President's message may be deal-breaker
JOHANNESBURG - Sentiment swirled in the market yesterday on news that President Cyril Ramaphosa will present the country’s long-awaited economic recovery plan on Thursday.
Analysts said Ramaphosa’s announcements ahead of the Medium-Term Budget Policy Statement this month could be a deal-breaker for the battered economy, with investors keen to see whether it will be bold and decisive.
Ramaphosa’s plan is expected to cover the government’s policies on privatisation, infrastructure investment and energy security, as well as the localisation of manufacturing and mass employment programmes.
Old Mutual’s chief economist, Johann Els, said the plan should focus on three main issues that would restore investor confidence in the economy.
Els said the government should allow the private sector more space by privatising certain state-owned companies and deregulating the labour market. He said such a policy departure would likely be opposed by organised labour, although it would change investors’ perception of the government’s willingness to resuscitate the economy.
“The big game-changer in terms of lifting future growth prospects towards a higher level to at least 2percent annual growth should be a radical restructuring of state-owned enterprises,” Els said. “It’s nothing short of privatisation. In my mind, privatisation is doing whatever it takes to grow the economy. The probability of privatisation may be low, but these are dire and extraordinary circumstances.”
Ramaphosa’s plan comes as the country is battling economic headwinds and weak business and consumer confidence.
The country’s gross domestic product fell by 17.1percent in the three months to June, and 2.2million jobs were lost in the same period as the lockdown impacted activity.
Els said the government needed to undertake bold measures that would include a drastic cut of the public sector wage bill to curb runaway expenditure and restore investor confidence.
“Maybe they should freeze the public sector salaries for about four years in a row. That would be a big factor in terms of confidence.”
In June, Finance Minister Tito Mboweni said the government needed to find spending cuts of about R230billion over the next three years, as the economy was expected to experience its biggest contraction in 90 years.
Ramaphosa has said that extraordinary measures should be taken towards a speedy and sustainable economic recovery in the aftermath of the fallout from Covid-19.
Anchor Capital’s investment analyst, Casey Delport, said the market would be interested in whether the recovery plan came with clear implementation details and deadlines.
“Unfortunately, we have a long history of policy misalignment and incoherence,” Delport said.
“What remains the crucial element, however, are the funding details surrounding the plan itself given the economic straits of South Africa’s public finances and political economy.”
Gross tax revenue has been revised downwards as the government expects to miss the tax target for this year by more than R300bn.
Rating agencies have warned of further downgrades, with Moody’s saying South Africa was likely to sink deeper into sub-investment grade as government finances continued to deteriorate.
Moody’s senior credit officer, Lucie Villa, said yesterday that South Africa, like other emerging economies, would suffer long-lasting revenue losses due to the coronavirus crisis.
“In South Africa, the smaller tax base stemming from lockdown measures, job losses and lower confidence is weighing on tax receipts, which were already under-performing before the pandemic outbreak,” she said.
Villa said the government’s ability to implement and enforce effective revenue-raising measures would be a key credit driver over the coming year.