With the clock ticking down to M-Day — Finance Minister Tito Mboweni’s medium-term budget on October 30 or Moody’s credit rating review on November 1 — at least one high-profile pundit is predicting a downgrade.
Investment bank Renaissance, in a view at odds with the majority surveyed by Bloomberg, is predicting we will be junked. The prediction has standing because Renaissance has got the last eight out of nine sovereign ratings decisions in emerging markets correct since May.
Renaissance global chief economist Charles Robertson, quoted by Bloomberg, said South Africa’s fundamentals had deteriorated since May, when Moody’s maintained its investment grade rating.
Robertson pointed to poor growth, problematic public finances, a subdued commodity outlook, xenophobic rioting and questions about President Cyril Ramaphosa’s ability to implement tough economic reforms because he is constrained by his tenuous hold on a deeply divided ANC, and he faces opposition from union allies who, fearing job losses, oppose privatisation.
This assessment, though, may be overreach, based on the way Mboweni’s economic reform document passaged through the highest ANC structures. Given the fallout in the ANC and its alliance partners when first released, you could easily have formed the opinion that the document would not get through the national executive committee (NEC) without major surgery, perhaps leaving few of the proposals intact.
But Mboweni’s document survived more or less as first released. A notable exception was that a labour market reform to curtail the extension of bargaining council agreements between big business and big labour to non-parties was sent to the National Economic Development and Labour Council for further deliberation.
If you were a conspiratorial type, you could have speculated that one or two items such as this were included by Mboweni in his reform document, knowing that they would not be accepted, but could be useful concessions to make to while getting agreement on the bulk of the document.
Also not accepted — and this is really the biggest deal — was the proposal in Mboweni’s document to fix Eskom’s debt by separately auctioning off its power stations. Rather, it was decided to stay with existing ANC policy, which calls for a strategic equity partner to be brought in.
This could mean almost anything in practice, but you’d want such a partner to bring both boodle and nous. Given the existential challenges Eskom faces, it is hard to see who such a partner could be.
Mboweni noticeably left out his proposals for restructuring Eskom in his presentation to the NEC. His Powerpoint did not shy away from straight-talking — including taking aim at ministers and officials, saying there was a lack of accountability in performance agreements. No action was taken for underperformance because outcomes were poorly conceived, he said.
In his presentation Mboweni said that state-owned companies posed a huge risk to economic stability and financial sustainability and spoke of the need to rethink the rationale for where the state should intervene or what it should own; that subsidising inefficient state-owned companies to deliver services that could be done more efficiently by someone else should be stopped; and that state companies that have no clear public service mandate should be sold.
This may indicate the generalities of where policy is going, but we wait for the specifics as October 30 approaches, as does November 1, when we’ll see whether Mboweni is indeed the man with a plan.