do we get not 100 or 1000 or a hundred thousand more people in jobs, but millions of people into jobs, which is the quickest route out of poverty? So those are all five areas that we chose and why? Now, to answer that difficult question, we the new government, election 29th May, middle of June, they had two weeks to form the government of national unity government, very little time. A failure of our Constitution was much too little time. Most other countries do have more time. My board, police them, said you have to get out to documents and we’ve got a new government. And so we the week before the new government, we brought out the first document on. Kind of streamlining the cabinet talk about. And then ten days later went on what we called mission critical jobs. So the first is we lost. The cabinet is very big and it’s very expensive. And our first report was, A, you could cut it. And we we’re not going to fight on this hill, but we cut it down to 18 and we suggested how to do that. But it could have been other ways. But cut it. It’s very hard to imagine you trying to be a reformer. To get 30 people to agree is a lot harder than getting a smaller group. And so there was a logic to why you’ve got to cut it besides costs. And then the way in which the cabinet and the presidency works is things are coming to cabinet that are ill thought through, which is being polite according to people who’ve been in the cabinet previously, it’s not working the way it did for release in the first 15 years where there were clusters of cabinet ministers, they were serious conversation and you would be told to go home and do more homework, Department X or Y before you come with some proposal to the cluster of ministers before it came to Cabinet. This is not working at all. So we had a whole range of suggestions to go back to some things that worked well in the Mbeki era essentially, and then some adaptations to operation voluntarily to cut things dramatically the last. So that was the first document which is there also, these are action reports which have to end with. Yeah, or our recommendations do this, do that to the next thing in a short period. Stop saying what we mean by short, but do these now was the sort of injunction and how we pushed it in the media. The second document comes out of a conversation I had with a donor friend. Funnily enough, when Cyril Ramaphosa was first elected a donor in New York, the South African who gives us money and who supports all sorts of things, including a rugby team in South Africa and Siya kolisi. He said to me, I assume that Cyril has identified the mission critical jobs and is going to put good people there. Well, we didn’t. And I’ve always been thinking about this. So what our second report was. Look, we know there’s been cadre deployment. We know there’s been state capture. What we should do is hypothetically take 120 top positions, CEOs of big state owned companies, Transnet, CEOs of, I don’t know, critical ABA institutions, the NPA and departments, the top official, the minister identify all mission critical jobs and have a fair process that is quick, that asks all these people to reapply for their job and in some fair way. You you assess are you the right person for this job? Because the future of the country depends on us. So we’ve developed this notion and how to do it. And. It hasn’t happened yet, but it’s certainly it’s in people’s minds. I went to a conference on Operation Full and Baylor just after we brought those documents out full of government people. And as I drove into the hotel, I thought, I don’t know how popular I’m going to be today. Well, let’s see what happens. And I walked in and there were two people very close in the presidency, and they just laughed when I came in and they sort of said, come over to me, hugged me, and they laughed and they said, we’re reading your documents. Very interesting. And a number of people came up and said, yeah, this is you make some good points. And so we were being read and heard. We certainly didn’t win on the size of the cabinets, but this will take time. I can tell you some more stories of where we are getting some traction with just the last six weeks, getting starting now to get some traction from our proposals and the seven documents we released, the 3 or 4 more to come.

Thabang Malabo And I want to be able to come back to that a little bit later around. You know, the composition of the cabinet, the appointment of people and what that means for us, because those are quite foundational, you know, to the other issues that you bring up around growth, opening up markets and so forth. If you don’t have the right skills in those key positions that impact. I’ll come back to that later on. What do we do going forward? But I want to lean in a little bit on Project Vulindlela or Operation Vulindlela. I think there is a need for clarity on what it is and how it differs from some of the proposals that you’re making in your research. So if you could spend a lot of time clarifying what it is and how it differs, and I’m going to ask one additional question afterwards and then I’ll open up the floor.

Ann Bernstein So Operation Vulindlela is a good thing. Essentially, it’s a very small group of people in the presidency and the Treasury that helped push ministers to adopt reforms and kind of try and monitor what’s happening. This is a case of rewriting history because they now describe themselves very differently from how they describe themselves at the beginning and its confidence. And so this is a good thing. They’re good people. They that’s tiny. They very few people. But it’s they were very important in getting. The decision through the cabinet, let’s just say, to allow private producers of energy to produce as much as they could possibly do first was 30 whatever megawatts or whatever. And then then it was all that 100, then the prisons to just produce as much as you can. They were instrumental in that. Now they too got very murky and confused. The president in 2022 forms. Well, maybe the three working groups, the business and the president. And they’re working on three issues electricity, getting an electricity, markets, getting supply transmission, everything you can think of, electricity, logistics, which is essentially Transnet Ports, Rail. Commuter rail as well, which has dropped phenomenally. I mean, we used to have I can’t remember the numbers, not in our documents, but maybe commuter rail, which is different from my cargo rail. So that’s the second area. They call it logistics. And the third area is crime and corruption. So business and government chose those three areas and they tried to focus on those three areas and. Operation willingly is intimately involved in. It’s not clear, but helping to make this happen. Now, what has happened? Well, yes, we now don’t have loadshedding, although if you live in Johannesburg and I imagine other cities, not Cape Town, you get what we now called load sharing. So every now and then, once a week, I don’t have electricity in Johannesburg and it will get worse. So the supply is much better and we don’t have loadshedding. This is, of course, with a stagnant economy. Or if it were to get to 3%. What will happen then? And there’s a whole lot of questions about electricity. You should listen to the interview I did recently with the chairman of Eskom on our website. You know, is is Eskom a utility in a death spiral? They’ve lost customers, the prices going up, etc., etc.. So lots of questions. But they’ve made a difference there. They would claim this is where hype and hope might come in, but logistics, I don’t think they’ve made progress at all. This is debatable, but that would be my assessment, or certainly completely insufficient. Crime and corruption vary. They would say it’s the slowest of the three. So there’s this thing going on, which is one level you could say good and another level you could say. This should be more transparent. I don’t know what’s going on. I would like powerful people meeting in closed rooms outside Parliament not to question. They’d like to hear. But anyhow, that’s just me. And operation for that really sort of involved an operation for little is now going much more public debate in government. Good idea bad idea. And they’re saying phase two. I haven’t finished phase one, but phase two, should we get into local government reform? And the urban spatial issue, which we’ve talked about for a long time in South Africa, recurrent talk for thinking deeper on that of a growth lab report. But it’s not crystal clear what they’re going to do and how effective all operations will be when they start. Yeah, it’s one thing to say we’re going to fix that, but if you’re going to save local governments, that’s a really big and hard topic. So this is again, more talk. It’s not crystal clear exactly where we are.

Thabang Malabo Okay. So what I’m hearing from you is some of the proposals that the CDE has made tend to be a lot more broader in scope in terms of, you know, helping the government turnaround plan as project building is still finding its feet, but tends to focus on one needs areas like electricity.

Ann Bernstein And so I’m very flattered. But no, the comparison is flattering, but what we’ve tried to do is come with very specific recommendations. Let me give you an example, because it’s slightly different from what you’ve said. So the recommendations we’ve made on the state-owned enterprises, an enormous topic, are big. There’s a lot that could be done tomorrow if you were serious. We made recommendations on the National Prosecuting Authority, which has caused quite a lot of controversy. And then last week, I was invited to talk at the National Prosecuting Authority strategic planning session for the next five years, which was they were really angry, it seemed. And what we were saying and we were saying two things. One, there has not been one major politician or very senior person the Zondo Commission told us, was involved in state capture who has been successfully prosecuted. I didn’t like that. They said, Look at our annual report. We are so busy with all sorts of things when we say things, but we’re interested in the big guys, the big fish, which would send such a big signal to the country and investors, you’re not really making progress there. So we had some recommendations, the most important one of which was a retired, the president should appoint not a commission but a retired judge to do an inquiry on why is the NPA not successfully prosecuting big and powerful people and rich people who can hire the best lawyers? And what’s the problem here? Now, there’s a lot of people saying, this reason, that reason, they all sorts of allegations. A retired judge could look into it. Think of the Nugent Commission into saws in six weeks. He said, father CEO, do this, do that. And then the report came in another two months or so. And so was is well on its way to being a world class institution. Again, we’re saying let’s it’s different, but get an objective, impartial kind of retired judge to look at this. What do you lose by that? So that’s one thing. But what became clear to me was that the NPA is not getting sufficient support from the executive. So in August 2023, the head of the NPA or this is the legal process, asked the president to get rid of a very senior official in the NPA, the Johannesburg Head of Prosecutions. The president has yet to respond 15 months later. Who did former deputy minister minister sports this record apply to? A few weeks ago to have his charges of corruption set aside. That very man now I’m I don’t know anything. I’m just raising the question. But why hasn’t the executive replied? Why is the Minister of Justice not made sure that the NPA has full unhindered access to the files and the archives of the Zondo Commission? What possible reason could you have? So we’re making very specific, practical recommendations. This is an area where there is a crime and corruption working group, but they’re doing other things. And this is one of the things. We’re looking at, You know, and the question you can ask with business working with the president and ministers on specific areas of government policy. I like to say they’re an emergency repairman, but this is not how you run a country. All, they’re keeping quiet on certain other issues that are as fundamental. So there’s some very big questions here. But I wouldn’t sort of I wouldn’t talk of operation for us in the same breath. We’re an outside thinktank. They’re inside government and very close to the presidency. And it obviously is a think tank where we’re choosing issues that other people avoid. If something’s working and it’s going well, you don’t need us. So it’s a very different kind of thing.

Thabang Malabo All right. I want to open up the floor to some questions. I have some additional questions, but I don’t want to monopolize.

Guest I’m Emile, I’m a public policy student here, and I’m writing my master’s thesis on climate climate adaptation finance in Cape Town. So very interested. Could you speak a bit more to corruption, what role it plays in society in December 2024? And specifically, I think corruption played a major theme in the news coverage of the election and how people voted. So I’m curious if it is mainly a political problem or if it’s also a policy problem. When you talked about state capacity and so forth, like how seriously should we take the issue of corruption? And if you have time to come at a bit on the role of climate change more generally. I’d be very curious to hear that, but that might be overstretching. Thank you.

Thabang Malabo How about the gentleman over there.

Guest Thanks so much. I’m a post-doc researcher at the African African Immigrant Center. My question is about Jacob Zuma. You didn’t talk about too much, but he is very interesting figure. In fact, maybe he is the the second famous after Nelson Mandela in the South African history. And during the this the latest election, he actually played a key role. And during his presidency he also mentioned he underlined too much on ethnicity. I mean, so in the feature, do you see an ethnic zation of the politicians? I mean, the political parties because he. Yeah. The last election we saw so much about Jacob Zuma’s clan and the Zulu and another region and so on and so forth. It’s actually rather different from the Nelson Mandela’s legacy. So it’s more ethnic orientation from the part, the policy. Thank you.

Thabang Malabo Do we have another? Yes.

Guest Hi Ann, thank you so much for sharing your insights. I’m Chanice Ghanem, a South African entrepreneur working in the healthcare space, and I’m currently one of the fellows doing an MBA at the Harvard Chan School. So I’m curious around. My question obviously is, are on your thoughts around health care. I’m curious to know what what do you feel are the practical steps for this new JNU that we have to approach health care reform in terms of increase access, sustainability, all of those things that we should have been seeing in our healthcare systems many, many years ago. Like you said, there’s a lot of hope, but there’s also a lot of hype. And I’m hoping that some of this hope can really translate into practical steps. I’m curious to hear from you what you believe those might feasibly be. Thank you. Thank you.

Ann Bernstein Great, Great question. No free lunch. So corruption’s very serious. In a whole lot of ways. So firstly, you stealing from the poor. I couldn’t pay for a whole lot of services myself. The middle class and above the poor can’t. So when you steal public money, you’re stealing from the poor. In the main. Corruption is going up in South Africa, not down. And that’s partly why I feel so strongly about the criminal justice system. And for example, the NPA. And it said every level of government, local government, provincial, national and the ESOs. No. What happens if you don’t put the big fish in jail? The risk reward relationship is that also you’re not going to get me. So I’ll carry on doing what I’m doing. And your brother says, Yeah, look at cousin. I don’t know Uncle Jack, uncle, whatever. He drives a nice big car and I’ve got a big house and nothing happens. And yes, the Zondo Commission fingered them, but nothing’s happened. How do you start to turn this around? So it’s not just words. The presences on the post, the corruption and whatever, that’s too slow. And you’ve got it. We’re saying that the president and the minister of Justice should not just once, but often stand up and say we back the NPA. And in a democracy, everybody is subject to the law. If a powerful or rich you are, you will go to jail if you still commit fraud, whatever. But they don’t. And it doesn’t happen. So. Yes, we had the Zondo Commission. Yes, the president spent two days there, which is unusual for most countries. Might work well here, but but. And least some people sitting in jail. That’s why the big question about the NPA is how come no powerful policy politician has successfully. Been prosecuted. So I could go on and on about corruption. Imagine being a civil servant when you this all sorts of talk about your boss and your boss comes in and says, I want you to do X, Y and Z. The minute he walks out, you think, well, who benefits from you going to sit under your table and hope nobody ever sees you again because you don’t know who’s corrupt and who isn’t? What agenda are you on? So it’s it’s like a cancer eating through the heart of Big E, So each and every part of government and there’s a lot that has to be done. So corruption is very serious. Do not underestimate it. And it takes two to tango. You’ve got to have a corrupt party and a corrupt all. And just generally it becomes, well, it’s okay, you get away with it. And whether it’s not paying your traffic fines or bribing the police guy, the traffic policeman, all the way up to what was the president doing with hundreds of millions of dollars in the couch? And how come I can’t do that? It’s illegal. But this, you know, no consequence. So it’s corrosive of a society and it’s bad. And investors. A put off, you need a bit of corruption to oil the wheels. I think in many developing countries, I’m not in favor of it, but that’s how it works. But you might come along and bribe somebody to change the law. And then I’ve got a 30 year investment in a mine. Then what happens? So do not underestimate the sort of many tentacles of this. That’s the first thing. I’m the wrong person to ask about climate change. I’m ignorant. Jacob Zuma is, in my view. An unbelievably corrupt politician. And he doesn’t. He neither. The ports. He wants to destroy the constitution. He doesn’t believe in the rule of law, doesn’t believe that parliament should be accountable to the Constitution in any way. Doesn’t like the idea that judges can say, I’m not allowed to do this back to parliament kind of thing. He’s very smart. I think he’s one of the most clever politicians we’ve seen in South Africa in my lifetime. Is playing. He is reintroducing ethnicity there. Just when he was president, 100% Zulu boy is appealing to an ethnic audience. He hopes he can go wider than KwaZulu Natal. I hope he’s wrong, but he’s certainly reintroducing ethnic politics into the country. It’s very worrying. So I think this is contrary to what Mandela tried to do and the spirit of our Constitution. And it could be very dangerous for the country. And unless we. Yeah. So let me leave that there. I agree with you then. Health care is not an area I’m a specialist in at all. And my center doesn’t do work in this area. We have the same ministers we had previously who didn’t manage to change anything. In fact, I imagine health care got worse under his watch. You know, health care is all about people. It’s who should run the hospital? Who should run the housing health department? Why does nobody ever get fired? So, you know, there’s a pooling level of service again, for poorer South Africans. Unbelievable levels of service in many places. Probably not all. It’s just incompetence. So if you put people who, you know, just because you’re a doctor doesn’t mean you know how to run a hospital, which the school would tell us very quickly. And. I’m not very hopeful on health care. You’ve got the same players shouting Health department’s terrible. Nothing ever happens. People don’t get fired. There’s terrible corruption and incompetence and a lack of care. That’s what’s so there’s just a lack of sympathy and empathy for patients. So I’m not very optimistic about health care at the moment. It’s an ANC ministry, same person. Why would you appoint the same person when he did a rotten job last time? And then this obsession with the national health insurance. Is not helpful. Everyone deserves we want a country where everybody has access to a decent level of health care. Absolutely. Shouldn’t you start with what’s working and build out from there rather than trying to kill the private sector? So this would have massive economic implications if they did introduce. They in H.R. as they’re proposing now, the president just before the election, sun in a tribal country took over objections. There are people I don’t know if they can prove this that say he forgot that almost all civil servants have private health care. And private health insurance. And that there was a big opposition to this bill that would destroy the private medical aides. And you would the middle I don’t know. The professional class. Firstly, doctors, nurses and others will leave the country because they don’t want to serve it. Especially when the health care system is falling apart, the public health cases stop. And many professionals would go if they couldn’t have access to their desired health care professionals. So this is a really important. Like hidden issue. And the Minister of Health is not listening to anybody. Can you find a compromise? That’s one of the red lines in the G and between the ANC and the DIA. I don’t know where we’re going to end up there. It’s going to be a big battle.

Thabang Malabo Thank you, Ann. And I’m just watching that time. We only have two minutes left. I’m having such a good time here. I have so many questions. But before we close out to everyone and the two specific issues that I wanted to follow up on, the first one is your call for regionalization and consolidation of specific centers of government departments. So you’re talking about rationalizing Treasury, the Department of Cooperative Governance, potentially looking at consolidating the Department of Women, children and people with disabilities, as well as the Department of Planning, Monitoring and Evaluation. I just want you to share a little bit more about how do you push back and worries and concerns that, you know, consolidating and rationalizing in this way may take away from or may dilute focus on the critical issues that these departments specifically deal with? I think that is one of the arguments that I can bring up. And then finally, sorry. And just in closing.

Ann Bernstein Let me answer those quickly. Firstly, we are not calling for rationalizing the Treasury at all again. Secondly, the Department of Women. What is that?

Thabang Malabo Women, children, and people with disabilities.

Ann Bernstein It’s a ridiculous department that should have been closed down yesterday. Every department should be thinking about women. What are they talking about? What is the point of this? So it’s either a great big insult because it’s a tiny department with a tiny budget or women are more than half the population. I don’t understand what this is, and I’m a totally opposed to it. So women’s issues are really important, and I think every minister should be charged to think about them, whether it’s in health or education or anything else. But to think that you can have a little department that deals with versus generally somebody who’s very ineffective is insulting. So that one’s easy. Okay. There are too many ministries. The presidency has expanded. Enormously. There’s a security minister, there’s a minister monitoring, planning and evaluation. Nobody knows what she does. They all these things. So why don’t you think about the function and then how you’re going to deal with the function. And there’s too much politics. And finding somebody a space somewhere that is not rational and is expensive. So that’s how we were thinking about all of this. Monitoring, planning, monitoring and evaluation. We used to have quite a good department. Unfortunately, the minister then died in a car crash and it’s never been much ever since. They. I don’t know exactly what this department is supposed to do. Does it have its own budgets? It’s very misty and sort of unclear. So that was part of it. You know, trying to get the cabinet down to 18. You can cut this cake any way you want. You’ve got to choose your priorities and then work ups, you know, where you want to put your, you know, kind of focus. And the presidency is to be parliament, much to the chagrin of the ANC, I think. And the presidency has just decided that like other departments, we will have a parliamentary committee to supervise the presidency. It’s a lot of money. Growing amount of money. They don’t like that at all. I think it’s a jolly good idea. Let’s find out what people are doing and let them come to Parliament. So I think there are a whole lot of areas you could rationalize and suggest examples, but I’m certainly not calling for the Treasury to be rationalize at all. Much bigger than me. I’m not taking them on.

Thabang Malabo Okay, great. And my last question is about what you call is to everyone and everyone in South Africa. I know a lot of your work was on influencing the Treasury, but I’m wondering how the public gets involved with using your reports to influence how you check the nine institutions. Use this information to influence in the spaces where they work.

Ann Bernstein Well, this year we’ve spent all our time trying to develop our proposals and get them out. And we sent our documents to some just under 20,000 South African decision makers. The last two months, we starting to get traction as ministers are having strategy sessions and whatever. We’re starting to get invitations, which is fantastic and an opportunity to be in the room. I would like next year to spend a lot of time. Taking our documents and our recommendations and looking for allies, sort of trying to talk to more people, to get more people in civil society and business to back our recommendations and to sit outside ministers doors or digs doors if they won’t talk to us to say we’ve got something to offer here in a constructive way, can we come and talk to you? The same with Parliament. So it is early days. I do think there needs to be much greater urgency in government. But when you sit and look at the department, as I did recently and you look at 250 people around the room and you think, you have to be a really decisive leader to change direction here because you’ve got this empire around this policy and you’ve got that empire around this policy. How are you going to move this? So change management, we have to be more urgent. South Africa’s challenges are urgent. But I think what we’ve learned this year is that. That takes a bit more time than we realize. And this 100 day notion from FDR. It’s very appealing, but it’s quite hard to do when a country is in such deep trouble as we are.

Thabang Malabo Thank you so much, Ann. Thank you to everyone for joining us. Please a hand of applause for Ann.

Ann Bernstein Thank you. Good questions.