Just three months to save SA
The credit ratings agencies that hold the economy’s fate in their hands will need to see concrete action by June, write Colin Coleman, Christo Wiese and Cas Coovadia
SOME important things happened this past week. Led by Finance Minister Pravin Gordhan, a joint team of National Treasury, business and trade union leaders, the three of us among them, spoke on a roadshow in London, Boston and New York to hundreds of investors representing trillions of dollars of assets. We also met CEOs of global corporations and, importantly, key representatives of all three ratings agencies.
We discussed the prospects of maintaining our sovereign investment-grade rating. We answered investors’ questions to the best of our collective ability and listened to their perspectives. We heard loud and clear the voices of the capital markets and, through our responses, we did our best to put Team South Africa on the front foot.
What did we hear from these market participants?
Their confidence has undoubtedly been shaken by the December events now commonly referred to as “9/12”. Nonetheless, goodwill towards the success of the South African democratic project remains high.
But capital will not invest at all costs, and the sustainability of our fiscal plans, economic growth and constitutional democracy is at the heart of the retention of our sovereign investment-grade rating.
In particular, while many investors would have liked to see a more front-loaded and deeper fiscal plan — with more austerity and higher taxes — the recent budget mostly ticked the fiscal consolidation box.
Concerns do remain and penetrating questions were asked about the integrity and sustainability of the pillars of our economy: the Treasury, the Reserve Bank and the South African Revenue Service. Indeed, many questions centred on the unity, or otherwise, of the direction of the institutions of the state under President Jacob Zuma’s leadership.
And across the board the vexing challenge of achieving higher growth rates for our economy crowded out other concerns. It is here that the potential negative risk factors for achieving our fiscal and social objectives was seen to centre, with the potential for an unwinding of the progress of the past two decades should such risks materialise.
The intersection between achieving higher growth rates and ensuring the integrity of our institutions was also emphasised. Therefore the spotlight fell on detailed questions of how to achieve higher growth. This included the timing and execution of reforms of state-owned enterprises such as SAA.
Eskom was centre stage, with respect to questions of both fiscal sustainability and operational efficiency.
The reliability of executing costcutting measures to achieve the budget’s fiscal plans was probed. The viability of funding the current account deficit in the longer term amid current high levels of imports relative to exports was queried.
Questions were asked about the specific plans for “co-investment” in infrastructure and the viability of attracting meaningful private investment. And the plans of South African business leaders to invest in growth projects at home, and labour leaders’ willingness to prioritise productivity, efficiency and competitiveness, were welcomed — and interrogated.
It is crystal clear to us that while the recent budget has achieved much, if we are to maintain our investment-grade rating we now need to act decisively to provide a stream of evidence of action on these matters.
❛ Working together, Team SA can tell ratings agencies and investors: ‘We’ve heard you! We’ve answered the call’
We have, in essence, a window until June to announce concrete measures for ratings agencies such as Standard & Poor’s to consider as part of their normally scheduled deliberations on South Africa. Moody’s will visit South Africa this coming week to begin its “review”.
Let us be clear: failure to act is not an option. Losing our investmentgrade rating would likely trigger a poisonous cocktail of a higher cost of capital, a weaker currency, slower growth and higher inflation.
It would be bad for all South Africans across the board.
So what does Team SA need to do now? Minister Gordhan has been candid with business leaders in the lead-up to his budget and on the roadshow about the need to “do things differently and better”.
We suggest in the next three months:
The government should fix the key legislative impediments to investment. Start with resolving the “once empowered, always empowered” legislation. Decisively end the abridged birth certificate requirement for visas and over time commit to introducing online free visas for those visiting for less than two weeks. Sign an improved, amended Mineral and Petroleum Resources Development Bill into law and address legislation creating uncertainty around the protection of property;
The social partners all need to work together to finalise labour reforms. Start with amending legislation to allow for secret strike balloting. Legislate a minimum wage at a level designed to minimise job losses. Introduce performance evaluation for public school teachers. Agree on inflation-adjusted wage hikes with performancelinked bonuses;
Re-equitise Eskom to strengthen its balance sheet. Find capital via Eskom’s restructuring, the introduction of third-party minorities into subsidiaries or other stateowned enterprise sales to fund it;
Execute the proposed merger and introduction of a minority equity partner into SAA and SA Express, and other state-owned enterprises;
Announce the principle of a minimum of 40% to 50% of all stateowned enterprise boards to come from the private sector and implement this in the key ones immediately;
Act on establishing the small and medium-sized enterprise venture capital entrepreneurship fund as a partnership of business and the government, funded by both, to stimulate these enterprises;
Consolidate the social compact between the government, labour and business that was so positively received by investors during the roadshow; and
Work with businesses to announce new capital projects across industry.
Working together, Team SA can say to the ratings agencies and investors: “We have heard you! We have answered the call.
“South Africa’s democracy is safe and we are on the path to growing the economy once more back to the average 3.2% of the past two decades, and with all of us pulling in this new direction, hopefully better. South Africa: let’s get going.”
Wiese is chairman of Shoprite and the controlling shareholder of Brait and Steinhoff, Coleman is partner and MD of Goldman Sachs International and Coovadia is MD of the Banking Association South Africa