The im­per­a­tive for restor­ing con­fi­dence and trust

The Star Early Edition - - OPINION & ANALYSIS - Tshediso Ma­tona Tshediso Ma­tona is the act­ing di­rec­tor-gen­eral, Depart­ment Plan­ning, Mon­i­tor­ing & Eval­u­a­tion and sec­re­tary for Na­tional Plan­ning.

THE RE­CENT de­ci­sions of the rat­ings agen­cies and the cur­rent re­ces­sion are mat­ters that re­quire deep re­flec­tion, be­cause they are crit­i­cal for our abil­ity to ad­vance the im­ple­men­ta­tion of the Na­tional De­vel­op­ment Plan (NDP).

Rat­ings Agen­cies De­ci­sions

Just last week Fitch Rat­ings af­firmed South Africa’s long-term for­eign and lo­cal cur­rency debt rat­ings of BB+ with a sta­ble out­look.

Im­por­tantly, it noted the fact that de­spite South Africa’s credit strengths of deep lo­cal cap­i­tal mar­kets, the favourable gov­ern­ment debt struc­ture and a track record of fairly pru­dent fis­cal and mon­e­tary pol­icy, three par­tic­u­lar ar­eas con­tinue to weigh us down.

These are: our low po­ten­tial eco­nomic growth; the size­able con­tin­gent li­a­bil­i­ties; and the de­te­ri­o­rat­ing gov­er­nance of sta­te­owned com­pa­nies (SOCs).

Based on the cab­i­net reshuf­fle in March this year, the agen­cies flagged con­cerns about over­all gov­er­nance, but es­pe­cially at SOCs, risks to fis­cal con­sol­i­da­tion and to pri­vate sec­tor in­vest­ment as a re­sult of weaker busi­ness con­fi­dence.

Al­most si­mul­ta­ne­ously, S&P’s af­firmed its junk sta­tus of our for­eign cur­rency rat­ings, but held back from down­grad­ing our lo­cal cur­rency rat­ing to junk sta­tus. How­ever, it is note­wor­thy that S&P’s is­sued a stark warn­ing of “po­lit­i­cal risks” to our eco­nomic growth im­per­a­tives.

Moody’s, at last count, has us on re­view for a down­grade. At the time of writ­ing, it has not yet an­nounced its de­ci­sion. How­ever, Moody’s rat­ings are higher than those of Fitch and S&P’s and the big ques­tion will be whether Moody’s will put a sta­ble or a neg­a­tive out­look on its rat­ing, with a neg­a­tive one sig­nalling it could look to down­grade again within the next two years.

Into re­ces­sion

And just as we thought that things could not get any worse, news re­leased by Sta­tis­tics South Africa a few days ago re­vealed that we have ef­fec­tively slipped into a re­ces­sion. Gross do­mes­tic prod­uct (GDP) de­clined 0.7 per­cent dur­ing the first quar­ter of 2017, com­ing short on the heels of a 0.3 per­cent con­trac­tion in the fourth quar­ter of 2016.

Two quar­ters of con­se­quent neg­a­tive growth means that the next few months are bound to be tough times.

For us, this is par­tic­u­larly dis­con­cert­ing, be­cause the coun­try, as the NDP, Vi­sion 2030 ar­gues, re­quires strong eco­nomic growth if we are to deal de­ci­sively with poverty, unem­ploy­ment (cur­rently at more than 27.7 per­cent) and in­equal­ity.

Thus, the risks are stark. We now re­ally need to rally around a “re­sponse strat­egy” in which the gov­ern­ment, to­gether with all the rel­e­vant crit­i­cal stake­hold­ers, work more de­lib­er­ately to­gether, in part­ner­ship, and in a much more strongly co-or­di­nated man­ner. The time to act is now.

As a mat­ter of ex­ceed­ing ur­gency, we need to ex­ert ev­ery ef­fort at en­sur­ing that South Africa is not down­graded any fur­ther.

Thus, our first or­der of busi­ness is to reaf­firm our com­mit­ment to main­tain fis­cal con­sol­i­da­tion and keep this firmly on track.

Se­condly, we need to step up our col­lec­tive ef­forts to im­prove our eco­nomic growth, and dis­pel per­cep­tions of the on­go­ing ero­sion of pol­icy cer­tainty, trust and con­fi­dence.

We will also have to make head­way in re­la­tion to the chal­lenge of im­prov­ing gov­er­nance at all lev­els, in­clud­ing in SOCs and the broader pri­vate sec­tor.

These are all nec­es­sary con­di­tions to en­sure that we ex­e­cute on our na­tional im­per­a­tives, as re­quired in the NDP.

To this end, the gov­ern­ment must re-en­gage its so­cial part­ners with more ur­gency, se­ri­ous­ness and com­mit­ment.

The joint work of the gov­ern­ment, busi­ness, labour and broader civil so­ci­ety must con­tinue with greater res­o­lute­ness and with strong­est lead­er­ship.

We have proven over the last while that where there is trust and con­fi­dence, rat­ings agen­cies tend to give us the ben­e­fit of their good­will. We should have no doubt that part of the task at hand is about forg­ing an en­tirely new so­cial com­pact.

Both lead­er­ship in the gov­ern­ment and the rul­ing party, the ANC, have openly com­mit­ted to im­prov­ing busi­ness and in­vestor con­fi­dence in South Africa. The im­por­tance of this should not be un­der-es­ti­mated.

Hour for ac­tion

This is the hour for de­ci­sive ac­tion and not for the lux­ury of de­bat­ing the role of the rat­ings agen­cies. Let us be un­der no il­lu­sion, we will feel the im­pact of the rat­ings agen­cies through higher bor­row­ing costs for gov­ern­ment and SOCs.

Chances are that our bud­get will be di­rected less to­wards core spend­ing ar­eas such as in­fra­struc­ture, health, ed­u­ca­tion, hous­ing and so­cial se­cu­rity ser­vices.

It could also trans­late into re­duced de­mand for South African stocks and longterm in­vest­ments.

A weak­ened rand will in­crease the costs as­so­ci­ated with im­ported goods and ser­vices, thus stok­ing high in­fla­tion and higher cost of liv­ing, which will be borne more acutely by the most vul­ner­a­ble cit­i­zens and com­mu­ni­ties.

Our im­me­di­ate and urgent over­rid­ing pri­or­ity is to ad­dress the stag­na­tion of eco­nomic growth which con­strains our ef­forts to deal de­ci­sively with our chal­lenges of deal­ing with poverty, unem­ploy­ment and in­equal­ity.

As South Africans, we are called upon to work in unity and tire­lessly, es­pe­cially in these dif­fi­cult times, and en­sure that we re­claim our in­vest­ment grade sta­tus.

The task at hand is sim­ply one of restor­ing trust and con­fi­dence in what we do, how we do it and how we en­sure we achieve the im­pacts we so des­per­ately.

We must do this for the sake of the coun­try, in the first in­stance. This will pro­vide the rat­ings agen­cies and in­vestors the nec­es­sary pos­i­tive cue.

As South Africa, we recog­nise that we have made sub­stan­tial progress to­ward im­prov­ing the lives of cit­i­zens, since the tran­si­tion to democ­racy in 1994.

But we must also ac­knowl­edge that we are los­ing mo­men­tum. As proxy and part of the rea­son for it, the econ­omy is in a low-growth trap, with un­sta­ble real GDP growth that seems in down­ward free-fall, com­ing in at only 0. 3per­cent in 2016.

Our econ­omy needs to grow faster in or­der to in­crease the rev­enue re­quired for us to con­tinue our pro-poor poli­cies and ex­pen­di­ture on so­cial pro­tec­tion, which for some is the only buf­fer against the rav­ages of poverty.

Two im­por­tant chal­lenges must now ur­gently be dealt with head-on:

One: Restor­ing, as a mat­ter of crit­i­cal im­por­tance South Africa’s credit rat­ing to in­vest­ment grade is the one crit­i­cal pivot. It would help cer­tainly boost­ing in­vest­ment into our econ­omy.

Bet­ter credit rat­ing

A bet­ter credit rat­ing would re­duce the at­ten­dant risk of in­vest­ing in our coun­try.

Two: More in­vest­ment is re­quired to get South Africa out of the cur­rent dol­drums. In­vest­ment will serve to boost de­mand in our econ­omy and will serve to re­lease other pos­i­tive spill-over ef­fects across a num­ber of re­lated eco­nomic sec­tors.

The cur­rent ad­min­is­tra­tion is acutely aware of the im­mense chal­lenges that must be over­come.

It re­mains com­mit­ted to deal with these chal­lenges in or­der to ac­cel­er­ate progress to­wards the goals of the NDP: Vi­sion 2030, which is the over­ar­ch­ing frame­work for de­ci­sions and mea­sures to achieve in­clu­sive pros­per­ity, and ad­dress unem­ploy­ment, poverty and in­equal­ity.

The NDP is our col­lec­tive com­mit­ment, as a na­tion, to strive for the at­tain­ment of these goals and re­mains an im­per­a­tive.

To achieve these over­ar­ch­ing goals, the NDP lists the crit­i­cal re­quire­ments for suc­cess, which in­clude fo­cused lead­er­ship that pro­vides pol­icy con­sis­tency; own­er­ship of the plan by all lay­ers of so­ci­ety; strong in­sti­tu­tional ca­pac­ity at tech­ni­cal and man­age­rial lev­els; ef­fi­ciency in all ar­eas of gov­ern­ment spend­ing, in­clud­ing man­age­ment of the pub­lic ser­vice wage bill and mak­ing re­sources avail­able for other pri­or­i­ties; and pri­ori­ti­sa­tion and clar­ity on lev­els of re­spon­si­bil­ity and ac­count­abil­ity in ev­ery sphere of gov­ern­ment, as well as a com­mon un­der­stand­ing of the roles of busi­ness, labour, and civil so­ci­ety.

It is a frame­work for part­ner­ship and co-or­di­nated and con­sis­tent ac­tion, and for forg­ing the nec­es­sary so­cial com­pact(s) to ce­ment the con­sen­sus we re­quire to pro­pel us for­ward and stay the course, be­cause the changes we seek are long-term.

Lead­er­ship

So­cio-eco­nomic de­vel­op­ment re­quires far­sighted lead­er­ship. This is what in­spired the NDP, which was pro­duced by the first Na­tional Plan­ning Com­mis­sion.

This was an in­de­pen­dent body of ex­perts ap­pointed by Pres­i­dent JG Zuma, with the task to con­sult so­ci­ety and key stake­hold­ers in the process of craft­ing a plan and a vi­sion for South Africa that will be in a much bet­ter place by the year 2030.

We must there­fore com­mend our par­lia­ment and all po­lit­i­cal par­ties who in Au­gust 2012 adopted the NDP in con­sen­sus, on be­half of the peo­ple of South Africa.

The gov­ern­ment has to play a lead­ing role in the im­ple­men­ta­tion of the NDP, re­ly­ing on the strate­gic levers at its dis­posal, which it must fully ex­ploit.

The gov­ern­ment is tasked by our cit­i­zens to leg­is­late and reg­u­late for the econ­omy and so­ci­ety to progress and trans­form in ac­cor­dance with the vi­sion of our Con­sti­tu­tion, and to en­sure that the na­tional bud­get (which cur­rently av­er­ages R1.6 tril­lion per an­num over the medi­umterm), as well as state-owned com­pa­nies, are ac­cord­ingly aligned for this pur­pose, among other levers

How­ever, it must be un­der­lined – the NDP was con­ceived and en­dorsed as a plan for all of South Africa, not just a gov­ern­ment plan. Thus, we re­quire all hands on deck, now more than ever.

Goals and tar­gets

In this re­gard, the gov­ern­ment is act­ing. It has en­sured that the goals and tar­gets of the NDP are in­te­grated into gov­ern­ment’s Medium-Term Strate­gic Frame­work (MTSF) for the elec­toral pe­riod 20142019, as the first five-year im­ple­men­ta­tion pro­gramme for the NDP.

The MTSF is a trans­par­ent pre­sen­ta­tion to South African cit­i­zens of the work of the gov­ern­ment, of the ac­tions be­ing un­der­taken and the out­comes we seek, and what is be­ing mea­sured, to­wards re­al­is­ing the goals and vi­sion of the NDP.

The Depart­ment of Plan­ning, Mon­i­tor­ing and Eval­u­a­tion (DPME) has the task to en­sure that the strate­gies and an­nual plans of na­tional and provin­cial de­part­ments are aligned to, and ad­vance, the long-term goals and pri­or­i­ties of the NDP.

On this ba­sis, the DPME mon­i­tors the im­ple­men­ta­tion of the NDP and re­ports quar­terly to the cab­i­net, and to the pub­lic through our web­site, as well as through a brand­ing and com­mu­ni­ca­tion cam­paign that we are step­ping up.

All of this is part of in­sti­tu­tion­al­is­ing proper, ev­i­dence-based plan­ning across the whole of gov­ern­ment, and to lay the ba­sis for ef­fec­tive im­ple­men­ta­tion and ac­count­abil­ity, as in­di­vid­ual de­part­ments and as gov­ern­ment col­lec­tively.

So­cio-eco­nomic de­vel­op­ment re­quires far-sighted lead­er­ship. This is what in­spired the NDP, pro­duced by the first Na­tional Plan­ning Com­mis­sion.

PHOTO: BLOOMBERG

Count­ing the money at the Forex depart­ment in­side an FNB branch in Jo­han­nes­burg. Our first or­der of busi­ness is to reaf­firm our com­mit­ment to main­tain fis­cal con­sol­i­da­tion and keep this firmly on track, main­tains the writer.

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