THE BIG PUSH
Leaders must stand up
ET TU Moody’s? Until recently, the biggest of the international ratings agencies has been kind to South Africa.
Though its rivals, S&P Global Ratings and Fitch, have downgraded South Africa’s sovereign domestic and international debt to junk, or below investment grade, Moody’s has kept the faith, keeping us just above junk. It has shadowed the First National Bank slogan, “How can we help you?”
It has been a vital provider of some degree of confidence in the country despite all of our evident political and economic policy weaknesses. It waited until the governing ANC’s elective December conference before issuing a rating in March. It kept South Africa on the lowest investment rating but reversed its former negative outlook to positive after Cyril Ramaphosa won the ANC leadership and subsequently replaced Jacob Zuma as head of state.
“The confirmation of South Africa’s ratings reflects Moody’s view that the previous weakening of South Africa’s institutions will gradually reverse under a more transparent and predictable policy framework,” Moody’s said at the time.
Sadly, however, that gradual “more transparent and predictable policy framework” has been painfully slow in coming. If anything, the outlook is less transparent or predictable than ever as the ANC’s internal politics have conspired against Ramaphosa.
Nothing is transparent. The land issue is as foggy as hell. Eskom’s financial problems have become existential and Ramaphosa is struggling to control his fractious party.
We are still being asked to “dream” about a better country, while destructive unions and protesting truckers are able to close national highways and burn vehicles without any consequences whatsoever.
Now Moody’s has issued a warning. It is due to issue a formal ratings notice again on October 13, but this week issued a “comment” on South Africa that will frighten the Treasury.
In it the agency cautions that continued uncertainty over the ANC’s commitment to the expropriation of land without compensation, among other things, is scaring off foreign and local investors.
The frothing left will say investors don’t matter, but they don’t know what they’re talking about. Without foreign investment this economy collapses, simple as that. We don’t save enough to survive on our own.
But on land, Ramaphosa’s government is simply unable to be clear. Internal party politics don’t allow it.
“Ramaphosa has stated his intentions to implement it [expropriation without compensation] without harming the economy but uncertainty over how this will be achieved continues to limit near-term investment,” Moody’s said, adding: “We believe it unlikely there will be meaningful progress on this before the 2019 presidential election.”
That’s a long wait, perhaps even more than a year away, or two more rounds of ratings advice.
It may well be that Ramaphosa could make an investment case for more radical land reform – that if done right it could settle the country – but he doesn’t make it in any comprehensive way.
And it isn’t Moody’s job anyway to help the government out. Its job is to advise its clients – the fund managers responsible for getting a decent return for their investors, be they Spanish pensioners or Japanese doctors or Brazilian steel workers. People, in other words, just like us. We know Ramaphosa has a plan – clean, accountable government and state-owned enterprises (SOEs) that do their jobs properly – but the damage of the Zuma years is so profound it may not be enough.
He has now drawn the banks into talks about rescuing crippled SOEs. But how?
No bank could simply lend more money to Eskom. It is a financial disaster and technically feeble, as recent strikes and subsequent lingering blackouts have shown. And the government has exhausted its capacity to guarantee more SOE debt.
A bailout by commercial banks would amount to reckless lending.
On the other hand, unless the banks can help, Eskom (and, probably, Ramaphosa himself ) is done for. The only broad solution I can think of is that a consortium of banks takes a stake in Eskom (and possibly South African Airways, Denel and Transnet) and warehouses it pending a breakup of the monopoly into a transmission and network operator owned by the state, and auctioned-off power stations to private sector generating companies with a stomach for risk.
Even then you’d need the unions to agree and to absorb painful job cuts and, probably, the World Bank or the IMF to agree to somehow underwrite the inherent risks to the domestic banking sector.
Rescuing public sector involvement in business is nothing the Brics bank would have any appetite for.
These are perilous days for Ramaphosa. His greatest strength is that business in South Africa wants him to succeed and business is about the only thing working in the economy since Zuma’s destruction of the public sector. But even that might not be enough.
Having a crafty politician in the Union Buildings works for South Africa, but only up to a point and only for so long. What the country needs is leadership.
We know Ramaphosa has a plan – clean, accountable government and SOEs that do their jobs properly – but the damage of the Zuma years is so profound it may not be enough
Nothing is transparent. The land issue is as foggy as hell. Eskom’s financial problems have become existential and Ramaphosa is struggling to control his fractious party