THE BLOG

The Downgrade Is Not The Catastrophe

Our reputation has been shattered, our image as a stable and safe investment destination has been demolished, our dreams have been turned into nightmares.

11/04/2017 03:57 SAST | Updated 11/04/2017 10:27 SAST
Sumaya Hisham/ Reuters

I see some commentators call our recent downgrades a "catastrophe" or a "disaster". That's wrong of course. The downgrades simply confirmed the disaster that has been unfolding in South Africa especially since the Zuma years began. We are not about to experience hardships; we have been experiencing hardships for quite some time!

That is the reason why the financial markets reacted surprisingly little to the downgrade, they were already suppressed. State finances were already in slow collapse, most of the parastatals were already wrecked, the economy was already at a standstill, unemployment and poverty were already at heart breaking levels. The rating agencies simply told us what we already knew, and yes it will take many years to regain an investment rating again.

That is why those that argue for the establishment of another (BRICs) rating agency are totally delusional. It's like hoping another scale will not show that you are fat and overweight. It's not the scale that makes you fat!

It will take a long time before we regain our investment grade again, if ever, because we first need to understand what the route to recovery requires. Firstly, we need to recognise what is wrong, and secondly, we need to introduce policies to fix it. But for that you need honesty, and honest and competent leadership. And we lack both; hopelessly!

What is wrong is that the state is too big, and that there are too many civil servants and they are mostly completely overpaid. The result is a growing tax burden and record and rising state debt levels. This stifles economic growth, and discourages risk taking and investments.

The parastatals, which are part of the state but pretend to be "companies" with "boards", "directors" and "chair people", are a complete mess. Not only do they require continuous bail outs by the overburdened tax payer, that also cause immense damage to the economy – Eskom is a shining example. And this all adds to the woes of the fiscus.

Labour legislation, labour relations, and available skills are all adding to our misery. Misplaced policies are rubbing salt in the open wounds; and there is a lot of BEE, procurement, competitiveness, and protection of all sorts including policies that causing confusion, undermining SA as an investment destination and adding to the cost of doing business in the country.

Most of all our reputation has been shattered. Our image as a stable and safe investment destination has been demolished, our dreams have been turned into nightmares. We need to recognise these things, we need to name these things and we need to be honest about these things; but for that you need a leader! This is only the first step, thereafter we need to devise and implement policies to fix these problems. We need to cut the civil service, we need to privatise the state-owned enterprises, we need to be liberated from the burden of BEE, distortive procurement, land restitution, trade and labour policies and many more. And we need to create a world class skills development system. And, all this will take a very long time. And, all this requires a leader.

Don't blame the rating agencies and don't blame Zuma. There must be many corrupt and incompetent leaders to choose from, and there must be many good and competent leaders to choose from, but we chose Zuma and those that have the power to get rid of him now, continue to decide not to. Should we still blame Zuma or should we blame them?

Either way, eventually we will get the chance to be masters of our destiny again. But this time, we need to make sure we choose somebody that will be honest in identifying our problems, and honest in fixing them. But remember one thing, it will be hard and difficult but the alternative will be worse.