How SA can put itself back on investors’ agenda
The cash-strapped state needs to embrace private partnerships to get the economy back on its feet
The major steps SA needs to take to jump-start growth and breathe life into our ailing economy are well known and continually flagged. Implement greater fiscal discipline, tackle corruption, keep the lights on, loosen labour laws. This is a lot of things to do, and the sheer size of the challenge and tackling it with a government of differing ideological leanings means progress is inchingly slow.
We have a new Eskom CEO. There are signs that some of those involved in corruption are to be prosecuted. The requirement for unabridged birth certificates for children travelling to SA, which has hampered tourism, is finally to be done away with, and steps are being taken to lower the cost of doing business by automating registration and filing processes. The new economic advisory panel is tasked with assessing where we are as a country and suggesting fixes.
But while the big initiatives are debated there are things we can do today to help improve the country’s economic standing and investment case and build on the tiny green shoots of progress. And it is important that they are done now: SA is rapidly becoming a forgotten country and has stopped being talked about as an investment destination. Foreign portfolio investors are disenchanted and have voted with their feet by selling hundreds of billions of rand of locally listed shares this year, according to Bloomberg.
So what can we do now? Dispiriting power failures pose a huge threat to growth and, by extension, jobs and tax revenues. While I appreciate the enormity of the challenge to fix Eskom, a new CEO has been announced and the best thing he can do is share his plan and implement it without fear of political interference.
What can also be done in a short time frame is the announcement of a balance sheet restructuring plan that is effective and can be realistically implemented. Stabilisation of the grid by firmly addressing the operational issues is a must do now too; we need to hear how this will be tackled.
Deputy finance minister David Masondo said last week that SA has to implement the Treasury’s “Going for Growth” strategy if the country is to attract domestic and foreign direct investment, boost export performance and be globally competitive.
Finally, placing SAA into business rescue was the right call under the circumstances. But if more action is not taken and fiscal discipline is not instilled across the state, SA risks permanent damage to the economy. Real GDP contracted for the second time this year in the third quarter. The economy is clearly on its knees.
The probability is increasing that ratings agency Moody’s Investors Service will cut SA’s sovereign’s credit rating to subinvestment grade during 2020, joining S&P Global Ratings, which already has the government rated as two notches below junk with a negative outlook. Further downgrades mean the cost of borrowing rises, not just for the government but also for banks and every ordinary business and individual. The transmission of higher borrowing costs will retard economic growth. Already the real yield on government bonds is among the highest in the world.
SA’s banks, and other capital providers such as insurers and asset managers, have been successful at working with the government to fund major domestic infrastructure projects. In addition to the independent power producers, the N3 tollway, Albert Luthuli hospital, Bloemfontein prison and the Gautrain are examples of successful public-private partnerships (PPPs).
A sound PPP framework has been in place for decades, so policymakers don’t need to think too hard about this. We just need to do more of it. PPPs can help reduce the burden on the state in developing economic infrastructure as the government no longer has the fiscal capacity to assume 100% of the risks of funding and delivery.
Each time there is a pronouncement about land expropriation without compensation, the huge yet murky costs of National Health Insurance (NHI) or nationalising the Reserve Bank, it has a negative effect on the economy. People decide to emigrate, farmers skip buying that new tractor or planting a crop, and money leaves to be invested elsewhere. Some estimates are that 5,000 to 6,000 people are now leaving SA per month.
If there are to be policy changes it would be helpful to define what they should look like, why they are being considered and how they would be implemented, rather than endless rounds of often conflicting messages.
It’s no longer five to midnight, it is midnight. We cannot afford to wait any longer to turn things around. Doing some things now that send the right message is far more valuable than promises or endless debates and further years of contemplation while the country slides to an economic also-ran.
• Formby is RMB CEO.