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”.
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. *Vitality Health International 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.” BM
*This article was updated with Broomberg’s correct title.
Ring of Fire as performed by Johnny Cash was actually written by June Carter.