THE WEEK IN FIVE

Weekend Argus (Sunday Edition) - - SPORT -

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

LAT­EST PRICES

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

PHOTO: ITUMELENG ENGLISH

Chief ex­ec­u­tive of Al­tron Mteto Ny­ati.

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