Is there life after junk?
THE NEXT 18 MONTHS WILL BE CRUCIAL FOR SA
South Africa did itself a great disservice in the past month, attracting two junk-status downgrades just as the investing world was preparing to escape volatile developed markets by diving into emerging ones, says Colin Coleman, the head of Goldman Sachs in SA.
“I can certainly confidently say from where I sit that we in the last 15 months up to ‘the night of the long knives’ have effectively made sufficient progress to maintain our investment grade rating,” Coleman told a forum hosted by the Gordon Institute of Business Science in Johannesburg. His comments come in the wake of decisions by Standard & Poor’s Global Ratings and Fitch to downgrade SA’s sovereign credit rating to junk after President Jacob Zuma replaced finance minister Pravin Gordhan and his deputy, Mcebisi Jonas, in a midnight cabinet reshuffle.
Coleman said the work of the CEO Initiative – comprising the business community, labour and government – had effectively created a framework that was unprecedented in SA. Structural reforms and a tailwind in emerging markets would have helped sustain the momentum towards an investment-grade rating.
The South African economy had the capacity to grow at 3%. Prior to the downgrade, Goldman Sachs expected growth of 1.5% for 2017 and 2.8% for 2018, with the potential to reach 3% by 2019.
“That is all now in question. Why? Because the structural reforms and the policy and the growth linkage have been broken by one night of madness.”
Half of the ANC’s top six as well as some alliance partners have previously questioned Zuma’s decision to replace Gordhan.
“That seems to me to be a searing comment on whether they as the alliance and the ANC supported that decision and if they didn’t support the decision then the question is, what third force is at work here to whom these decisions are accountable? It’s not SA Incorporated as we know it that is in control of those decisions.”
Cas Coovadia, MD of the Banking Association of SA, said though progress had been made, trust and the social compact had suffered. Some people were ambivalent about the CEO Initiative, he said, but business had to do everything it could to continue to instil confidence in the country.
Recent developments had been a major blow to cooperation in realigning the economy to be more inclusive, he added.
Coovadia said the default position was to measure progress against relevant charter or sector codes, but long-term sustainabili- ty depended on including as many people in the economy as possible.
Dr Iraj Abedian, chief executive officer at Pan-African Investment and Research Services, said the national interest had to be reassessed urgently across class and race. “If we get another downgrade from where we are then the national sovereignty will be compromised big time.”
Coovadia said structural changes in the ANC were inevitable and the next 18 months to the 2019 election would be crucial.
It was time for business to come together, leverage off its power to improve SA and consistently talk truth to power, be it to the ANC or a new political grouping, he said.
Abedian said SA’s diversified economy was its strength. “I don’t think the South African economy is going to be a pushover to be captured,” Abedian said.
He added that, unlike Venezuela or Russia, local parties that had been involved in the economy for several centuries had a selfinterest that cut across race and gender.