Source: Daily Maverick

Mboweni’s ‘Hallelujah’ moment as Ramaphosa green-lights structural reform

By Ed Stoddard 29 March 2020

Finance Minister Tito Mboweni had a ‘Hallelujah’ moment when President Cyril Ramaphosa told him that the Moody’s downgrade was the trigger to pursue structural reforms. It’s probably a bit late now and in the wake of the Covid-19 economic meltdown it is hard to see how they can be pursued.

In the wake of the twin body blows of the Moody’s downgrade and the Covid-19 lockdown/economic meltdown, Finance Minister Tito Mboweni and Reserve Bank Governor Lesetja Kganyago had a virtual conference call with the media late on Sunday, 29 March. Mboweni tried to strike a jovial tone at times but he sounded stressed.

One thing that emerged from the call was that Mboweni now has political space from the president to pursue the structural reforms which most economists have said for years are needed to kickstart investment, economic growth and job creation.

“When I spoke to the president before Moody’s announced their decision he said to me, ‘We now need to move more boldly on the structural reforms programme.’ I said, ‘Hallelujah’. I’ve been preaching that agenda for a long time,” Mboweni said.

Mboweni has indeed been preaching the gospel of “structural reform” for some time, which would include cutting the wage bill of an inefficient public service which has swelled to serve the purposes of patronage. With Ramaphosa he probably was preaching to the converted, but it remains to be seen if other factions in the ANC have seen the light.

Mboweni later elaborated that a unit would be established in the Finance Ministry – but not the National Treasury – called “Vulindlela”, Zulu for “Lead the way,” also the title of a popular song by the late Brenda Fassie.

According to Mboweni, “The president said, ‘let’s do things for ourselves. We need to lead the way.’ And I was encouraged by that. And I will be creating a unit in the Ministry of Finance, not the National Treasury, called the Vulindlela unit who are going to look throughout the government system and the private sector about whether we have proceeded in pushing these structural reforms. So, they will become the front soldiers of structural reforms in the South African economy. And I know that we are going to succeed.”

That begs another question, which Mboweni did not address directly: Leading the way to what exactly? Any forecasts for the size of the contraction of South Africa’s economy at this point are thumb-sucks, but 10% is hardly implausible, and that is going to bring with it a lot of extra hardship on a society already crippled by sky-high rates of unemployment and shocking income disparities.

Austerity measures such as slashing the public sector wage bill, or structural reforms such as making it easier to fire employees, are going to be a tough sell when this is all said and done. The mounting costs of the lost Zuma years and the dithering since have now risen past a possible tipping point.

Still, better late than never, as they say.

Mboweni also addressed the issue of potentially going to the International Monetary Fund (IMF) or World Bank. He stressed it would be to support the health sector, so the typical balance of payments crisis which generally sparks an IMF bailout does not seem to be on the cards at the moment.

“The focus now is on health. If I approach the IMF or the World Bank it will be if we run out of finance for health interventions. That’s all… As of today, I do not need IMF or World Bank facilities. But I am keeping them in my back pocket just in case I need them,” he said.

He also said that the World Bank would probably be the “first port of call” and the amount would only become apparent when the need arises.

As to Mboweni’s “Hallelujah” moment, it is perhaps appropriate to quote the late Canadian singer/songwriter Leonard Cohen on that score, who in his haunting song of that name sang:

“Your faith was strong but you needed proof.”

Mboweni says he has faith, but the government must provide proof that it is serious about structural reforms. And they may be harder than ever to implement now.

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South Africa ‘headed into a deep structural depression’ – Busa

Daily Maverick

By Ferial Haffajee 30 March 2020

‘We have been fundamentally incapacitated. The president has repeatedly talked about the incapacity of the state. The ability to respond has undoubtedly been compromised by ten lost years,’ says Busa deputy president Martin Kingston.

The Moody’s downgrade of South Africa to full sub-investment grade rating (or junk – the term used when the major investor services companies hold the same position) will precipitate a deep structural depression over an extended period of time, said Busa deputy president Martin Kingston in an interview with Business Maverick.

Asked if he agreed with a growing call that the country needed to use its reserves (US$43.5-billion in January 2020), Kingston said “we need to mobilise resources from wherever we can”.

 

Busa deputy president Martin Kingston. (Screenshot: Youtube/GIBS Business School)

Economists have predicted a deep and second Great Depression and Kingston said he expected the Covid-19 pandemic to be devastating for the economy.

While Busa’s initial assessment from a team led by former Absa CEO Maria Ramos had modelled a contraction of between 2% and 3%, the depth of the global slowdown would have a domino effect in South Africa — and that freefall could be accelerated by the Moody’s move, which business thought might be delayed.

In reports on Sunday, Finance Minister Tito Mboweni said South Africa would use all levers and may turn to emergency funding and balance of payment support being opened by the World Bank and the IMF. Mboweni also told City Press that he was surprised by the Moody’s downgrade as meetings with the agency in March had suggested to him that it may not move.

Kingston said that government’s tax relief, the assistance for small business and other measures for companies in distress was welcome, but he added that “we need hundreds of billions to cope with the ramifications of this”. Government’s first stimulus package announced on 23 March comes to roughly R13-billion. “Structural reforms must be revisited in the context of what is happening,” said Kingston.

In a statement on Sunday, the Minerals Council, which represents most of the mining industry, did not mince its words about the downgrade.

“In our view, the rating downgrade is the culmination of missed opportunities by the government on economic, fiscal and state-owned enterprise policies, that have resulted in continual declines in competitiveness, a collapse in productivity and has caused the freeze in private sector investment.”

While acknowledging how Covid-19 was knocking the economy from critical to comatose, the council said that: “…this downgrade is largely as a result of the government’s own making over an extended period. The inability to implement a comprehensive package of economic structural reforms (such as quickly enabling private sector investment in power generation), to cut the extensive and wasteful umbilical cord of state ownership and support to non-strategic disastrously run state-owned organisations like SAA, and the fiscal crisis caused by nine years of corruption and state capture have placed South Africa in this situation. The fact that not even one of the protagonists involved in the disastrous state capture project has been prosecuted, is concerning”.

Infrastructure must keep working

Kingston said that business was working feverishly in about 20 workgroups to support government’s efforts to keep the economy alive while launching an unprecedented response to an unprecedented public health emergency. He said it is essential to keep communications shored up, to minimise load shedding (which Eskom is succeeding in doing), to ensure that water and sanitation systems are bolstered and that commuter transportation keeps working.

The business response was conceived when Aspen Pharmacare executive Stavros Nicolaou convened a meeting to reinforce the country’s health platform. The private sector has assisted with testing, tracking and tracing which are key to the response to Covid-19. Discovery Health CEO Jonny Broomberg with Netcare CEO Richard Friedland are heading this workstream.

This health platform group is also part of the government’s planning to ensure South Africa has sufficient protective equipment (gloves, masks, suits) and medical devices (such as ventilators, the shortage of which is a red flag around the world).

“We are not doing anything in competition with, but instead only in collaboration with and in support of the government,” stressed Kingston, who said that crisis management required an all-in approach.

“Historically people work in silos. (This requires) agility and impact. We can’t possibly do this without leveraging all the resources of the business community,” he said.

Production lines are being repurposed for the Covid-19 effort: Distell, for example, is producing sanitiser and Sasol is likely to contribute too. In France, for example, LVMH has stopped perfume production to make sanitiser.

In the US, President Donald Trump has instructed GM to now produce ventilators after a life-threatening shortage has emerged (Covid-19 being a respiratory disease). The major law firms have contributed people and free hours for any legal work that is necessary and the Big Four professional service companies – KPMG, PwC, Deloitte and EY – have assembled a project management office to manage the business Marshall Plan for Covid-19.

Three of the four have been named in various aspects of South Africa’s State Capture story – all are working pro bono now in an interesting twist.

“We have been overwhelmed by support and resources and the Solidarity Fund (a private sector-led initiative to help the public purse fund the Covid-19 battle-plan) was one of the initiatives along the way,” said Kingston.

The fund is believed to have attracted R250-million so far. Asked what impact State Capture had had on South Africa’s ability to stage a response to the virus that threatens the world, Kingston said:

“I have no doubt we have been fundamentally incapacitated. The president has repeatedly talked about the incapacity of the state. The ability to respond has undoubtedly been compromised by ten lost years.”