TALKING BUSINESS: From left to right Thabi Leoka, JP Landman and Iraj Abedian discuss South Africa’s economic situation at the business briefing. Picture: Ihsaan Haffejee
Some of South Africa’s leading economists yesterday differed on the rationale behind the country’s recent downgrades by sovereign credit ratings agencies Standard & Poors and Moodys.
One of the views expressed at The New Age business briefing.
held in Fourways was that the downgradings were a clear sign that the country’s economy is far from being on the correct path for sustainable growth.
Earlier this year the agencies downgraded SA’s debt to BBB and Baa1. Both ratings are on negative watch, a warning of the possibility of further downgrades. And both are just a couple of notches above the so-called junk status that would oblige foreign institutional investors to sell, with an inevitable rise in the interest rates at which the Treasury can fund fiscal and current deficits.
Discussion at the business briefing was robust, with private sector economists Iraj Abedian of Pan-African Capital Holdings, Dennis Dykes of Nedbank and Thabi Leoka of Standard Bank making clear their views on the country’s current economic travails and that deteriorating ratings will deter foreign investors and weigh on business confidence.
While political-economic analyst JP Landman agreed that the ratings downgrades reflected economic weakness, he questioned whether this would affect investors’ views. Investors’ reactions to ratings frequently diverged, he said.
“The country must not feel victimised by the credit ratings, but should heed what agencies are saying to help fix the problems.”
Dykes pointed out that the agencies have no ideological bent, while Abedian advised the government against over-complicating the issues raised by the agencies.
Dykes said it was clear service delivery protests signalled that something serious was wrong and needed attention, a point echoed by Abedian.
In response, ANC MP, Thaba Mufamadi, said his party would be more cautious as it approached its elective conference in Mangaung as the world would be watching to see its approach to economic issues. He said the ratings would be taken seriously and there would be no “holy cows” when dealing with economic policies.
“We are going to listen to all views from all quarters, but some of the issues raised by ratings agencies have been unfair to the country.
“The ANC will take note of what they say, but we are not going to formulate policies solely on their findings. We will decide on plans for dealing with some of these issues and not take orders from outside.”
Mufamadi’s comment resonated with Finance Minister Pravin Gordhan’s view that there was no historical evidence to support S&P and Moody’s assertion that underlying social tensions would increase SA government spending pressure.
“There is nothing wrong with our government, given that the money and resources are there, but implementation is what is dragging this country back.”
Another issue raised was the proposal of imposing high taxes on the mining industry.
Chamber of Mines chairman Bheki Sibiya said the mining industry was one of the most transformed sectors and warned if the Mangaung conference resulted in a decision to levy higher taxes, particularly on the 59% of platinum mines that are not profitable, there would be a serious rise in unemployment.
Mufamadi would not be drawn. He said the mining sector contributed about 40% of the country’s tax revenue and the introduction of additional taxes would be up for discussion. He said if the current economic macro policy did not help, there would need to be change.
Leoka was blunt, saying it would be disgraceful if nothing concrete was delivered at Mangaung in terms of policy issues.
“We keep on changing policies again and again. It is high time that those responsible for ‘tweaking’ policy implementation be ‘tweaked’ themselves if they fail to deliver and be replaced with those with the capability to deliver.
“The fact that the SA economy is not growing is because the country does no put the right mechanism in place.”
Dykes concurred, saying, the major problem was that a whole lot of policies were not implemented correctly and that this was a failing of the government.
He added that if trends towards higher wages unmatched by improvements in productivity continued more jobs would be lost.
“If the National Development Plan (NDP) can be implemented correctly, it will put us on the right path. Unfortunately, other government policies deliver conflicting messages to investors.
“There is plenty of money available in the private sector, but without the right framework in place growth and employment targets set in the NDP and the New Growth Path will not be met,” Dyke said.
Lekoa elaborated: “Land redistribution has not yet been addressed properly and since 1994 we have been changing policies over and again. The five-year policy plan proved not to be sufficient to deliver the goods and needs to be stretched further at least to 10 years.”
Cosatu president Sidumo Dlamini said there would be no radical economic transformation if the macro policy was not changed.