Dear Mr Cyril Ramaphosa
Congratulations on your election as the 14th President of the African National Congress.
You have been elected at a vital time for both the future of the ANC and South Africa. Your election presents an opportunity to renew confidence in South Africa, both internally and externally.
The Nedbank team looks forward to engaging with you, and addressing the pressing needs facing our society and meeting the legitimate aspirations of all South Africans.
As you know, there are multiple challenges facing the country. Like many South Africans, we’re concerned about the governance failures in critical public institutions. We also recognise that there have been failures in the private sector. In order to deal with both, we need ethical leadership and strong oversight institutions, including the criminal justice system. We also need active news media able to expose wrongdoing. It is particularly urgent that the state-owned enterprises (SOEs) are put on a stable footing. The enormous liabilities that the SOEs are burdened with pose a risk to the entire economy. It is critical that management of SOEs, particularly Eskom, be stabilised if we are to shore up the fiscal position of the state as a whole.
The recent Medium-Term Budget Policy Statement was worrying, as it set out the outcomes of current policies on government’s finances. This outlook led directly to the further sovereign credit ratings downgrades we saw in November. It is crucial that the 2018 February Budget Speech provides credible solutions to our fiscal challenges and, in so doing, helps us to retain our last investment grade rating from Moody’s. We are concerned that the proposed free tertiary education will add further pressure on the country’s already significant financial challenges, especially when no financial plan has been provided for it.
Beyond these immediate priorities, it is important that we have stable and rational policies, creating an environment that encourages growth for businesses and individuals. South Africa has the potential to provide for all its citizens but, too often, this capacity has been swamped by institutional dysfunction and policy confusion. This makes investment more difficult across the economy, as we cannot rely on institutions to do what they are meant to do, or understand the outlook for regulations affecting the private sector. As a result, transaction costs go up, return on investment declines, and less investment takes place. Job creation and economic growth suffer as a result.
The costs of investment have also risen following downgrades of South Africa’s credit rating, which resulted in automatic downgrades for the banks as well, given our ratings are capped at the sovereign ceiling, raising the cost of borrowing for all South Africans. As you’re aware, Moody’s, which is the only major agency that currently rates South Africa’s local currency debt at investment grade, has put South Africa on review for downgrade. Should Moody’s follow through with a downgrade, our government bonds will be excluded from major international bond indices, potentially leading to significant selling. This will increase the cost of funding for government and force higher spending on interest payments instead of important social objectives.
It is urgent that we demonstrate our commitment to strong financial management to retain that investment grade. The integrity of spending decisions must be restored across the state and wasteful expenditure reduced. Interventions to drive economic growth and, with it, government revenue will also contribute to closing the budget deficit. There is much goodwill both locally and internationally to assist in the effort.
We also urge you to address the escalating levels of corruption that have permeated South Africa. Evidence of this has become overwhelming and civil society will be looking to you for immediate solutions. We need an independent judicial investigation into state capture as a matter of priority. Without this, it is difficult to envision a prosperous and growing South Africa that will benefit all.
We understand the challenges you face are substantial. The solutions cannot be achieved overnight. But solutions are possible with ethical and inspirational leadership. We believe that business must be a major part of any solution, as must government, labour, civil society, and other role players.
Nedbank is committed to playing a key role in developing all sectors of the SA economy and working alongside leadership who have the best interests of South Africa at heart. I am at your disposal should you wish to engage on any of the points in this letter and how Nedbank can play its part in building the South Africa we all wish for.
Mike Brown, Nedbank Group Chief Executive
Published by CNBC Africa (19 December 2017)