JOHANNESBURG (miningweekly.com) – The mining industry could be an enormous asset in stabilising and growing the economy post the coronavirus crisis – but the right economic and regulatory circumstances would have to prevail, Minerals Council South Africa stated in a weekend media release.
Post coronavirus, South Africa would need to adopt and implement a set of comprehensive structural reforms to materially improve the country’s competitiveness rankings, grow productivity, generate much higher levels of fixed investment – greater than 25% of gross domestic product (GDP) compared with the current 19% of GDP – raise economic growth, and start reducing unemployment and poverty.
It would only be through the implementation of the necessary economic reforms that the ratings agencies would again take South Africa back to investment grade.
Minerals Council South Africa was reacting to the decision of the last of the three main ratings agencies, Moody’s, to cut South Africa’s credit rating to a level below investor grade.
“The Moody’s decision does not come as a surprise. With Moody’s having changed the outlook to negative in November as well as lowering our economic growth forecast recently, South Africa was already close to the edge.
“The negative union response to the 2020/1 National Budget effort to cutback fiscal spending was not helpful. And the situation has, of course, been hugely exacerbated by the impact of the coronavirus lock-down, and the virus’s impact on our main trading partners,” the council stated, adding that the downgrade was largely as a result of government’s own making over an extended period.
South Africa had been placed in the downgrade situation. As a result of its failure to implement a comprehensive package of economic structural reforms, such as quickly enabling private sector investment in power generation, not cutting the expensive and wasteful umbilical cord of State ownership and support to non-strategic disastrously run State-owned organisations like South African Airways, and the fiscal crisis caused by nine years of corruption and State capture. The fact that not even one of the protagonists involved in the disastrous State capture project had been prosecuted was concerning.
In the view of the council, the ratings downgrade is the culmination of missed opportunities resulting in continual declines in competitiveness, productivity collapse and the private sector investment freeze. Overlaying this has been ongoing policy uncertainty caused by the land debate, the lack of certainty on continuing consequences of previous black economic empowerment transactions and the red tape that has stymied new mine licence applications. The result has been barely positive economic growth rates, increasing unemployment, unsustainable fiscal deficits and runaway public sector debt.
After the last global financial crisis and in synchronisation with the Presidency of former President Jacob Zuma, the South African economy had decoupled from its traditional close growth correlation with other emerging economies. In the past decade the South African economy managed a paltry 1.5% GDP growth rate compared with a global average rate of 3% a year in the period. This decoupling was caused by the lack of a comprehensive set of economic structural reforms and ongoing decay in State-owned enterprises (SOEs)and the hollowing-out of capacity in government. While there had been some progress in the past two years to address governance issues at SOEs and start the journey towards improving competitiveness, the pace of reforms had been too slow.
At this point, South Africa had no choice but to seek to limit the damage caused by the necessary coronavirus response and the 21-day shutdown that the Minerals Council fully supported. In this respect, South Africa’s exemplary response has had the full support of organised business. Together with the Department of Mineral Resources and Energy, Minerals Council members had prioritised the health of employees and committed to delivering critical services and limiting the damage to the operational abilities of the sector to enable full resumption of operations after the quarantine period.
“Our resolve to face this human health challenge jointly bodes well for jointly tackling the economic challenges that lie ahead,” the council stated in a media release to Mining Weekly.