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‘Facing up to economic reality brings forward recovery’

SA has to work within its diminished means – and actually implement reforms – to enable recovery.
Image: Moneyweb

The downgrading of South Africa by two ratings agencies on Friday reinforces the fiscal crisis we are facing. Both Moody’s and Fitch have sounded alarm about government’s debt levels and its seemingly limited ability to get out of the current trend. It is a blow to the credibility of the economic recovery plan, in that two major agencies are effectively saying they don’t think it will work.

SA descends deeper into junk after two downgrades
‘Painful’ downgrades will raise South Africa’s borrowing costs – Mboweni

The third major ratings agency, S&P, did not downgrade, and noted that the economy was showing signs of recovery. It also said that our strengths, including a credible central bank, a flexible exchange rate, an actively traded currency and our deep capital markets, will help us through the tough times. But it said that the recovery plan “contains approaches mooted in the past” and depends on private sector investment that may be crowded out by the government’s debt requirements.

As I’ve said before, the only thing that matters now is implementation. S&P is right that the recovery plan largely covers ground that was well understood before this crisis.

The structural reforms we have been hammering on about have been needed for years.

This is the only way we can provide an impetus to the private sector to boost investment, given that fiscal stimulus is not an option.

But the other implementation that we have to deliver on is restraining public expenditure.

These downgrades are going to hurt. They will make it more expensive for government to borrow. Government cannot increase spending, but it can ensure that spending delivers more to the economy, by shifting it out of consumption and into investment. That means public sector wages are one of the key areas for restraint. The government has not proposed cuts, but rather keeping the growth rate low over the next three years. This has to be delivered on.

Last week’s other spectacles, including at the SABC where management has been forced to delay a retrenchment process, and the taxi industry demanding that government pay it money in the form of ‘Covid relief’, showed how out of touch some are.

The SABC will go the same route as SAA if it does not seriously confront the reality of its financial position. There are no more government bailouts. The only options are to restore its financial position by cutting costs, or business rescue. This is not something the SABC should consider a great injustice – those are the only options the private sector must face every day. That is why 1.8-million jobs have been lost and many businesses closed.

The taxi industry is often a great example of private enterprise in action, able to serve customers despite government neglect. But it is wrong for it to use its central position as an enabler of economic activity to attempt to extort money from government. Going on strike harms the prospects for recovery and compounds the overall position we find ourselves in.

Facing up to economic reality does not accelerate decline, it actually brings forward the recovery we need. The public sector has to adjust to the fact that our economy is smaller than it was and that it doesn’t have the financial muscle to borrow any more. It has to shrink, just as the private sector has shrunk.

To try and continue with business as usual will be to continue pushing against economic reality. It will lead to more downgrades and eventual collapse when our funders say, “no more”.

The recovery will accelerate if the pain is shared appropriately and we adjust rapidly. We have to work within our diminished means. We have to fix the structure of the economy to enable all of us to do more with less. That’s what will lead us back to growth.

As S&P noted, 2020 will be the sixth successive year of declining per capita GDP. We have been getting poorer, on average. It is time for that to stop.

And implementation, not plans, is what will do it.

Initiatives such as Business for South Africa’s #PayIn30 campaign, where more than 50 big businesses have signed up to pay small business suppliers within 30 days, are crucial. We need a healthy and successful small businesses sector. The high number of small businesses makes them the best positioned to meaningfully dent our rising unemployment rate. If each small business is able to hire just one extra employee, that immediately makes an impact, I wrote in by Business Report column.

The focus on the small business sector in our economic recovery is important. I wrote in Business Day that we have to find our own mechanisms to deal with our challenge of late payments and the #PayIn30 campaign is only one such mechanism.

The stimulatory effect in ensuring that whatever spend emerges from the public and private sectors feeds through to small business at a much faster (rate), comes at no fiscal cost to the state.

That is incredibly important in this environment and we urge government to move fast to facilitate this.

Busi Mavuso is CEO of Business Leadership South Africa.


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The entire turnaround plan is about economic reforms. What has to be reformed? Every ANC economic policy has to be scrapped. The ANC has to abandon cadre-deployment, affirmative action, BEE, stringent and redistributive labour laws, the redistributive rates and taxes regime, the Mining Charter, local beneficiation requirements, plus all the other infringements of property rights.

In short – To have the country from economic collapse, the ANC has to transform itself to implement the free-market economic policies of the DA and FF+. If the ANC does not transform itself into the DA we are done for.

What it all basically boils down to is that if Hellen Zille or Pieter Groenewald does not become the next president of the ANC, we will fall over the fiscal cliff for sure. Sometimes some people always make the worst choices. They do the exact opposite of what needs to be done. If those kinds of people make out the voting majority, then it is impossible to prevent a Venezuela or Zimbabwe situation.

Politicians who offer unsophisticated, uneducated voters free stuff in return for no effort from the voters, are going to get elected, every single time. The only hope is an IMF bailout, during which the electorate effectively lose their vote. Which should never have been given to most of us anyway.

The IMF bailed out James Callaghan’s socialist labour party in 1976 and this paved the way for the Conservative Party to gain the majority vote and for Baroness Thatcher to implement free-market policies. She broke the back of the unions and cured the “sick man of Europe”. Common sense prevailed. This is a nation of relatively sophisticated people, who understand and respect property rights and the rule of law.

The IMF also came to the rescue of Mugabe. When the prerequisites from the IMF threatened to dislodge Mugabe’s position of political power, he simply dishonoured the agreement with the IMF and defaulted on the loan. This relatively unsophisticated collectivist or communalist nation does not understand, or respect, property rights, and law and order.

South Africa falls in the latter category. The IMF will not waste their time and money here, and they have already told Tito Mboweni so. That is why he threw that tantrum where he told the IMF that he will borrow locally, from government employees, who also happens to be Cosatu members.

Your “if” is too unlikely Sensei; Zim had a better chance of the MDC gaining power than Zille or Groenewald leading SA, even though you are absolutely correct. SA is still split on racial lines as designed and accelerated by the ANC regime. Today in SA is like Zim in say, 2000, rampant unemployment and a failing economy. So the ANC regime will (and do) ape their friends ZANU PF as “native colonialists” (a phrase I first heard from a Zim Prof; although I do not totally agree). The ANC will double down on mad and self enriching policies (EWC, RET, NHI etc) to lick the last scrap of loot from the trough, as ZANU PF still do. Screw SA and its citizens.

Tge optimism is palpable. I unfortunately stand with Fitch & Moodeys (& S&P) – we’ve covered this ground before. Like Moses wandering the desert. And just as lost. There is no hope, faith or belief govt & SOE’s bosses get that the party is over.

Facing up to economic reality! If only that was the case. The ANC is so precious it thinks economic reality does not apply to it and South Africa.

Indeed 100%, RW Johnson stated that Saffas regard themselves as somehow “special” as bad things on a national scale does not happen to us (like an expected civil war after apartheid was ended…and then nothing happened)….lead to the thinking “we are special”.

The looming SA national disaster just happens slower & stretched out over many years. It’s the minority people with a western-value system, and the ability to create capital that’s keeping it together, but our numbers are dwindling.

SA’s crash (into a typical 3rd world country) is one in slow motion.

(The downgrades) “It is a blow to the credibility of the economic recovery plan”.

I don’t understand where a ‘recovery plan’ fits into the bigger picture of a past 300-year colonial country, with it’s colonial ‘domino’ the last one falling on African continent.

Economic recovery (in the long term) makes no sense, as most South Africans do not embrace a western value system, of low crime/respect of the law/ respect to property rights, etc.

SA CANNOT have BOTH a long-term econ recovery AND being run by a socialist/centralist ANC.

In fact, SA is doing quite well, compared to years still to come.

SA was in a similar dire financial position of running out of capital, in the final days of the Apartheid regime.

The dropping of international sanctions helped SA to become part of the international community, without embargoes.

The ANC can go it again:
(i) Get economic sanctions against SA lifted please!
(ii) And let’s become an open democracy…that helped SA’ case in the past.

(…what you say?! We used that already? AG NO!!)

Vehicle-SA’s handbrake is OFF…maybe something else wrong keeping it stationary, like the “yellow, green & black” brake pads must be binding…)

“brings forward recovery”…ok when?

Facing up to political reality brings forward the fiscal cliff.

End of comments.





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