Is there life after junk?

South Africa has done itself a great disservice in the last month in an environment where the global equity risk premium was adjusting for higher volatility in the developed world and emerging markets looked more attractive on a relative basis, the head of Goldman Sachs in South Africa has argued.

“I can certainly confidently say from where I sit that we in the last 15 months up to ‘the night of the long knives’ have effectively made sufficient progress to maintain our investment grade rating,” Colin Coleman told a forum hosted by the Gordon Institute of Business Science (Gibs).

His comments come in the wake of decisions by S&P Global Ratings and Fitch to downgrade South Africa’s sovereign credit rating to junk after President Jacob Zuma replaced finance minister Pravin Gordhan and his deputy, Mcebisi Jonas, in a midnight cabinet reshuffle.

Coleman said the work of the CEO Initiative – the business community, labour and government – had effectively created a framework that was unprecedented in South Africa. Structural reforms and a tailwind in emerging markets would have helped sustain the momentum towards an investment grade rating.

“What the [credit rating] agencies are looking for is medium- to long-term confidence around the growth turnaround.”

The South African economy had the capacity to grow at 3%. Prior to the downgrade Goldman Sachs expected growth of 1.5% for 2017 and 2.8% for 2018, with the potential to reach 3% by 2019.

“That is all now in question. Why? Because the structural reforms and the policy and the growth linkage have been broken by one night of madness.”

In an advertisement published on Sunday, Business Leadership South Africa asked whether the sovereignty of South Africa’s decision-making had been lost to state capture. Half of the ANC’s top six as well as some alliance partners have previously questioned Zuma’s decision to replace Gordhan.

“That seems to me to be a searing comment on whether they as the alliance and the ANC supported that decision and if they didn’t support the decision then the question is what third force is at work here to whom these decisions are accountable. It’s not SA Incorporated as we know it that is in control of those decisions.”

Cas Coovadia, MD of the Banking Association of South Africa, said the moral crisis in South Africa had led to a political crisis and an economic crisis.

The current state of affairs had put South Africa in an unfortunate position where although progress was made, trust and the social compact had experienced a significant setback.

Coovadia said while some people were ambivalent about the CEO Initiative, the forum argued that despite the trend that led to ‘the night of the long knives’, business had to do everything it could to continue to instil confidence in the country.

Through this process, it had reached a point where business was beginning to understand the need and imperative for a structural change in the economy to make it more inclusive and to create jobs. Recent developments have been a major blow to this process, he added.

Coovadia said when business talked about transformation and an inclusive economy the default position was to measure itself against the relevant charter or sector code, but the established business community had to understand that for its long-term sustainability the business case – not the moral or political case – was to include as many people in the economy as possible.

“If we want to be doing business in 20 years’ time we better appreciate that we need to sort out economic restructuring that also begins to examine how we are doing business currently and how we, in the way we are doing business, [are] actually blocking entry or are we actually enabling more people – and by more people I mean the likes of SMEs [to be included in the economy].”

Dr Iraj Abedian, chief executive at Pan-African Investment and Research Services, said it was time for the country to reconvene and to rethink the national interest across class and race if it wanted to arrest further economic downgrade.

“If we get another downgrade from where we are then the national sovereignty will be compromised big time.”

Coovadia expected there to be a change in the structure of political parties in South Africa. The ANC was deeply divided and not the monolith it used to be.

“I think that the way things turn out in the next 18 months will also to a great extent depend on how broader civil society responds to this challenge.”

It was time for business to come together, leverage off its power to improve South Africa for the better and consistently talk truth to power, not because it wanted to get involved in politics but because politics was getting involved in business.

A view that speaking truth to power was specifically aimed at the ANC, didn’t apply anymore, he said.

“I think business needs to begin to understand that the political terrain is changing and that the ANC is not the monolith it used to be and that there is every possibility that in the next 18 months the ANC might split. It is not inconceivable.”

Listen to political analyst and author Moeletsi Mbeki respond to questions around a potential split in the ANC:

“I don’t think the South African economy is going to be a pushover to be captured.”

While recent developments have been a massive blow, he believed that when a country had a diversified economy – unlike Venezuela or Russia – the parties that had been involved in the economy for several centuries had a self-interest that cut across race and gender.

“I believe that will win the day. It won’t be easy, but it requires mobilisation. It requires constant – not once-off – constant discussion, integration, mobilisation, reasonable discussions, which I think the unions will lead.”

Unlike during the 1980s, South Africa’s constitution and judicial institutions were clearly behind the democratic project, he added.

Listen to professor Nick Binedell, founding dean of Gibs, reflect on the past 16 months since Nenegate:

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