I’m not a fear-merchant or even a bear, despite what you may think. Those close to me will probably describe me as a ‘realist’ (I hope). It’s been nothing short of incredible how the mood of an entire country – and globe – has shifted from staring down the abyss of more plundering, corruption and tenderpreneurship (with a sliding currency), to one of hope. Make no mistake, this is not a cheerleading column for president-in-waiting Cyril Ramaphosa. And, sure, there are still enormous problems to overcome in the short term, chiefly that there is no more money (as I pointed out in Winter is here). But, there are a number of signs emerging daily that we have turned the corner.
- Scale and seriousness of the Eskom crisis is finally accepted
- Accountability, finally!
- Real structural reforms are coming
- A stronger rand
- Mugabe is gone and Zimbabwe will boom
- Foreign investors are piling in
Government (and the ANC) seem to have finally realised how serious the Eskom crisis is, and how close the utility is to collapse: its ability to raise required funding has deteriorated substantially in the past six months, it received a far smaller (and more realistic) tariff increase from the National Energy Regulator of South Africa than expected, it seems to seriously think that the CEO position can be treated as a merry-go-round, and there are reports that it is close to running out of cash. Stuart Theobald brilliantly articulated the scale of the Eskom problem in Monday’s Business Day: its balance sheet is 42 times the size of SAA and 146 times the size of the SABC. Rescuing it from collapse is Ramaphosa’s first and largest priority.
A board of substance has finally been appointed (despite/in spite of Lynne Brown’s ‘best efforts’) and the new leadership of chairman Jabu Mabuza and highly-regarded interim CEO Phakamani Hadebe is exactly what is needed. This won’t magically solve the crisis – some tough calls remain – but it’s a solid start.
The new Eskom board is extraordinarily experienced, skilled and diverse. First time in probably 15 years that this is the case.
— Hilton Tarrant (@hiltontarrant) January 21, 2018
This has been a watershed week for South Africa’s fledgling democracy. After years of corrupt politicians and executives at state-owned enterprises showing nothing but utter contempt for ordinary citizens, they are finally being held to account. The inquiry into Sassa and the social grants crisis, the Life Esidimeni tragedy and the parliamentary inquiry into Eskom are shining lights into previously dark corners. That we have officials – including sitting cabinet ministers – being held accountable is extraordinary, simply because this did not happen during most of the Zuma administration. The forthcoming commission of inquiry into state capture ought to be a watershed moment for our country (and, one hopes that there’ll soon be an inquiry into the Cape Town water crisis too).
A statement following the meeting between the International Monetary Fund managing director Christine Lagarde and Deputy President Ramaphosa in Davos tells you all you need to know about what’s coming: “We concurred that long-standing structural challenges continue to weigh on growth in South Africa. We consequently agreed that bold and timely reforms are needed to create an environment conducive to job creation and less inequality.”
Recent initiatives to improve governance and strengthen public institutions are steps in the right direction. These efforts need to be sustained and be complemented both by fiscal policies that stabilise debt at manageable and sustainable levels, and by the reestablishment of business confidence to make the economy more productive and competitive.”
These reforms will take time to implement (probably most of Ramaphosa’s first term), but for the first time in a decade, these aren’t hollow words. More importantly, it’s critical that these issues are addressed or else we won’t have much of a country in a decade’s time.
On Wednesday, the rand broke through the key psychological barrier of R12 to the dollar – the first time it had traded below this level since April 2015. This is clear evidence of foreign demand for our assets and currency (sure, a weaker dollar helps!). A stronger rand means we are all wealthier (and we all feel wealthier), this filters through into the price of practically everything, from basic commodities (maize/bread) to imported iPhones, and petrol.
Nothing proves the Lenin quote – ‘There are decades where nothing happens; and there are weeks where decades happen.’ – more than the events in Zimbabwe in November. Many people (myself included) believed that Robert Mugabe would only leave office upon on his death. A peaceful transition to a new leader was practically unthinkable. Yet, here we have a new president in Emmerson Mnangagwa that is focused on a single thing only: getting the economy growing again. There will be mass privatisation of most state-owned enterprises (nearly all of which are loss-making), government looks to be retreating from its near stranglehold on the mining sector. The nation is “open for business” and soon the trickle of foreign investment (which had all but dried up over the past few decades) will be a flood. A stable and growing neighbour to our north is important to South Africa – don’t discount the halo effect that a booming Zim will have on us. And, add to this the already significant opportunities for our corporates and medium-sized businesses….
In an interview with Bloomberg Television at the World Economic Forum Annual Meeting in Davos, Reserve Bank Governor Lesetja Kganyago was blunt about the turnaround in the interest and appetite of foreign investors in the country: “… last year at this time in Davos, I was trying to look for people to talk to and convince that South Africa is worth investing in. This year, I having a lot of people come to me saying, ‘Hey, it looks like a lot of things are changing in South Africa. Where are the opportunities?” I am saying to you South Africa is reasserting itself. And not just as an investment opportunity but as a destination for investment.”
This didn’t suddenly start in Davos this week (although the 180 in how government is widely publicising every interview, every photo opportunity, every TV appearance on social media and in the press is noticeable from the previously ultra low-key delegations ‘led’ by Zuma). Foreigners have come roaring back into our market since the outcome of the ANC’s National Conference in December. Bloomberg reports that “average daily flows into Johannesburg-traded shares are running at the highest rate since at least 1997”.
Goldman’s recent report identifying South Africa as the “big emerging market story” of 2018 adds fuel to the fire. Confidence breeds confidence. This is not the end though, if market and currency movements in Brazil over the past few years are any indication (not to mention the boost if a more ‘experienced’ and slimmed-down cabinet is appointed)…
— eNCA (@eNCA) January 25, 2018
All of these factors together boil down to confidence. The end of our lost decade under Jacob Zuma is near. It’s beginning to look likely that we will avoid a full downgrade of our sovereign debt by the skin of our teeth.
Every single person I interact with, from large corporates down to small businesses, is positive and confident; a complete about-turn from just over a month ago. Our best days are ahead of us.
Hilton Tarrant works at immedia. He can still be contacted at firstname.lastname@example.org.