We can now see that ‘implementation’ and leadership have not moved to new ground after the elections
This column was first published in Business Day
There are some things you know you must get right. Where there should be an instinctive, reflexive desire but also institutional memory. Holding newborn babies is one of them. Friends are popping them out everywhere and there is a deep almost evolutionary need to get it right when they are thrust upon you for the first time.
One could draw some similarities with this new administration. A risk aversion to not screw things up should mean there is attention to detail on policy and communication.
When you add in someone fundamentally opposed to your political leadership who is doing everything to undermine you being in charge of your party communications, one would have thought that systems and control would be in place.
The Reserve Bank policy issue is so fundamental that it gains an almost quasi-religious state. Investors look for some simple bedrocks of countries to invest in, like low, stable inflation emanating from a credible independent central bank. A reserve bank that is not printing money to fund government inefficiencies that crowd out the development of the private sector is another simple ask.
Investors treat central banking issues as a sign of maturity in an economy. Can you keep your hands off the kitty or are you looking for easy ways out to avoid doing challenging structural reforms?
SA failed on all these fronts in the past week. The idea of quantitative easing did not just randomly appear at the ANC national executive committee but from a desire for easy ways out that have been contemplated for some time in some corners of government.
Yet ultimately the “sin” was something far more worrying. At root I believe the issue is that there was no realisation that this was a real, live issue until too late. It was dismissed as a “normal” debate rather than a political attack with credibility fallout.
As such, statements from Tito Mboweni and Enoch Godongwana — necessary and strong as they were — were insufficient. When the final statement came from the president it was too late.
The error should have not happened in the first place, but if it did it should have been corrected within hours. An instinctive reflexive reaction should have meant that internal balancing was set aside to make the correction and stamp authority.
The revealed state of affairs now is that “implementation” (such a crucial word for so many more intricate and complex issues) and leadership have not moved forwards to somewhere new after the elections.
How is a massively complex issue like Eskom involving multiple stakeholders with conflicting requirements meant to be dealt with if a simple statement cannot be corrected in time?
This is why Ramaphoria has been killed off now quite so decisively. I have been shocked by how negative sentiment onshore and offshore has come so quickly in the past week.
The barrier to turn sentiment now been raised higher still, given that fundamental building blocks are in doubt. This is a dangerous situation to be in now that 2019 growth is set to only be 0.5% and we don’t now see positive per capita income growth till 2022.
While dedicated emerging-market investors are used to dealing with such issues, the most important segment right now is those investors who raise their hands for advice only when there is a major crisis. They sit holding tiny proportions of SA assets they can ignore (but which is for SA a huge quantum). They last panicked after Nenegate. Their attention has turned back to SA in the past week — nothing riles them more than a central bank independence issue. They do not care for the ins and out.
Emerging markets get themselves in these credibility holes from time to time — they can be gotten out of but require shock and awe on the policy front with perfectly executed implementation. This will have to be the focus of the state of the nation.
We are in an existential internal political battle where policy is weaponised by an unholy alliance of the left and rent-extraction forces. There is no point in pussyfooting around it — that is the reality. The fallout is not going to go away given that we will have repeats on National Health Insurance, land, prescribed assets and more.
Each is a “fallout issue” where even if the end point of implementation is never reached, the interim damage can be severe. This could be particularly the case with more left-wing elements in cabinet, as Anthony Butler outlined here on Friday.
The core lesson is that compromise and playing a long game cannot work when faced with short-term existential trigger points like this. You cannot compromise, you cannot balance forces. One thing you definitely cannot do is contemplate trying to park issues with discussions on the nature of inflation targeting and the balance between fiscal and monetary policy in this environment. That would be pouring kerosene on the flame.
If corrective steps are not taken, then the risk is we get stuck here. That is a scary thought.
• Attard Montalto is head of capital markets research at Intellidex.