Minerals Council South Africa CEO Roger Baxter
The Minerals Council South Africa has expressed its concern about the sovereign ratings downgrades by agencies Moody’s and Fitch on November 20, which pushed South Africa deeper into “junk territory”.
While not unexpected, the ratings downgrades reinforce the fact that South Africa faces a deep economic crisis which, if not rapidly arrested, will continue to plunge the country into a vicious socioeconomic downward spiral towards a full-blown sovereign debt crisis which will cause significant economic pain to all South Africans.
The council says countries that have faced such sovereign debt crises normally end up in tough structural adjustment programmes, an extended low-growth and high unemployment period, with heavily depreciated currencies, high inflation and rising living costs.
The council adds that it normally takes a decade to recover.
The Moody's downgrade places South Africa two notches into junk status, while the Fitch downgrade places the country three notches below junk status. Fitch downgraded South Africa’s long term foreign and local currency debt ratings to ‘BB-‘ from ‘BB’, while maintaining a negative outlook. Moody’s downgraded South Africa’s long term foreign and local currency debt ratings to ‘Ba2’ from ‘Ba1’, also maintaining a negative outlook.
Although Standard and Poor’s (S&P's) has kept its investment outlook at neutral, overall, this was South Africa’s worst rating from the big three rating agencies since 1994.
Minerals Council South Africa CEO Roger Baxter has again reiterated his call for government leadership and other key role players to act together, decisively and rapidly.
“Unless decisions are made on urgent structural and institutional reforms that boost competitiveness and private sector involvement and investment, we will continue on this downward trajectory, trapped in a vortex of our own making.”
The critical structural reforms include the urgent fiscal consolidation plan as originally proposed by National Treasury in the Supplementary Budget announced on June 24; the urgent review and restructuring of State-owned enterprises to ensure that these place no further burden on the fiscus; the urgent opening up of key government controlled markets to private sector investment and competition (rail, electricity, ports); and a significant focus on policy and regulatory reforms that improve policy certainty and the ease of doing business in the country.
Baxter believes that institutional reforms must include a significant improvement in the delivery of services by government including reducing red tape, implementing smart tape systems, reorganising departments and better use of digital platforms and private sector capability within government.
This could greatly assist in fighting crime, improving the efficacy of the courts system and in improving licensing systems within all spheres of government.
“We are seriously concerned about the lack of urgency displayed by key parties, but especially government. We recognise that all social partners should have a voice, but it is not the role of government to try and achieve consensus.
“It is the role of government to govern, to take the tough decisions on critical reforms, while harnessing the inputs of stakeholders, in the interests of the country as a whole,” Baxter laments.
The Minerals Council on a previous occasion stated that the Economic Reconstruction and Recovery Plan is a start, but does not address the critical structural and institutional reforms that will make a significant difference to first arresting the crisis and then getting the country’s economy growing out of the crisis.
Baxter says the mining industry is committed to investing in the sector and in South Africa, but it can only do so if long-standing and repeatedly identified structural and institutional reforms are acted upon.
“There is no further time for debate. This is the time for action,” Baxter concludes.
His views are echoed by Business Unity South Africa, Business Leadership South Africa and the North West University Business School, which all have respectively called for proper implementation of South Africa’s structural reforms.