Moody’s says ratings assigned Baa “are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics”. The number three in the rating indicates a ranking in the lower end of that rating category. It is the very last, the lowest in the investment-grade order.
In plain English: South Africa is still investible, but has become an untrustworthy and high-risk borrower which needs to be watched carefully.
But it can still be turned around. Drastic and radical leadership is what is required to pull us up and avoid a downgrade to junk status come June.
Leadership. That’s the only thing needed to avoid South Africa falling to the uninvestable universe of junk status.
Should South Africa fall into junk status, our way back will take many years, if ever. We will be just another failed African state with no hope for the millions of people who call this beautiful country home.
There is only one reason South Africa is in the sorry state in which it finds itself: politics. President Cyril Ramaphosa was elected on a promise to reform the state and end corruption. He was elected on a promise to get the country working again.
This he has failed to do. Fearing the loss of his job, Ramaphosa is letting the vested interests, the beneficiaries of the same corruption he promised to end, dictate terms to him. Those are firmly ensconced at the Luthuli House headquarters of the ANC.
But what use is the position of state president if it won’t allow him to perform the job for which it is constitutionally empowered? Why hang on to a job that you cannot perform anyway?
The same question needs to be posed to Finance Minister Tito Mboweni. Both have repeatedly communicated clearly what needs to be done to get the economy working again. That is: restructure and downsize the companies owned by the state, foremost among them Eskom and South African Airways.
They also need to lower the government wage bill, which takes up 46% of the revenue collected by the South African Revenue Service. Let’s get that right: half of the taxes collected go to pay the salaries of civil servants who perform no demonstrable functions.
Mboweni has been more sensible: close the thing down. Together with PetroSA and others whose only purpose for existence is to employ otherwise unemployable people close to the ANC. But they have been unable to do any of this, because they fear being fired by their comrades led by ANC Secretary-General Ace Magashule.
By Ramaphosa’s and Mboweni’s refusal to lead, in the interests of staying in power, they will, in the end, make history by being the people who led the country into junk status. They will be the villains who caused massive poverty and even higher unemployment when capital flies out of the country in the face of a credit downgrade.
I ask again: why hang on to a job you cannot do because the very boss who hired you also stands in your way? It is not as if any of them need their jobs. Both Ramaphosa and Mboweni have more comfortable lives outside the government and the ANC.
What is required is for them to just go ahead and implement the required reforms.
In the medium-term budget statement last week, Mboweni said the government (meaning National Treasury) is working on a policy to curb the growth in the salaries of civil servants and state officials, including public office bearers. But that assumes South Africa has the luxury of time to be engaging in long consultations and discussions.
A more ambitious finance minister and a president who recognise the dangers we are facing would go ahead and grab the bull by its horns. He would face down his comrades and trade union allies, who elected him to perform the job, and cut the salaries of public office bearers, starting with his own.
A 10% reduction in the public wage bill would go a long way to convincing rating agencies and investors that South Africa is open for business again. This would be a better devil than cutting hundreds of thousands of jobs altogether.
We should do everything possible to avoid any further downgrades. We should do everything we can to avoid another economic calamity. Only that kind of radical leadership would save South Africa. That would immediately change the course of our country for the better.
We have been here before. In 1994 we chose to change the course of our country, and the markets welcomed us, after we earned their trust with a disciplined approach to governance and economic orthodoxy. It was not easy.
Pulling ourselves back up will not be painless. We have now arrived at a place we should never have been. The future is calling on us to march on forward.
The whole country is waiting for Ramaphosa and Mboweni to lead from the front. They cannot postpone the moment of reckoning any longer.
When it was his turn to lead, Thabo Mbeki did not hesitate. In the face of massive opposition by his own comrades in the party and the trade unions, Mbeki stubbornly marched on and led the way.
Slowly South Africa earned the trust of the international markets and lowered the debt-to-GDP ratio to 26% by 2005, from more than 47% in 1994. Things were looking up. We were on our way up. Steadily, we climbed the rating ladder to the top echelons of investment-grade with Moody’s eventually assigning South Africa an A3 credit status in July 2009. We were in the upper premium credit grade with a low credit risk.
But our long descent had already begun. Mbeki had by now been forced out of the Union Buildings the previous year. Of course, Mbeki paid for his determination to lead with his job.
Then the expenditure taps were let loose. Corruption became the only way to progress. These problems won’t just go away. Ramaphosa has to stand tall and roll up his sleeves. Now. DM
Penguins push other penguins into the water to check if it is free of predators.