BUSA: SA is now facing an unprecedented economic crisis

Business Unity South Africa (BUSA)’s Business Economic Indaba, held in Sandton today, should not be seen as another talkshop, BUSA President Sipho Pityana told the audience in his opening address.

“You are in for a surprise: Today’s gathering is a workshop, colleagues, focused very clearly — as the theme says — on Activating Actual Outcomes.

“We gather here not so much to lament the problems we face, but to assert our role and place as business in overcoming these. We believe that we are a country that is capable of going back to our winning ways after the disastrously corrosive and damaging state capture years.”

Pityana added that South Africa had once trebled the size of its economy after 1994.

“We saw economic growth levels that exceeded 5%; we experienced an era that saw the fastest growth of the black middle class at the same time that we rolled out massive social security programmes that saw us cushion the poor as we gradually brought them into the net of a growing economy.

“This is testimony to the efficacy of our vision of inclusive growth: we have a proven track record of pulling ourselves out of the rut by our bootstraps.”

Pityana said that the global economic crisis of 2008 had impacted SA adversely and worse still was the era of state capture which brought with it not only policy disorientation, “but also its distortion and treacherous misdirection of our nation’s resources”.

He added that there can be no denying that South Africa is now facing an unprecedented economic crisis — the longest economic downswing since 1945.

“We had an average economic growth rate of 1.5% over the last decade, compared to over 4% in other emerging economies, and the OECD forecasts an annual growth rate for 2021 of 1.31%.”

Government debt hds ballooned from 26% in 2008 to 56% of GDP in 2019, while GDP had fallen by 0.6% in the third quarter of 2019. Pityana pointed out that the country’s budget deficit is likely to rise to 5.9% for this fiscal year and widen to 6.5% in 2020/21, and gross government debt is projected to rise from 60.8% in the current fiscal year to 71.3% in 2022/23

“Alongside this, 49.2% of our population lives below the upper-bound poverty line and unemployment has risen to almost 30%. Ten million people are unemployed, and we are sitting on a powder-keg of unemployed youth with little or no future.”

The World Bank expects SA to grow at less than 1% this year while a revenue shortfall of about R 50 billion for the current fiscal year is expected.

“All of this points to a real possibility of a Moody’s downgrade, which will put SA bonds at risk of being excluded from the FTSE World Government Bond Index and could result in capital outflows of between R20 and R200 billion,” Pityana said.

“In addition, we have recently witnessed the downsizing of stockbroking businesses in our country including Citigroup, Deutsche Bank, Credit Suisse, and Mazi Macquarie Securities, among others. These companies are struggling to find deals in our country as our stagnant economy impacts takeovers, corporate bond issuance and initial public offerings. In short, our struggling economy has negatively impacted trading activity.”

The crisis SA finds itself in demands credible, single minded, resolute and decisive leadership that sets the tone, determines direction and pulls the nation with it, he explained.

“We surely have enough technical committees, task teams, Presidential commissions — including the planning commission whose recommendations gather dust in the presidency — summits, conferences and Lekgotlas, etc.  Too many processes and little or no action.

“By now we all know what needs to be done. We may not all be in agreement about solutions, but leadership is about making choices and acting on them.”

Pityana said that fortunately, there was no shortage of ideas and capable people to drive South Africa’s economic revival. “We need to let the good among us free to drive SA’s agenda for the gap between policy and execution continues to grow, leading to a significant leakage of crucial development resources and crippling governance across the board, including Parliament, government, and the SOEs.”

He added that it should be possible to act – and that the audience at the Indaba needed to emerge from the gathering with a clear and common view of what that action looks like.

“As business, we welcome President Ramaphosa’s open and inclusive leadership style. We would, however, caution against an overemphasis on leadership by consensus for this can condemn our nation to move at the pace of the slowest and the most conservative; or worst still being vetoed by an unaccountable lot.”

The challenges SA now confronts demand urgency, agility, quick footed responses and yet humble and thoughtful stewardship, Pityana stated.

“We urge the President — as we do all leaders in society, including those present here today — to resist the temptation to make false promises to our people as that will result in the further erosion of public trust. Although urgent action will shorten the painful journey ahead of us, there must be no pretence that there are quick fixes.”

It had to be re-emphasised that without well considered economic structural reforms, SA is likely to see more job losses.

“Notwithstanding our efforts at attracting investments, if we don’t drastically change our prevailing economic conditions, which necessitates the government creating a conducive environment for investment, it might be difficult to deliver on these ambitions in the immediate future.

“We must be frank and consistent in letting our people know that it’s going to be tough before it gets better. Better to prepare ourselves for the worst and take encouragement whenever quick wins arise. The President’s credibility and good standing is one of the greatest assets whose squander we can ill-afford. Hence business’s support for his leadership even though we differ sometimes.”

Pityana said that it is no longer enough for government to acknowledge the crisis of the economy.

“Importantly, it urgently needs to pronounce far reaching structural economic reforms that focus on sustainable inclusive growth and a fiscal policy that is aimed at reducing public debt while simultaneously reducing public spending. We must do all we can to stave off a sovereign ratings downgrade. A failure to do this will see our economy contract further, more jobs lost and an accelerated flight of skills and investment. This is a path we must avoid at all costs as with it might come socio-political instability.”

He added that SA desperately needs an action-oriented blueprint to revive the economy, focusing on key strategic sectors and interventions. “The treasury proposals are an important start but they need unambiguous endorsement from the President and government and must be finalised urgently. We need a single government voice on this, not a debating society reminiscent of the state capture years. The public display of divisions does the country a great disservice.”

Security of electrical energy supply is vital.

“This is our single biggest concern, as we stated to the President two years ago. We take no comfort from the resignation of the chair of Eskom, we need to be informed what happened to the restructuring recommendations made by both the board and the Presidential technical task team. How are the governance concerns raised by the board with parliament going to be addressed?

“We urge a transparent board appointment process that must be based on a well publicised and considered board composition strategy. This would enable the public to scrutinise the suitability of those to be appointed.”

He explained that he is deeply concerned by suggestions that leadership appointment considerations at this critical stage might be caught up in ANC factional battles that have nothing to do with national interests.

“We must also guard against using a critical matter like the ESKOM crisis as a political football, as evidenced by the attack on Minister Gordhan and the new-found passion in some quarters for moving Eskom out of the Public Enterprises portfolio.”