SA needs ur­gently to lift it­self out of its junk malaise

The Star Early Edition - - OPINION & ANALYSIS - Ya­coob Abba Omar Abba Omar is Bank­ing As­so­ci­a­tion of South Africa head of strat­egy and com­mu­ni­ca­tions

THE re­cent down­grades of South Africa’s sov­er­eign credit rat­ing by ma­jor rat­ings agen­cies, and the prospect of fur­ther such shocks, come in a con­strained fis­cal en­vi­ron­ment that al­low the govern­ment pre­cious lit­tle room to ad­just to the chal­lenges of our sub-in­vest­ment sta­tus.

Some of the ef­fects of the down­grade will be im­me­di­ate, others slower, but they will be far reach­ing and chal­leng­ing. It is there­fore in our na­tional and south­ern African re­gional in­ter­est to im­me­di­ately map a path back from junk sta­tus.

The most prox­i­mate causes of the down­grade lie in gover­nance is­sues but the back­ground was the slow­ing down of gross do­mes­tic prod­uct growth to be­low zero. With pol­icy un­cer­tainty, po­lit­i­cal in­fight­ing and weak em­ploy­ment cre­ation, th­ese com­bined to put pres­sure on the fis­cus.

The ini­tial im­pact of the down­grade is al­most au­to­matic. It will see South Africa re­moved from sev­eral JP Mor­gan in­dexes and trig­ger cer­tain funds to im­me­di­ately dis­in­vest from govern­ment bonds.

Com­pound­ing prob­lem

Fun­da­men­tally, a credit down­grade re­flects a loss of con­fi­dence in the fu­ture of the coun­try. For the per­son on the street, the down­grade will lead to in­ter­est rates on credit-card debt and loans ris­ing. Cost-ofliv­ing ex­penses will go up and in­come taxes will rise, as the govern­ment tries to raise money from cit­i­zens. There will be less spend­ing on so­cial projects and en­ter­prise de­vel­op­ment.

Com­pound­ing the prob­lem, busi­nesses find it harder to find fi­nance, and job-cre­ation shrinks fur­ther. A com­mon strat­egy to re­cover from the down­grade would be fis­cal con­sol­i­da­tion or aus­ter­ity, in other words less govern­ment spend­ing. That’s a tough one for our govern­ment, be­cause many of its bud­get out­lays are aligned to po­lit­i­cal pri­or­i­ties.

We can look at debt re­struc­tur­ing in con­sul­ta­tion with our debtors. Pri­vati­sa­tion would tra­di­tion­ally be an op­tion, but given the gover­nance is­sues around SA Air­ways and Eskom, th­ese com­pa­nies would not fetch at­trac­tive prices.

A strat­egy to res­ur­rect the coun­try’s sta­tus as an in­vest­ment-grade cap­i­tal des­ti­na­tion thus calls for po­lit­i­cal and eco­nomic re­form, not sim­ply a new bud­get. Since per­ceived in­sta­bil­ity is what led to the down­grade, the ul­ti­mate goal must be po­lit­i­cal sta­bil­ity, with a prag­matic cen­tre. Be­ing prag­matic might mean drop­ping the “rad­i­cal” in rad­i­cal eco­nomic trans­for­ma­tion, as ap­pears to al­ready be the case in re­cent fi­nance min­istry com­mu­ni­ca­tions.

De­vel­op­ment plan

That’s im­por­tant, be­cause the re­sponses to eco­nomic pol­icy come not only from Pre­to­ria or Jo­han­nes­burg. They come from New York, Frank­furt and sim­i­lar places. Th­ese in­vestors avoid des­ti­na­tions where their as­sets may be na­tion­alised. The next step out of the junk sta­tus gloom is macro-eco­nomic sta­bil­ity. This starts with a de­vel­op­ment plan. We have the Na­tional De­vel­op­ment Plan, but we need the po­lit­i­cal will to drive im­ple­men­ta­tion. If th­ese steps are taken, we will see the re­turn of the magic-eco­nomic in­gre­di­ent – con­fi­dence. This will en­cour­age the pri­vate sec­tor to start in­vest­ing the es­ti­mated R600 bil­lion in funds it is sit­ting on.

Ten years ago, pri­vate in­vest­ment in the econ­omy was 28 per­cent. Now it’s down to 20 per­cent. When we re­verse this trend and get the pri­vate sec­tor in­vest­ing, it de­vel­ops its own mo­men­tum. In­vest­ment cre­ates greater con­fi­dence, which gen­er­ates more in­vest­ment.

In the ab­sence of a strong state, we need an ini­tia­tive be­tween civil so­ci­ety, labour and busi­ness to de­cide where we want the coun­try to go. State re­sources must be drawn into that agenda in­stead of wait­ing for it to hap­pen the other way around.

This her­alds a shift in the South Africa par­a­digm, where we have tra­di­tion­ally put the state at the cen­tre of our con­sid­er­a­tions.

Many of us fought for state power but to­day we can’t wait for the state to get its act to­gether. We’ve got to get our own act to­gether, we need to clar­ify our na­tional vi­sion and to pres­sure the state to help us bring it to fruition.

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