President Cyril Ramaphosa delivers his state of the nation address at parliament in June. Picture: REUTERS/RODGER BOSCH
President Cyril Ramaphosa delivers his state of the nation address at parliament in June. Picture: REUTERS/RODGER BOSCH

When President Cyril Ramaphosa won the internal ANC election in 2017, he took a high-stakes gamble on his political reputation to kickstart the economy. 

About 18 months after Ramaphosa replaced Jacob Zuma as head of state, Corporate SA, his biggest cheerleader, is starting to become frustrated as his plan fails to gain momentum.

Nedbank’s boss, Mike Brown, became the second high-profile business leader this week to express frustration at the pace of structural reforms to stem the economic and fiscal deterioration facing SA.

Earlier in the week, Sipho Pityana, president of business lobby group Business Unity SA, warned that the government’s runaway debt posed the risk “of taking us all down” because authorities are reluctant to take hard, unpopular decisions to stabilise public finances and shore up investor confidence. 

Their criticism is probably fair. 

It came a week after power utility Eskom suffered a more than R20.7bn annual loss and forecast a slightly smaller operating loss for its next financial year, prompting Moody’s Investors Service, the last of the big three ratings agencies to have SA on investment grade, to point out that the power utility’s capital structure is unsustainable without bailouts and a turnaround plan.

Eskom — the liquidity crisis of which is rooted in a bloated salary bill, cost overruns at coal-fired power stations and corruption scandals — is set to receive an additional R59bn bailout package over the next two years, in addition to R230bn spread over the next 10 years, the government said in July.

That was enough for ratings agency Fitch, which holds SA debt a notch below investment grade, to substantially raise its forecasts above the government’s own targets for key metrics such as the debt-to-GDP ratio and change its outlook to negative, a sign that its next move would most likely be to push SA deeper into junk territory.   

Moody’s is widely expected to change its outlook in November to negative, putting SA on course for a downgrade that would kick our debt securities out of the benchmark World Government Bond Index and trigger a selling frenzy of an estimated R100bn worth of SA assets by investors mandated to buy only investment-grade debt. This would sharply increase the cost of debt and put pressure on the exchange rate.

Under these circumstances, business leaders are right to express concerns at the pace of reforms, as we all should. More of them should be calling for hard decisions to kickstart the economy, which slumped more than 3% and shed jobs, pushing up unemployment to 29% — a rarity for a country not in an economic crisis and the highest since 2008. 

Ramaphosa cannot totally escape blame for the slow pace of reforms. He knew what he was up against when he rode a wave of popular voter anger over job losses and a stagnant economy in the internal party election and national election in May. He inherited a deeply divided ANC, pinning his hopes on his track record as a unifier and consensus builder.

His determination to push through changes aimed at reviving the economy and fixing state-owned companies has been tested a few times. Late in 2018, Eskom caved in to labour demands for a pay increase after it had initially proposed a pay freeze to save money. It got nothing in return. Instead, Ramaphosa has been consistently assuring union leaders that the plan to break up Eskom would not result in job cuts.   

Beyond accepting that SA is in crisis, Ramaphosa and his relatively newly assembled team should make hard decisions that will be undeniably painful to some of his comrades but that will most likely prevent a wider system shock that could come as early as November when Moody’s makes a call on the likelihood of the government defaulting on its debt.

As Nedbank’s Brown said, we are running out of time and money. Ramaphosa faces two choices: muster enough political will to quickly change SA’s failing economic formula, or risk having the IMF do it for us.