SA has solution to growth woes
ANC is moving in opposite direction of reform, writes Peter Attard Montalto
THINKING about 2016 and SA’s outlook straight after the Fitch, Standard & Poor’s and Moody’s downgrades, I was reflecting on my interactions with South African politicians on a recent trip.
Something obvious but never really articulated hit me: there are no new answers to SA’s problems — the same answers have always been on the table, ready to be implemented. We should remember this through 2016, and it is useful advice to new/old Finance Minister Pravin Gordhan.
Within the African National Congress (ANC), there is a belief that surfaced after the downgrade (but was present before, held by a sizeable minority) that the rating agencies are antirevolutionary and can be ignored, and that SA has been working hard to boost growth and deal with its problems in its own way.
There seems to be a belief that there are magic new ways of boosting growth and creating jobs, while avoiding difficult political decisions on structural reforms.
This is not true. SA is hunting for policy choices that have always been obvious, generated and kept alive by the Treasury (and the Reserve Bank and conservative centre-left elements of the ANC).
This year was already going to be full of challenges: mining sector restructuring; higher inflation domestically and higher base rates with it; the usual load shedding and strike risks; slowing Chinese and African growth; weak domestic private-sector investment growth and contagion from the US Federal Reserve’s interest rate lift-off.
Now, we have to add a negative risk premia shock through likely sticky and lasting higher market rates; a steeper yield curve; bigger hikes in January from the Bank (maybe 50 basis points) and maybe having to reach into tight territory; volatility, uncertainty and risk premia shocks in corporates, banks and credit lending; lower still private-sector investment in 2016 and possibly slow capital flight from domestic investors ensuring they use up their offshore limits; and foreigners fundamentally reassessing SA in light of the slide to subinvestment grade.
So here is the question: what real policy changes will the government make to offset the effect of shooting itself in the foot? What difficult economic policy changes will come in 2016 to boost medium-run growth and the job-creation run rate? The answer is none.
While investors have a huge amount of trust in Gordhan on the fiscal front, he is not in charge of overall economic policy. The economic leadership needed to boost medium-run growth prospects still does not exist.
And this is why, ultimately, SA is still on a path to subinvestment grade, even if we trust Gordhan on fiscal policy.
Until there is a realisation that the Reconstruction and Development Programme; and then Growth, Employment and Redistribution; and then the National Development Plan had the answers, the key growth part of the equation for the rating agencies will not be in play.
The sluggish reaction last week by the ANC to correct the mistake (indeed to prevent it in the first place) is testament to the fact that we cannot expect difficult reforms and those policy choices that have always been there to occur in this difficult political environment. Indeed, the ANC is actively moving in the opposite direction.
For the list of shocks for 2016, we are going to have to add policy drivers going in the “wrong” direction. This path may well be reinforced to try to stem the tide of loss of support that resulted from the incidents of the past week and the shock of the loss of electoral support in the local elections in May.
Top of the list will be accelerated implementation of the national minimum wage, with a dangerous emphasis on the level of that minimum as opposed to the transparent and independent structures that need to be put in place to make such a decision.
This is potentially one of the most distractive policy moves the government will have made in recent years. Minimum wages “work” in commodity upswings and supportive global growth backdrops, where there is trust between the corporate sector and the government — in other words, not SA in 2016.
On top of that, there will probably be further movement on nuclear procurement and South African Airways (as ways to circumvent the Treasury are found), further damaging trust.
In addition, there is the ANC’s likely increased focus after the local elections on the rural electorate, with land reform and farm land ownership changes.
Then there could be discussions on wealth taxes and National Health Insurance-related VAT increases some time in the second half of the year.
Add to the mix increased pressure from the Economic Freedom Fighters, with its increasingly successful narrative as a real alternative to the ANC (rather than the Democratic Alliance).
This is not conducive to trust being restored, nor for boosting job creation and economic growth. It will not be an environment to see a pause or turnaround in the slide towards subinvestment grade on issues that are wider than fiscal policy.
As I reflected in my previous column for this newspaper, there is not sufficient corporate grit standing up for the right policy moves, pointing out that proven policies have always been on standby, but never implemented.
After the shock of the past week, now is the time to consider the grief and fear I felt from the corporate community in SA after Nhlanhla Nene was sacked and turn it into real action for better policies that boost growth and job creation, drive development and reduce poverty.
I really fear this will not happen in 2016 although, as ever, I look forward (without holding my breath) to being proved wrong.