Over the next two weeks, two parliamentary events – the State of the Nation Address (SONA) and the annual National Budget speech on 26 February – are going to provide powerful signals on whether South Africa is serious about addressing its economic and governance crises.
Minerals Council CEO Roger Baxter.
The pivotal event is the SONA, and the Minerals Council urges President Ramaphosa to set the required direction and indicate the way forward clearly and simply.
“The South African economy is in an unprecedented economic crisis, and in the longest economic downswing since 1945,” says Minerals Council CEO Roger Baxter. “In this, the most significant SONA since the dawn of democracy, the Minerals Council calls on President Ramaphosa to signal clear direction and action on critical issues.
“We understand that the president is being buffeted by a variety of perspectives from a range of constituencies. We would, however, plead that he use his powers of persuasion to impress upon all citizens the seriousness of the situation and, where appropriate, the need for radical measures to repair the damage done to South Africa since 2009, and to create a new foundation for growth and development.”
The nature of the crisis is reflected in the following facts:
- South Africa is in the longest economic downswing since 1945.
- Government debt ballooned from 26% of GDP in 2008, to 56% in 2019, and threatens to rise further.
- Unemployment has risen to 29,1% – ten million people are unemployed.
- State-owned enterprises are a significant source of fiscal and economic crisis, particularly Eskom and SAA .
- In 2018, fixed investment fell by 1,4% to 17,9% of GDP (compared with a global average of 26,3%).
On 1 November 2019, Moody’s kept South Africa’s credit rating at their lowest grade rating but downgraded the outlook from stable to negative. An absence of signs of radical remedies will result in a downgrade to junk status by Moody’s within six months, confirming SA as a junk investment destination by all three main ratings companies.
This will lead to portfolio outflows as foreign funds sell off significant parts of their R118-billion investment in South Africa’s bonds and R2-trillion in South African equities. There will also be increased borrowing costs, downward pressure on bonds and equities, accelerated imported inflation and, likely, depleted reserves. This would worsen confidence, further weaken investment and lead to a material worsening of the economic crisis.
A downgrade, and continued economic downturn, will have a detrimental impact on all South Africans, including inflationary pressures; rising unemployment; further contraction of funds available for healthcare, education, infrastructure and an undermining of pensions and social security nets.
The Minerals Council will be looking for signals from President Ramaphosa on the following matters to address the crisis points described:
- Promising critical action and decisions on SOEs to turn them around or dispose of them where there is no strategic reason for their continued state ownership. We would like to hear the president acknowledge that the SAA business rescue practitioners should have the right to take the steps they consider necessary.
- Opening the way to a conservative 2020 National Budget, including the reigning in of public service wages and wasteful expenditure. There should be no more bailouts of any SOEs unless strict conditions are set that would remedy governance and efficiency shortcomings.
- While it would be improper for the president to interfere in the work of the National Prosecutions Authority (NPA), it is critical that he signal that government, like most citizens, is anxious to see the prosecutions being brought against not only all those involved in state capture, but also the private sector leaders involved in high profile instances of alleged fraud. It is unnecessary to wait for the Zondo Commission to complete its work. To empower the NPA to move rapidly, the president should direct the finance minister to allocate an extra R1-billion to the office of the National Director of Public Prosecutions to prosecute these cases.
- As part of a growth strategy and re-establishing confidence, the president must indicate that government is to allow private concessions in key areas of economic infrastructure such as electricity, rail and ports – including, of course, self-power generation and a reduction in red-tape on business.
- Finally, given the unprecedented deterioration in the security situation facing the mining sector, the Minerals Council looks forward to hearing about specific measures to establish a specialised mining police task force to tackle the serious crime affecting the mining sector.
The Minerals Council is hoping for and looking forward to a new era of decisively addressing the country’s myriad challenges. South Africa cannot afford otherwise. It has to be action, action, action.