SOMETHING caught my eye in the run-up to the African National Congress’s (ANC’s) national executive committee meeting at the weekend. The committee, we were told by secretary-general Gwede Mantashe and others, was looking for "new solutions" to the economy’s problems. This reflected similar sentiments around a recent Cabinet subcommittee meeting on boosting investment into the country.
It’s been said before and it needs to be said again — there are no magic new solutions to SA’s problems. Somewhere in the airy, hallowed halls of the Union Buildings is every economic plan, every report written by foreign and local academics and consultants. If the solutions to SA’s problems are not literally on the table, they are buried in some dusty cupboard in Pretoria. In this regard, the past two months have taught us many things. Last month was broadly marked by the state of the nation address, saying the right things, but offering little in concrete action or deliverables. The budget similarly contained the right actions on fiscal matters, but no delivery on market expectations of wider growth-boosting structural reforms required to avert subinvestment grade.
February told us no "new" solutions had been found, no old ones deployed.
More recently, as battles have been waged against Finance Minister Pravin Gordhan, we have got lost under layers of different disputes. It is like an onion. Think of the current issue with the Hawks — that is but one sub-battle about one specific issue of questions to be answered even before you get to the substantive (or not so substantive) real issue of the so-called rogue spy unit in the South African Revenue Service (SARS).
Stand back further and there are more battles to come over South African Airways, Eskom contracts, the Department of Trade and Industry incentives review, nuclear, the possibility of a new or reappointed director-general at the Treasury, and further spending cuts already pencilled in for all layers of government.
That is before we even get to the minister’s ability to push the rest of the government out of "business as usual" thinking that prevents the desperately needed microeconomic structural reforms to avert sub-investment grade.
Zoom all the way out and the biggest battle is for succession in the ANC and the ANC elective conference in December next year. Ultimately, that is the battle that really matters, independent of the personalities and microlayers of each twist and turn in between. Each layer has a vested interest; each one has someone to push back.
Gordhan’s task is gargantuan. Indeed, there may well be no other person that could undertake it, which is probably why he was pushed forward as candidate for reappointment in December. He requires the total, public, vocal support of business and civil society. This is why recently created civil society organisations such as the Socio-Economic Future of SA intervention are so interesting and important.
Business has been keen to stand up and be more vocal on the need for more policy certainty and reform, latching onto the interactions with the government. But even there, the list of asks were only partial, and why the wait until May for a report-back? Business has not been keen to push back publicly against the intimidation of Gordhan. Why? It doesn’t quite add up for me. There is so much at stake and equally so much upside for business.
Recent gross domestic product figures and discussions I have had with businesses convince me there is a deep robustness in, and profound potential for, the private sector in SA with the right policy measures. Pipe-dream 5%-6% growth rates are "easily" achievable with bold job creation-friendly free-market reforms.
Here is some free advice, in the spirit of Times Media Group columnist and former Business Day editor Peter Bruce’s recent lists of possible reforms.
I would introduce school vouchers for children, so they can move their schooling to institutions in the charity or low-cost private sector, overcoming union entrenchment.
I would turn the black economic empowerment scorecard upside down to make local community transformation, skills development of workers and their families, entry-level and junior management positions more important than ownership.
I think the focus should be on the formation of informal township small and medium-sized enterprises (SMEs) — there are many recent papers showing growth in this area, but then they reach a ceiling. I would introduce a new graduated light-touch labour law system for transitioning township SMEs. Policies that directly harm this process, such as the introduction of a national minimum wage, should be altered to ensure formalisation is not impeded.
The Competition Commission must be set up as a constitutionally independent body.
Transformation and redistribution through a much higher inheritance tax than the current estate duty should be considered to pay for education. Eskom (within the state) should be split into its individual components as a first step towards more private-sector competition in the long run.
The problem is that to undertake reforms vested interests and ideological obstacles need to be upset. The ultimate test is simple — is someone expensing political capital with a reform? Is some segment of the political balance being infuriated by a move? The reforms suggested above would certainly meet that test — which is why people say they are impossible when I mention them.
There are no simple answers, and it feels as if policy makers are hunting for silver bullets that won’t upset any segment of the political forces, yet boosts growth. They don’t exist. As the recent government road show picked up, investors and rating agencies are looking for timelined deliverables to be set out and enacted, not reports piling up in Pretoria, not task teams. Only real action will satisfy. Promises are not trusted.
The South African media need to think in the same way.
The robustness of the private sector, the lack of corporate and particularly foreign exchange leverage, the efficient business models and strong management are showing through in the short term, with the likely absence of recession this year.
Maybe this lack of pain is what prevents a stronger voice from business? Still, SA is ticking over, with more investment, and income from offshore, sitting happy on large cash stock piles onshore.
Business cannot assume that markets will provide appropriate pressure at the right time. The minutiae of the battles, together with many other domestic idiosyncratic developments elsewhere in emerging markets (Brazil especially) mean markets could get bored of this narrative in SA and prove unwilling to hold the negative carry positions required to apply market pressure for such a slow-grind, slow-bleed story.
A more supportive global backdrop, a slower pace of Federal Reserve interest rate hikes and the European Central Bank taking additional action compound the problem.
Markets cannot think as far as December next year, or even until the local elections. Such a market dynamic, combined with comments that emanate from parts of the policy-making world that subinvestment grade is not a big issue or that politicians should not kowtow to foreign (or "CIA-controlled") rating agencies, is of concern.
It suggests a situation like December, when it was damaging action first, followed by a degree of row-back after the market provided the pressure postfact.
Business needs to understand the existential nature of the crisis at hand and step off the sidelines.
• Attard Montalto is senior emerging market economist at Nomura International in London
Finance Minister Pravin Gordhan. Picture: ARNOLD PRONTO
SOMETHING caught my eye in the run-up to the African National Congress’s (ANC’s) national executive committee meeting at the weekend. The committee, we were told by secretary-general Gwede Mantashe and others, was looking for "new solutions" to the economy’s problems. This reflected similar sentiments around a recent Cabinet subcommittee meeting on boosting investment into the country.
It’s been said before and it needs to be said again — there are no magic new solutions to SA’s problems. Somewhere in the airy, hallowed halls of the Union Buildings is every economic plan, every report written by foreign and local academics and consultants. If the solutions to SA’s problems are not literally on the table, they are buried in some dusty cupboard in Pretoria. In this regard, the past two months have taught us many things. Last month was broadly marked by the state of the nation address, saying the right things, but offering little in concrete action or deliverables. The budget similarly contained the right actions on fiscal matters, but no delivery on market expectations of wider growth-boosting structural reforms required to avert subinvestment grade.
February told us no "new" solutions had been found, no old ones deployed.
More recently, as battles have been waged against Finance Minister Pravin Gordhan, we have got lost under layers of different disputes. It is like an onion. Think of the current issue with the Hawks — that is but one sub-battle about one specific issue of questions to be answered even before you get to the substantive (or not so substantive) real issue of the so-called rogue spy unit in the South African Revenue Service (SARS).
Stand back further and there are more battles to come over South African Airways, Eskom contracts, the Department of Trade and Industry incentives review, nuclear, the possibility of a new or reappointed director-general at the Treasury, and further spending cuts already pencilled in for all layers of government.
That is before we even get to the minister’s ability to push the rest of the government out of "business as usual" thinking that prevents the desperately needed microeconomic structural reforms to avert sub-investment grade.
Zoom all the way out and the biggest battle is for succession in the ANC and the ANC elective conference in December next year. Ultimately, that is the battle that really matters, independent of the personalities and microlayers of each twist and turn in between. Each layer has a vested interest; each one has someone to push back.
Gordhan’s task is gargantuan. Indeed, there may well be no other person that could undertake it, which is probably why he was pushed forward as candidate for reappointment in December. He requires the total, public, vocal support of business and civil society. This is why recently created civil society organisations such as the Socio-Economic Future of SA intervention are so interesting and important.
Business has been keen to stand up and be more vocal on the need for more policy certainty and reform, latching onto the interactions with the government. But even there, the list of asks were only partial, and why the wait until May for a report-back? Business has not been keen to push back publicly against the intimidation of Gordhan. Why? It doesn’t quite add up for me. There is so much at stake and equally so much upside for business.
Recent gross domestic product figures and discussions I have had with businesses convince me there is a deep robustness in, and profound potential for, the private sector in SA with the right policy measures. Pipe-dream 5%-6% growth rates are "easily" achievable with bold job creation-friendly free-market reforms.
Here is some free advice, in the spirit of Times Media Group columnist and former Business Day editor Peter Bruce’s recent lists of possible reforms.
I would introduce school vouchers for children, so they can move their schooling to institutions in the charity or low-cost private sector, overcoming union entrenchment.
I would turn the black economic empowerment scorecard upside down to make local community transformation, skills development of workers and their families, entry-level and junior management positions more important than ownership.
I think the focus should be on the formation of informal township small and medium-sized enterprises (SMEs) — there are many recent papers showing growth in this area, but then they reach a ceiling. I would introduce a new graduated light-touch labour law system for transitioning township SMEs. Policies that directly harm this process, such as the introduction of a national minimum wage, should be altered to ensure formalisation is not impeded.
The Competition Commission must be set up as a constitutionally independent body.
Transformation and redistribution through a much higher inheritance tax than the current estate duty should be considered to pay for education. Eskom (within the state) should be split into its individual components as a first step towards more private-sector competition in the long run.
The problem is that to undertake reforms vested interests and ideological obstacles need to be upset. The ultimate test is simple — is someone expensing political capital with a reform? Is some segment of the political balance being infuriated by a move? The reforms suggested above would certainly meet that test — which is why people say they are impossible when I mention them.
There are no simple answers, and it feels as if policy makers are hunting for silver bullets that won’t upset any segment of the political forces, yet boosts growth. They don’t exist. As the recent government road show picked up, investors and rating agencies are looking for timelined deliverables to be set out and enacted, not reports piling up in Pretoria, not task teams. Only real action will satisfy. Promises are not trusted.
The South African media need to think in the same way.
The robustness of the private sector, the lack of corporate and particularly foreign exchange leverage, the efficient business models and strong management are showing through in the short term, with the likely absence of recession this year.
Maybe this lack of pain is what prevents a stronger voice from business? Still, SA is ticking over, with more investment, and income from offshore, sitting happy on large cash stock piles onshore.
Business cannot assume that markets will provide appropriate pressure at the right time. The minutiae of the battles, together with many other domestic idiosyncratic developments elsewhere in emerging markets (Brazil especially) mean markets could get bored of this narrative in SA and prove unwilling to hold the negative carry positions required to apply market pressure for such a slow-grind, slow-bleed story.
A more supportive global backdrop, a slower pace of Federal Reserve interest rate hikes and the European Central Bank taking additional action compound the problem.
Markets cannot think as far as December next year, or even until the local elections. Such a market dynamic, combined with comments that emanate from parts of the policy-making world that subinvestment grade is not a big issue or that politicians should not kowtow to foreign (or "CIA-controlled") rating agencies, is of concern.
It suggests a situation like December, when it was damaging action first, followed by a degree of row-back after the market provided the pressure postfact.
Business needs to understand the existential nature of the crisis at hand and step off the sidelines.
• Attard Montalto is senior emerging market economist at Nomura International in London
Change: -0.47%
Change: -0.57%
Change: -1.76%
Change: -0.34%
Change: 0.02%
Data supplied by Profile Data
Change: -1.49%
Change: 0.08%
Change: -0.47%
Change: 0.00%
Change: -0.04%
Data supplied by Profile Data
Change: 1.11%
Change: 0.15%
Change: 0.01%
Change: 0.07%
Change: 1.05%
Data supplied by Profile Data
Change: -0.28%
Change: -1.15%
Change: -0.07%
Change: -1.21%
Change: -0.22%
Data supplied by Profile Data