THE WEEK IN FIVE
CONTROVERSIAL President Jacob Zuma announced on the eve of the ANC’s NEC meeting in the Eastern Cape this week that he had established a commission of inquiry into state capture to be headed by Deputy Chief Justice Raymond Zondo.
Zuma said the matter could not wait any longer: “It is of such serious public concern that any further delay will make the public doubt the government’s determination to dismantle corruption, and entrench the perception that the state has been captured by private interests for nefarious and selfenrichment purposes,” he said.
FOLLOWING what has been described as a sham disciplinary hearing, Eskom executive Matshela Koko strolled back into his cushy job at Megawatt Park in Johannesburg this week. The former acting CEO faced six charges, including failing to declare a conflict of interest after a company in which his stepdaughter had shares was awarded a R1 billion tender by a division he led. Metalworkers’ union Numsa has threatened to take legal action over the “seemingly bogus disciplinary process.”
FINANCE Minister Malusi Gigaba is upbeat that the economy might grow 2 percent or more this year if the government makes the right policy decisions. This is despite the economy slipping into recession in the first quarter of 2017, before recovering in the next two quarters. S&P Global Ratings cut Pretoria’s local currency debt to junk status last month, citing a deterioration in the country’s economic outlook and public finances. Moody’s has placed South Africa on review for a downgrade.
SWISS luxury group Richemont’s revenue jumped 7 percent in the quarter to the end of December, beating market expectations of growth of 5. percent. Wholesale revenue decreased 3 percent to 1.14 billion (R16.92bn) but this was offset by a 13 percent increase in retail revenue, to 1.98bn in the quarter.
THE RAND surged 1.1 percent this week on account of fake news that Jacob Zuma, who is accused of being complicit in state capture, had resigned as president of South Africa.
Compiled by Luyolo Mkentane
AFTER a battering 2017 in which South Africa’s economic trajectory was severely compromised, 2018 can only be a better year. The country slipped into recession for the first time since the 2008-09 global financial crisis and continued to experience deterioration of business and consumer confidence.
While South Africa exited recession, economic growth has been sluggish. The World Bank has predicted that the South African economy is likely to grow by 1.1 percent this year. Hope will simply not be enough to bring change.
Business leaders, economists, and unionists have told Business Report that the key to chart an economic recovery is the enactment of policies that will enhance the country’s creditworthiness and restore confidence.
In November Moody’s placed South Africa on review for a downgrade.
Economists suggest that a higher growth path is needed to curb the country’s debt-togross domestic product profile in the medium term and to make inroads to address the high levels of unemployment, poverty and inequality.
Business leaders also say they believe that fiscal consolidation through debt reduction is paramount and that expenses should be cut, and not just containing the growth rate of expenditure.
It is all in our hands, each and every ordinary South African, government official, worker, business leader to drive meaningful change that will result in economic growth. Abandoning the nuclear programme, prioritising consistency and certainty in policy as well as kicking out incompetent and corrupt ministers are some of the steps Business Leadership South Africa (BLSA) says are necessary in order to enhance business and consumer confidence. On Friday Mohale said boosting consumer and business confidence could arguably add at least 1 to 2 percent to South Africa’s Gross Domestic Product (GDP) by undertaking simple actions. His comments come as concerns abound that the country’s policy making steps sometimes heighten uncertainty.
“Mining Charter 3 is a typical example where government showed no regard to investment. It should be scrapped and renegotiated with mining companies,” said Mohale.
He said the ANC’s national conference in December and next month’s national budget were key in boosting confidence.
Other steps to boost confidence included fixing stateowned companies and adopting growth-inducing policies.
“There are many tough, time-consuming choices that can follow. Indeed, when our spending far exceeds our revenues, this flies against confidence boosting measures,” said Mohale.
Mohale said the government has not done enough to address concerns about policy uncertainty in different sectors of the economy, especially in mining and renewable energy.
“In mining the failure to finalise the (Mineral and Petroleum Resources Development Act) and the Mining Charter are stand out examples of avoidable causes of uncertainty.
“In renewable energy, we have had five successful windows (of the Renewable Energy Independent Power Producer Procurement Programme) but these have not been followed through or complemented for example by finalisation of regulations on subsidies for renewables or finalised policy on fracking,” he said.
He said the frequent changing of energy ministers had not helped. Last year the Department of Energy had three ministers.
“Mining and energy are complex sectors. Add to this complication is the insistence on a nuclear build programme when Eskom is over-capacitated and Treasury stating a shortfall of funds. This affects consumers, who continue to fund ‘bad habits’ through ever-increasing tariffs and ill-timing and non-consultation on Mining Charter 3,” he said.
Major credit ratings agencies will be watching the steps South Africa will take to set the economy on a higher growth trajectory. In November, Moody’s placed South Africa on review for a downgrade. Moody’s said it would assess South Africa’s willingness and ability to implement growth-supportive fiscal adjustments that raise revenues and contain expenditures, structural economic reforms that ease domestic bottlenecks to growth and improvements to stateowned companies governance that have contingent liabilities.
“At the heart of Moody’s pronouncement – the basic requirements to change to positive trajectory – is the government commitment to continued independence and strong policy-making capabilities of South Africa’s policy institutions, which enhanced mediumterm growth and achieved the planned stabilisation in the government’s debt burden,” he said.
Commenting on the fiscal adjustments necessary to raise revenues and contain expenditure, Mohale said the saving over the next three fiscal years should the wage bill grow by projected CPI inflation of 5.5 percent a year instead of 7.3 percent was about R60 billion. On the other hand, the saving over the next three fiscal years should operating expenses grow by projected CPI inflation of 5.5 percent instead of 7.1 percent a year was R25bn.
He said although the prospect for non-strategic assets seemed dim in the current political setting, there was an urgent need to evaluate all state assets, with a clear intention to dispose of non-strategic assets and or partial divestment in some.
“But growth is everything. Raising revenue is a function of improved economic performance and increased profitability of companies. Lifting growth by 1 percent would add R100bn per annum, a third of which would to the fiscus. In the case of the South African Revenue Service, improvement of tax administration by stabilising leadership and probing tax administration deficiencies,” he said.
Mohale said there was a need for structural reform of key sectors such as telecommunications, energy, transport and services. “Some industries remain largely concentrated, thus competition laws and enforcement is critical. This is true in a space where SAA (aviation), Transnet, Denel, Eskom operates in,” he said.
Bonang Mohale, BLSA chief executive Andrew Darfoor, Alexander Forbes chief executive
Business confidence is a function of stable and consistent policy reinforced with regulatory clarity and certainty.
Without these, it is difficult, if not impossible to ensure sustained business confidence, says Darfoor.
“Sustained business confidence is crucial element of capital investment decision making that supports inclusive economic growth. The South African financial services sector is one of the most robust in the economy, and has the potential for further growth through providing the necessary products, services and solutions to clients to help them address what matters most to them financially,” he said.
Dafoor said there was commitment by the financial services sector in general and in particular, Alexander Forbes, to support growth of the economy, such that we can create jobs, ensure the financial well-being of people and above all improve the living conditions of the majority poor.
Darfoor also said the firm had noticed a welcome and encouraging commitment by the government to engage with the business sector to find pro-active solutions that would help stimulate growth in the economy.
“This engagement however needs commitment, openness and most importantly, trust. I would argue that there perhaps has been a trust deficit, and this has not been helpful for the country. Following the recent credit downgrades, I am optimistic that the government, business, labour and other social partners have all realised we all have a common unifier … that is to ensure the success of South Africa. I am confident that this renewed commitment to work as partners will be sustained for mutual benefit,” said Darfoor.
Darfoor hoped South Africa would avoid further credit downgrades, as this would trigger an unwanted outflow of investment funds, and make it harder for the country to attract both foreign direct investment and portfolio inflows into the bond markets.
“Moody’s said it would wait for the outcome of the government’s 2018/19 budget before making its rating decision. I believe that the government is aware of the expectations of rating agencies, and that the budget will attempt to address these concerns in order to avoid further downgrades,” said Darfoor. With economic debates raging on within all sectors of the economy, the one uniting belief, is that faster economic growth is needed to create more jobs.
“To me, this means that we should be focusing on growth instead of other secondary ideas that are often promoted. If growth becomes the focus, all stakeholders will know what needs to be done. We will then certainly achieve the goal within a year,” Fourie said.
Commenting on radical economic transformation, Fourie said “my request is that we change the language we use and shift our attention towards radical growth as a binding factor, which we can all rally behind and move towards”.
“With such a strong focus, we will eliminate many of the other ills in society by default. All it needs is commitment and focus.” South Africa must unlock the economic promise that information and communications technology presents, including keeping society connected through low data costs and creating policies that are no threat to the information and communication technology (ICT) companies.
“Continued policy uncertainty and the lack of definitive implementation and execution in several areas including Digital Terrestrial Television (DTT) as well as scarce spectrum allocation does little to stimulate the telecoms industry in South Africa and leaves us well behind our counterparts both in Africa as well as the rest of the world,”said Nyati.
In terms of policy, Nyati believes rather than address policy uncertainty the government has arguably introduced additional complexity since 2015 by, as an example, splitting the previous Department of Communications into the Department of Telecommunications and Postal Services (DTPS) and the Department of Communications.
“We would like to get to a point where policies put forward to industry do not create confusion resulting in more questions than answers. We would like to see policies implemented that are more progressive and in tune with the rapid changes experienced on a daily basis in the telecoms sector,” said Nyati.
He also believed the creation of a wholesale open access network (WOAN) would be anti-competitive and is nothing other than the creation of a monopoly.
The WOAN was proposed as part of the DTPS’ National Integrated ICT Policy White Paper, published in 2017 that called for a shake-up of the previous policy framework for spectrum allocation in favour of an “open access regime”.
“It seems to be counter-intuitive that South Africa has spent the past 23 years creating the regulatory environment for competition to flourish only to revert back to a monopoly.
“I know of no other country where such a structure has been implemented or is successful,” Nyati also said. South Africa had to address its previous mistakes in order to improve economic growth prospects.
Vavi says unemployment is at 36.7 percent, six times the global average and South Africa had become the world’s most unequal society where poverty afflicts 55 percent of the people.
“We are trapped in a wrong growth path that just keeps on reproducing the apartheid economy’s fault lines. We need a strong, efficient and corruption-free developmental state to unite our people behind truly radical economic transformation,” Vavi said.
For the economy to improve, sharing wealth means nationalisation of minerals, banks – in particular the Reserve Bank – and monopoly industries, Vavi charged.
“It means the fundamental transformation of our education system and dysfunctional healthcare system. It means drastically reskilling the workers and using the billions idling in the dysfunctional Skills Education Training Authorities,” Vavi said.
“Our aim must be industrialisation, agrarian reform, food security and increasing the purchasing power of the workers who have been producing goods they cannot afford to consume,” he also said.
Vavi says that a new cultural revolution to root out “the me-first and to hell with everyone else” ideology. “Ubuntu, solidarity, selflessness and egalitarianism must be taught to our kids. Corruption must be rooted out, from traffic officials to the big guys shifting billions out of the country,” he said.
The ANC’s radical-sounding conference resolutions, just like those passed at Polokwane in 2007 and Mangaung in 2012, are sure to remain as dead in the water as those. Ramaphosa will implement the austerity measures the ratings agencies are demanding – more savage cuts in spending on education and postponement of national health insurance and comprehensive social security. Rising business confidence and private sector fixed investment growth result from fiscal consolidation, stable free market policies with the protection of property rights and the removal of weak governance and political and economic uncertainty, Bishop says.
“Good governance needs to be delivered with economic growth creating reforms in line with global norms and greater political and policy certainty. Fiscal consolidation via debt reduction is required, with government cutting its expenses – which means cutting the actual level of expenditure, and not just containing the growth rate of expenditure,” Bishop said.
Bishop also says credit ratings had to be stabilsed followed by getting credit rating upgrades back into the BBB category, which would strengthen the domestic currency structurally, lowering inflation ,along with lower electricity and water tariffs,allowing modest interest rates.
Bishop also noted the positive market sentiment following the ANC elective conference last year in which Cyril Ramaphosa emerged as a victor.
“Financial markets favour Cyril Ramaphosa as president of the ANC and South Africa, as it is perceived that he will deliver good governance, eradicate corruption, and follow economic policies that support economic growth and lean towards the free market approach,” said Bishop.
South Africa has seen a substantial improvement in the exchange rate, bond yields and JSE on the outcome of 2017’s ANC elective conference in late December, with the rand strengthening from R13.53/USD, R15.93/EUR and R18.16/GBP to R12.24/USD, R14.59/EUR and R16.42/GBP, the yield on the R186 improving from 9.28 percent to 8.47 percent, and the JSE gaining almost 3000 points.
However, Bishop said business confidence had been depressed for a lengthy period and since 2009 it had averaged 41 percent, well below the neutral 50 level as per the Bureau for Economic Research (BER), and in the last quarter of 2017 it recorded 34 percent, meaning that 66 percent of businesses were dissatisfied with prevailing conditions at the time.
“The BER business confidence reading was taken before the outcome of the recent ANC elective conference, and may improve in the first quarter of 2018 on Cyril Ramaphosa’s appointment as President of the ANC,” she said.
Bishop also said Zuma remains president of the country, and as such determines who enacts policies and policy proposals, which in turn have an impact both on economic growth and sentiment levels.
“Prudent fiscal policies both boost economic growth and aids the sustainability of robust economic growth, while a higher government debt burden can hasten an end to economic growth,” said Bishop.
Gerrie Fourie, Capitec Bank chief executive Mteto Nyati, Allied Electronics Corporation Ltd (Altron) chief executive Zwelinzima Vavi, general secretary, SA Federation of Trade Unions Annabel Bishop, chief economist at Investec Bank
Chief executive of Altron Mteto Nyati.