For many weeks the pending S&P Global Ratings’ decision on South Africa was a major talking point here. Well, that has come and gone for now, with another by Fitch Ratings waiting in the wings as I write. The stay of execution means there remains much to be done over the next six months.
With hindsight, one might say that S&P were never going to downgrade South Africa to junk status and be complicit in the further deterioration of Africa’s major economy. Some of our economic fundamentals and metrics may be serious cause for concern. But put into proper perspective, the challenges faced by South Africa on this front are not that different from those in much of the rest of the world at a time of major global social, economic and political shifts. This is what Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, calls the 4th Industrial Revolution.
It was always clear, however, that S&P would issue a stark and very serious warning to South Africa not to self-destruct politically, and thereby drag down the economy. And that is exactly what it did. For the first time a rating assessment of South Africa was focused more on the politics than the economics.
On the political situation, S&P singled out the cohesion of the executive; increased political tensions since the removal of former finance minister Nhlanhla Nene; the Constitutional Court judgement against President Zuma on the Nkandla report; disputes between key government institutions, and disputes within the ANC. Reference was also made to the ANC’s presidential succession race.
These are the issues that led S&P to say: “We believe that these political factors–if they continue to fester–could weigh more on investor confidence than inconclusive labour or mining sector reform. We base our rating affirmation on the expectation that they will be held in check…”.
For me the one big positive coming out of S&P’s statement is the fact that it strengthens the hand of Finance Minister Pravin Gordhan. It should serve as sufficient warning to those with their own agendas who may have sought to pressure him into stepping down, to lay off and allow him to get on with the job.
After all, it was Gordhan who started putting the rescue measures in place, unpalatable as they may seem to some in government. It was Gordhan, too, who went on the road and persuaded key institutions, investors and others not to write us off; to allow him time to implement the necessary measures to turn the economy around. Both S&P’s decision, and the earlier one by Moody’s, to allow South Africa valuable breathing space, were, in large part, based on little more than that promise. Gordhan should now be given every possible chance to complete his mission.
Thus, while Gordhan may be able to correct the economic metrics, only Zuma and his party can do the same on the political side.
Nobody, least of all the rating agencies one would suspect, expects Gordhan and his political colleagues to fix everything in six months – but, at the very least, they should show some good progress in that direction by December.
It will require a team effort involving everybody. Key to this will be a dynamic and rapidly implemented social contract between government, labour and business – also involving opposition political parties – that will remove obstacles to investment and growth.
As I said, it won’t be easy, but where there’s a will, there’s a way… and South Africans are known to pull together when the going gets rough.
Carrick Wealth: Group Managing Director