Avoiding the economic abyss at all costs
We are now fully into 2016; and as everyone in the country, we are looking at the economic markets to see what the year will have in store for us. To say that it will be a watershed year for South Africa is an understatement. Towards the end of last year, we saw how ill-advised political decisions can adversely affect the local economy. The Rand slipped to record lows against international currencies with no respite in sight. This is important to note bearing in mind the municipal elections which will be taking place later this year
Can we stop the rot?
I hate to be negative at the start of the year, but I would be amiss if I pointed out that all is rosy within South Africa. We need to be aware of our challenges if we are to work towards solutions to overcome them.
So the key question is: can South Africa stop itself from descending into the economic abyss? How did other countries react in the wake of the global financial crisis? In a release sent out during December, Lesiba Mothata, Chief Economist at Investment Solutions, pointed out that during the sovereign bond crisis in Europe, financial markets often forced politicians to make the correct decisions.
Each time, financial markets had front-run the politicians, the politicians in turn responded by hosting more summits, eventually and reluctantly arriving at the correct decisions.
Markets have often had the power to self-regulate and even induce change in the political arena when an undesired economic course has been set. Greece is a perfect example of this and indications are that Brazil will be heading in the same direction.
Not the yellow brick road
When President Jacob Zuma fired former Finance Minister Nhlanhla Nene, the markets reacted negatively. They reacted even worse following the news that Zuma was replacing Nene with David van Rooyen.
Noticing the error of his ways, President Zuma then did another about turn and appointed a former Finance Minister as the new Finance Minister. At least the markets rallied behind the appointment of Pravin Gordhan.
Mothata said that it will be apparent to Gordhan that investors are voting with their feet and that the country is at the edge of an abyss. “Gordhan needs to turn the tide on the ominous signs the country faces in order to restore confidence in the markets,” said Mothata.
Gordhan will also need to convince markets, rating agencies and investors of South Africa’s commitment to the expenditure ceiling introduced under Nene’s tenure; and, more importantly, show he is committed to reviving growth and stabilising debt accumulation.
Dawie Roodt, Director and Chief Economist at the Efficient Group, says that the Finance Minister debacle was a terrible blunder. “The international community is very worried about South Africa. President Zuma is fighting for survival and is not interested in the economy. We are facing high inflation, weak growth, and higher interest rates and taxes. This is likely to lead to social unrest.”
Welcome news
Support for Gordhan’s appointment seemed to be uniform across the board. The Association for Savings and Investment South Africa (ASISA) was one of the stronger voices lending their support to the decision.
In a release sent out in the wake of Gordhan’s appointment, ASISA said it was relieved that the critically important Finance Ministry has been returned to an individual with the pre-requisite experience to lead a complex economy like ours.
Thabo Dloti, Chairman of the ASISA Board of Directors, said that the savings and investment industry are comforted that sound fiscal management would remain firmly entrenched and that Government would continue the fiscal consolidation process in an effort to stabilise debt.
We the people
In any democratic state, the people play a significant role in the functioning of government. The people voted them in, and they can cause enough noise to effect political change. Government will do well to bear this in mind and remember this.
One of the most important aspects to this is the amount of private sector capital that belongs to the public. Dloti pointed out that for the deployment of private sector capital to be effective, we need policy certainty. This means that the Finance Minister Debacle of 2015 can never be repeated. The truth is that capital goes where it is treated well and not necessarily where it is needed.
“Private sector capital is one of the strengths of our country and holds 80% of our economy. We are pleased that Government intends to intensify cooperation and partnerships with the private sector to achieve higher growth rates,” said Dloti.
Editor’s Thoughts:
At the end of the day, South Africans work hard and we deserve better than teetering on the edge of the abyss. But does government have the political will to make the right decisions to move away from the edge of the abyss? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
Comments
If all of these actions were done by insurers / brokers they most probably would have been declared unfit, lost their licenses and been instructed to refund their client's losses. Report Abuse
Another occurrence which may force this political will, will occur should we lose our sovereignty (i.e. the ability to control, influence and determine our own way forward). If SA plunges into "junk" status and we can no longer pay our debts, we will become puppets and walk to the tune of those to whom we owe. Report Abuse