Daily Dispatch
Window of opportunity
QUICK and decisive action by the Minister of Finance Pravin Gordhan may have staved off a credit rating downgrade this year – which could have seen the rand plunging to R20 to US$1 – but South Africa still has a long way to go to get out of its economic morass.
Gordhan’s firm promises, backed by action on reining in inefficient and profligate state-owned corporations like the South African Airways, Denel and Eskom, and asserting tighter fiscal control, is believed to have helped rating agencies hold off until at least next year.
Such a downgrade would reduce South Africa to “junk bond” status, which will make it more difficult for the state and parastatals to borrow and cost more for less, and for private investors to invest confidently.
That’s not good news for an economy stuttering along with growth recently revised to 0.6% by the International Monetary Fund (IMF).
With an inflation rate pushing 7%, according to Statistics SA’s year-onyear February figures, we are all getting poorer, jobs are being lost and the very large number of unemployed will struggle even more.
It’s a combustible mix and it is going to take some exceptional leadership and policymaking to ensure it does not erupt further than the already severe service delivery protests happening countrywide.
There seems to be consensus that President Jacob Zuma will either resign or be removed sometime after the local government elections and before the end of the year.
Hopefully the delay by ratings agencies will be recognised by government as a valuable window of opportunity to get the country’s economic ducks in a row and start implementing investment-friendly policies that encourage capital inflow and economic growth.
They also need to realise that window is closing rapidly.
The pressure has already pushed the SA Reserve Bank to signal it will tolerate temporary breaches of its inflation target to smooth out short-term fluctuations in economic growth, but a persistent breach will require a policy response.
Deputy Reserve Bank governor Daniel Mminele has pointed out that food price pressures, which intensified in recent months largely due to drought and a depreciating rand, pose a significant upside risk to inflation.
Last month the central bank raised its repo rate to 7% in an effort to dampen inflation, despite the faltering economic growth.
Thankfully, the oil price has collapsed dramatically. Had it remained high, we would most likely be mired in economic chaos by now.
It is time for the ANC to see its responsibilities for the greater good for all and to reverse its myopic views of party-first and the communist liberation era ideology that is antagonistic to capital.