Recession 101 — for those in charge of SA
In its scariest statement in some time, the ANC has admitted it does not fully understand the implications of credit rating downgrades and conceded that SA may well be heading for recession. That is a huge admission from a political party entrusted with the livelihood of 55-million South Africans.
The greater tragedy is that this situation was created on the whim of one man, President Jacob Zuma, who in a single swoop condemned the country to years of economic hardship. The well-respected former finance minister, Pravin Gordhan, in collaboration with labour and business, managed to persuade international investors that we are on a stable path, politically, economically and fiscally. In one day, Zuma showed that to be an illusion.
The rating downgrades to junk by S&P and Fitch have placed SA in a very difficult position. The immediate result is that the cost of borrowing for the government, corporates and state-owned enterprises has gone up, and hence less money is available to spend on any activity that might generate growth or jobs.
More important, no international investor will consider putting money into a country where the narrative has become “white monopoly capital”, “radical economic transformation” and “land appropriation without compensation”.
The time has come to refocus the Bell Pottinger public relations firm, with their £100,000-a-month retainer from the Gupta family, to provide some positive spin for a change.
We badly need new slogans so we stop looking so damn scary to investors.
The ANC needs to wake up to the reality that scaring off investors is the quickest way of ensuring that the poor remain poor, that delivery on political promises will become impossible and that, starved of capital, the country will go backwards. Good luck explaining this to the electorate in 2019.
Let’s look at some realities for a change. Foreign investors own 38% of South African bonds and 49% of South African equities. A sell-off will be catastrophic to the value of savings of all South Africans.
It will also be a disaster for the rand, which has already plunged in value. Last time it took SA seven years, from 1994 to 2001, to claw its way out of junk status. It is unlikely any rating agency will give us the benefit of the doubt sooner this time around.
Since the ANC, by its own admission, does not seem to understand the implications of a recession, let me paint that picture for the organisation:
● In a recession, the size of the economy shrinks;
● Tax revenues are lower, as corporates are not expanding and individuals earn less;
● Everything we import goes up in price as the rand depreciates — most importantly, fuel. Hence the cost of transport, already a major expenditure item for the poor, goes up;
● High inflation erodes whatever spending power consumers have;
● Corporates cut costs as their revenues are not growing. That means closure of businesses and massive job losses. Forget job creation, there will be none;
● The public sector shrinks, as there is no money to pay wages. More job losses;
● Interest rates go up on all kinds of debt, from credit cards to mortgage bonds. This will hit the poorest hardest;
● There is no money to invest in electricity, roads or water projects. As basic services collapse, so the government will increase prices;
● The government will need to borrow money to fund infrastructure projects, which is the only way to deliver jobs to unskilled people in SA. But good luck borrowing when you have scared off investors;
● There is no money to fund education, condemning yet another generation to a life of poverty. This in a world where emerging technologies will eliminate many menial jobs as it is;
● Service delivery protests will increase. So will crime;
● The most skilled South Africans are once again planning to leave the country, depriving us of the talent best positioned to innovate, build and expand the private sector.
No amount of the ANC’s “policy conferences” and fancy words such as “a need for renewed focus on growth-enhancing policies required to reverse the country’s economic fortunes” can fix the problem.
There are no policies the fragmented ANC can come up with that will undo the damage. The decision to remove Gordhan is what will cost the ANC the country in the 2019 elections and reshape the future of millions of South Africans.
I hope that, in the coming weeks, the ANC national executive committee members and the party’s members of Parliament reflect on what their inaction will cost their families, friends, communities and SA. They will be the ones left to explain.
THE ANC NEEDS TO WAKE UP TO THE REALITY THAT SCARING OFF INVESTORS IS THE QUICKEST WAY OF ENSURING THAT THE POOR REMAIN POOR