SA must rethink nuke deal – ANC
JUNK STATUS: CONDITIONS CHANGED – ECONOMIC HEAD Godongwana did not rule out the possibility that SA could slide into recession.
Following SA’s relegation to junk status, the costly nuclear programme must be rethought, says the ruling party.
South Africa’s ruling party yesterday said the government will have to rethink its costly and highly contentious nuclear expansion programme, following last week’s relegation of the country’s creditworthiness to junk.
Within days of each other the world’s two major rating agencies, Fitch and Standard & Poor’s, downgraded South African sovereign debt to junk status after President Jacob Zuma’s dramatic ministerial shake-up that saw respected finance minister Pravin Gordhan axed.
In 2010, South Africa formulated plans to expand its nuclear power fleet, plans estimated to cost about R1 trillion.
Two Sunday newspapers cited a confidential document that stated that the country’s power utility Eskom would in June invite bids for the construction of four plants with a combined capacity of 9 600 megawatts.
The successful bidder would then be named in March next year, according to City Press and the Sunday Times.
But the ANC’s head of economics, Enoch Godongwana, told reporters that “conditions have changed. It was before we were declared junk status”.
“Surely in the light of the junk status we will have to ... revise our expenditure patterns as government.
“If we do nuclear we must do it ... at a scope and pace which is affordable.”
Godongwana did not rule out Africa’s most advanced economy sliding into recession.
“Are we anticipating a recession? That’s a possibility,” he said.
When Fitch announced it had downgraded South Africa to noninvestment level on Friday, it cited “recent political events, including a major Cabinet reshuffle” that would “weaken standards of governance and public finances”.
It said differences over the “expensive nuclear programme preceded the dismissal of a previous finance minister, Nhlanhla Nene, in December 2015, and in Fitch’s view may have also contributed to the decision for the recent reshuffle.”
Fitch added it was of the view that under the new Cabinet the nuclear programme “is likely to move relatively quickly”.
Shortly after his appointment, new Finance Minister Malusi Gigaba said the country would forge ahead with the nuclear programme, but “at a pace and scale that the fiscus can afford” and that the funding model was yet to be “finalised”.
SA is the only country on the continent with a civilian nuclear industry and its two reactors have been in service for the past 30 years. Currently, 90% of the country’s electricity is generated from coal-fired stations.
The downgrade of South Africa’s credit rating by international rating agencies Fitch and S&P Global provide a clear signal that the country is going to have to pull together like never before to overcome its economic problems, the ANC said yesterday.
“A credit rating, being a measure of how likely the country will be able to repay its loans in full, is not an unimportant indicator of the state of the economy,” Enoch Godongwana, the ANC national executive committee sub-committee on economic transformation chairperson, said in a statement on a discussion document for the ANC’s upcoming fourth national policy conference.
Furthermore, a deterioration in South Africa’s credit rating would have a major negative impact on the country’s ability to raise debt funding to fund its development programmes, he said.
“This is particularly critical given the low levels of domestic savings.
“Achieving an investment grade status was one of the greatest successes of the ANC government after we took over a fully junk status in 1994. The ANC needs to mobilise collective action by all South Africans – in the private sector, labour and in government – to do everything necessary to bring the country back to investment grade. “The essential messages conveyed by the rating agencies were that we need to deal with the structural challenges of the South African economy, including dealing with sluggish growth.
“Second, we need to deal with concerns around contingent liabilities from state-owned enterprises; these threaten the state balance sheet.
“The other message is that the most recent [Cabinet] reshuffle has sent a signal of political instability and policy uncertainty,” Godongwana said.
Among the proposed steps in the discussion document was a renewed focus on growth enhancing policies. Growth was critical.
“An immediate and key issue is to stabilise the outlook for governance in state institutions, ensure that SOEs are financially sustainable, and address policy uncertainties.
“The ANC must work together with all spheres of government, as well as the other key role players in the economy, to ease operating conditions so that firms can continue to be supported. We will seek solutions to ensure a coordinated rehabilitation plan.
“Convene an economic round table with all key stakeholders to discuss substantial issues affecting the economy, particularly aimed at achieving the objective of lifting investment levels to 30% of GDP. These roundtables will be held at regular intervals.
“We will do everything possible to ensure that low-income workers, poor households, and vulnerable groups are cushioned from any adverse impact that may result from the current situation,” Godongwana said. – ANA
The Cabinet reshuffle has sent a signal of political instability