Fake it till you make it
The only question anyone is asking about the economy this week is whether finance minister Pravin Gordhan, in partnership with business, has made enough progress in implementing structural reforms to allow SA to hold onto its investment-grade rating.
National treasury is cautiously optimistic that it has done enough to prevent SA from being downgraded to junk status by Standard & Poor’s (S&P) at its ratings review on June 3.
Earlier this month treasury managed to persuade Moody’s that the economy is not in terminal decline. However, Moody’s has traditionally been more bullish on SA than Fitch and S&P. At Baa2, Moody’s has SA ranked one notch higher than the others and a full two notches above junk status.
Since 1996, Moody’s has tended to give SA’s economic policymakers the benefit of the doubt and for a long time it was vindicated. The tide started to turn in 2009.
Over the past few years, the country has been marked down by all three agencies, mainly because of its economic performance. Prospects have deteriorated, worsening SA’s public finances and increasing social and political tensions. This, and government’s failure to engage convincingly in structural reform to raise longer-term growth.
In an effort to show that real progress is being made, treasury has packaged the reforms promised in President Jacob Zuma’s state of the nation address and the February budget into a PowerPoint presentation and a glossy brochure.
Having presented it to S&P last week, treasury deputy director-general Monale Ratsoma feels the rating agency will have to appreciate the work being done, and that “the reforms are starting to show momentum”. At the same time, he quips: “We can’t really tell with S&P. S&P is S&P. They act moodier than Moody’s”.
The Financial Mail has seen the presentation. Though there has indeed been progress in some areas, in others there has been scant improvement and, in several cases, progress is less concrete than is being made out.
A big positive development has been the success of the Renewable Energy Independent Power Producer Procurement (REIPPP) programme, with the bulk of the 6,377MW contracted soon to be added to the grid. As promised, government will announce the preferred IPP bidders for the 900 MW coal project in July. There will also be an IPP programme for gas.
Moreover, SA has gone 217 days without load-shedding. With plant availability up 7%, Eskom has promised there will be no load-shedding this winter.
If Eskom previously scored 3/10, the needle has moved to about 6/10. However, energy experts say load-shedding has been avoided mainly because there has been a substantial reduction in demand, especially in base-load demand from industrial users due to the weak growth environment.
This means future loadshedding will depend on whether there is a sudden increase in demand or a combination of unforeseen circumstances, such as very bad weather coupled with units breaking down or operational errors.
So while there has been some improvement, it seems premature to cry victory. After all, the deterioration in Eskom plants has taken many years and cannot be restored overnight.
What remains unchanged is that the electricity constraint has lowered SA’s growth rate by one percentage point each year and, despite some progress, electricity will remain a constraint on growth until 2018. market reform, the promise to give the Commission for Conciliation, Mediation & Arbitration (CCMA) a more active role in dispute resolution has been met.
Last year, an amendment to section 150 of the Labour Relations Act empowered the CCMA to intervene and resolve protracted disputes in the public interest even without the consent of the parties. To date this provision has not been invoked. This is attributed to the labour market’s confidence in the CCMA and willingness to participate in CCMA-assisted processes.
An example is the recent five-week municipal Pikitup strike, which left Johannesburg strewn with litter. The CCMA stepped in of its own accord and ended the strike within a week.
It also resolved the recent Comair strike within two days of being asked to intervene by one of the parties. As CCMA director Cameron Morajane says: “The last thing you want is an aggrieved pilot.”
In industries with a history of protracted, violent strikes, Morajane says the CCMA will not sit back but will seek to get involved at the pre-bargaining stage by offering to assist the parties in talks with the aim of preventing a strike altogether.
It is also testing a new workplace mediation product that involves a commissioner going into a workplace routinely to attend to disputes before they