After what seemed like years of relentless downgrading of our economic prospects — and in turn the government’s ability to fund its growing debt — the move by one of the world’s three leading ratings agencies, S&P Global Ratings, to leave our rating unchanged and keep the outlook stable is a relief.
For large parts of the past decade, their sentiment towards the SA story has been negative, but this was almost entirely self-inflicted. Confidence waned and the fiscus struggled under the weight of onerous funding obligations. Now, with an economy just beginning to rebound from 2020’s Covid-induced collapse, we cannot afford a slide even deeper into subinvestment grade. It would make the climb back to investment grade a more distant possibility.
The reasons for our stay of execution this time around are the stronger-than-expected economic rebound and improving terms of trade from higher commodity prices, which have boosted our near-term economic performance, the ratings agency said at the end of last week. The SA Reserve Bank has an optimistic forecast for growth this year of 4.2% — a stark difference from the 7% contraction of 2020, so such a rebound would be off a low base.But before any of us pop the champagne, the keywords in the review are “near term”.
This is but a momentary reprieve and, let’s be honest, is afforded to the country not all by our own doing, though the tight line held by the fiscus was certainly helpful. Markets and commodity prices, in particular, have turned in our favour. This boosted the Treasury’s coffers, while just last year it was mooting tax hikes to boost a faltering revenue line, something that would have compounded a decade of economic drift. In a country still blessed with mineral resources, better-than-expected proceeds from miners have bailed the fiscus out.
As welcome as the rebound is, we could have derived much greater benefit if the economic reforms that have long been promised weren’t still at a nascent stage. Now whenever we peek under the bonnet of this particular topic, fingers are normally pointed at just the state itself, in the area of electricity for example.
But as business, labour, civil society and other spheres of society there’s all manner of reform that we need to undertake to boost the country’s longer-term prospects instead of remaining reliant on “near-term” stimulants such as higher iron ore prices.
In the case of business and as its representative in Business Leadership SA (BLSA), we need to address the low levels of productivity in the country. It’s something that along with labour we should seek to address, and civil society has a role to play.
The reform agenda shouldn’t be one placed before the state to undertake alone. While S&P gave us the reprieve that we need, the “weak pace of economic reforms” was a concern highlighted in its report. The pace, along with existing structural constraints and the low vaccination rates, according to the agency, will continue to constrain medium-term economic growth and limit the government’s ability to contain the country’s increasing debt-to-GDP ratio.
Long-term economic growth remains negative on a per capita basis, S&P says, adding that “the implementation of planned economic reforms remains slow, alongside reform of governance frameworks to reduce misuse and leakage of public funds”.
We are still in the precarious position we were in before the global pandemic turned the world on its head. This year’s rebound and the change in market conditions in our favour are short term and cyclical and as such we can’t rely on these factors to carry us out of our structural low-growth trap.
Eskom and its inability to produce a reliable electricity supply remains a huge question mark on our economic prospects, especially as we seek to boost localisation and in turn job opportunities. It and the other state-owned enterprises in government’s vast portfolio have to be restructured so they’re better enablers of higher growth rates and not a drag on the rest of the economy. In the private sector we need to follow our own reforms to boost productivity levels, ensuring that we all put our shoulder to the wheel.
We’ve all in some form contributed to the structural impediments in the country that continue to weigh on growth to varying degrees. Small businesses continue to struggle against the vast size of some of our larger companies, which need to pay greater attention to enterprise development efforts to boost a more inclusive economy. An inflexible labour market combined with an often-debilitating relationship between unions and management are fundamental weaknesses.
With all spheres of society — the government, business, labour and civil society representatives — all working together, we can accelerate the pace of reform and in turn ensure a more sustainable, long-term economic recovery, thus preventing government debt levels from becoming unsustainable and crowding out other investment. We are all invested and want to play a role in reforms that are economically transformative, support labour-intensive growth and create a globally competitive economy.
This article was first published in Business Day.