17/03/2023 | By Busiswe Mavuso
S&P Global Ratings’ decision to downgrade South Africa’s outlook to stable from positive was another blow in a week that was littered with bad news. But the rating decision was another keen reminder of how much our economy is being held back by the failure to timeously implement the structural reforms needed. It’s certainly not a lack of understanding of what needs to be done, it’s just that our delivery of tangible outcomes is so slow and poor.
Looking beyond the emphasis placed on loadshedding in the ratings announcement and subsequent news headlines, infrastructure across all the network industries where state owned monopolies play a large role remains a primary concern. Unless the ratings agency sees concrete action and demonstrable outcomes to address the problems we’re experiencing in other sectors like transport and logistics as well as the water sector, we can expect S&P to demote our outlook to negative later this year, setting back our chance of regaining the investment grade rating we had in 2017 by years. We know that this further increases our cost of capital and the interest bill on government debt – which means economic growth will be lower and unemployment higher.
Thus, we have been given a significant opportunity to show real progress in resolving the issues the agency identified. In addition to progress on the persistent electricity shortages, S&P also wants to see faster and more decisive improvement in the governance of state-owned companies and a reduction in public debt and contingent liabilities, which, it says, remain a risk to the economy and the public finances. Without an adequate track record of operational and financial improvements in these entities, the agency made it clear that South Africa could not expect its credit rating to improve.
Business leaders are also becoming increasingly vocal about the mounting cost of loadshedding on their businesses – rightly so. Last week our deputy chairman and Nedbank CEO Mike Brown also shone the spotlight on the slow, uneven changes and poor delivery of structural reforms when he delivered the bank’s results. He stressed this could not continue and that more urgent and decisive leadership and action were required. He highlighted that in dollar terms GDP per capita in South Africa had declined 13% since 2012 – meaning on average all South Africans are getting poorer as a result of this slow pace of reform.
Although the government clearly needs to take the lead on implementing the profound structural change required across the economy, we must also consider whether business is doing enough to champion the necessary changes and to support government with concrete measures.
BLSA is also already working on the areas of concern expressed by S&P and the issues that are keeping South Africans, international stakeholders and investors awake at night. But we will continue checking in to ensure we are providing the support government needs to action its plans and are steadfast in our commitment to helping government see these through to their conclusion.
Challenges permeate all areas of the economy, but of the most concerning are in the network industries, namely energy, transport, water, and digital communications sectors. Operation Vulindlela was put in place to resolve the slow rate of progress, accelerate the implementation of structural reforms, and support economic recovery. The initiative reflects the government’s commitment to implementing the measures needed to address South Africa’s infrastructure shortcomings and BLSA fully supports the various initiatives underway in these sectors. It’s worth pointing out however that OV cannot achieve its ambitions without government departments getting behind the necessary changes, and we’re seeing very little traction on that front. Hence the concentration of power in the presidency, which creates a different set of problems.
It is nonetheless encouraging to see the momentum building behind finally implementing all aspects of the President’s Energy Action Plan. A major step forward was last week’s launch of the RMF to support NECOM in its goal to turn around the energy crisis in the short and long term. The initiative finally aligns all stakeholders in working towards the same objectives, removing the multiple, uncoordinated attempts to resolve the crisis that stood in the way of achieving the meaningful structural change in the energy industry vitally needed in South Africa.
The proactive stance of the new Minister of Electricity is also a breath of fresh air. He was quick to reach out to businesses and commit to working together with business and other stakeholders to resolve the electricity crisis.
In the transport and logistics sectors, we support Operation Vulindlela by helping create a conducive framework and source the technical expertise and training needed to achieve operational efficacy in these critical sectors and South African ports.
To increase the capacity of government and the resilience of water infrastructure, another of our four key objectives for 2023, we are committed to expediting the provision of training in the maintenance of water infrastructure for government officials in the sector.
Another of our primary objectives this year is to help government reduce crime and corruption. We have concluded a memorandum of understanding between the BLSA and the NPA to help resource the agency in its fight to reduce corruption, address crime and the legacy of State Capture and fight against gender-based violence.
We also support whistleblower protection and the Business Against Crime Eyes and Ears initiatives because of their critical roles in combatting corruption and crime in South Africa.
It will take all economic role players to turn around South Africa’s fortunes. But business does have the agency and talent to help government make the profound structural change needed to regain our positive rating outlook – and, hopefully, our investment grade rating soon rather than later. This will be a key milestone in our objective of attracting investment to grow the economy and create jobs.
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