DANIEL MMINELE: GNU an opportunity and mandate for a step change for SA

As the government of national unity (GNU) marks its first 100 days in office, optimism is growing among domestic and international investors who expect more business-friendly policies and accelerated implementation, both of which are vital for economic revival and growth after years of sluggish performance.

There is cause for both celebration and caution. Celebration for SA once again displaying the strength of being able to construct difficult national dialogues when faced with tough challenges and produce pragmatic and constructive outcomes. Caution, to avoid a situation where expectations are not met, by not providing early tangible evidence that promises can be backfilled with actual catalytic deliverables, in the absence of which the wave of optimism will fade.

The economy has undoubtedly underperformed over the past 14 years, worsening our systemic challenges of poverty, unemployment and inequality. Real economic growth slowed to an average of just 1.2% per annum from 2009-22, a sharp decline from the robust 3.6% annual growth seen from 1994-2008.

The causes of this downturn are well documented, including serious governance shortcomings in the public sector, weak structural reform momentum, rising and unsustainable levels of public debt, and the deterioration of economic infrastructure and public service delivery.

Regulatory and policy uncertainty, coupled with bureaucratic government decision-making, dampened business and consumer sentiment resulted in international investors seemingly adopting a perpetual wait-and-see approach. Some of these pre-existing challenges resulted in the Covid-19 crisis hitting SA hard, with some of the consequences still being felt today.

However, with the establishment of the GNU, the country may be at a turning point. While it is a fragile arrangement — foreign policy, National Health Insurance, the Basic Education Laws Amendment Act and municipal government arrangements could all trip things up — and we must not underestimate the magnitude of the economic and social challenges we face, there is reason for cautious optimism given how the first 100 days have gone.

Buoyed by improved investor sentiment, the rand has performed well, government bond yields have declined and readings of high frequency sentiment indicators are encouraging. There is also an opportunity to capitalise on major central banks and the Reserve Bank embarking on monetary policy easing cycles. The recent international roadshows at the highest level of government to the US and UK served to underpin this optimism.

Domestic business sentiment is also improving with investors expecting the GNU to bring fresh perspectives to the country’s challenges. As a result, economic growth forecasts are being revised upwards.

A survey commissioned by Bank of America and conducted by Ipsos found that a record number of fund managers expect the GNU to implement meaningful reforms, which could see local markets delivering returns in excess of 10% over the next 12 months. The survey also revealed that asset allocators expect average returns of 17% on equities, 8% on cash holdings and 13% on government bonds maturing in 2035.

It is important to note that the improving sentiment is not necessarily due to new policy announcements. Rather, it stems from the anticipation of accelerated implementation of reforms initiated before the GNU. What we now need to see is sound policymaking supported by effective co-ordination for a relentless focus on implementation and acceleration of the structural reform momentum to improve the economy’s competitiveness.

A sustained shift in investor sentiment will require substantial progress in addressing infrastructure constraints, improving the performance of state-owned enterprises, ensuring continued energy security and decisively tackling crime and corruption. This includes faster progress in prosecuting cases uncovered by the Zondo state capture commission.

On the energy front, it is encouraging that Eskom has kept the lights on for more than four months. While it remains to be seen if this performance will be sustained in the wake of stronger demand to fuel growth, it demonstrates what is possible when we have the right leadership and skilled individuals running state-owned enterprises. We are also hopeful for positive outcomes from interventions at Transnet, whose turnaround is critical to economic growth and export performance.

Initiatives such as Operation Vulindlela and the recently launched phase two of the government-CEO initiative, aimed at modernising and investing in sectors such as electricity, water, transport and digital communications are crucial if we are to achieve more inclusive GDP growth in the near to medium term.

The road ahead is promising, yet not without challenges. As we mourn the passing of former Reserve Bank governor and finance minister Tito Mboweni, delivering on GNU priorities with a sense of urgency will be a fitting way to honour his legacy.

• Mminele is chair of Nedbank Group.