The ANC and the ratings agencies – Politicsweb, 8 February 2016

John Kane-Berman says the Zuma govt has a long record of fobbing off these bodies with empty promises

By John Kane-Berman 

ANC does not take rating agencies seriously

Unless the Economic Freedom Fighters with their gift for political theatre come up with something entertaining, President Jacob Zuma's state-of-the-nation address to Parliament later this week is likely to be a bore. But it will confirm that the African National Congress (ANC) does not take the international credit rating agencies seriously.

Even though downgrades of the government's credit rating to sub-investment (or "junk") status are coming closer, the agencies will be fobbed off with the usual empty promises.
Among those who have done this in the past is none other than Pravin Gordhan. In October 2012, during his previous stint as minister of finance he dismissed recent downgrades (though not yet to junk) by Moody's and Standard and Poor's as "inappropriate" and declared that there was "keen" acknowledgement in government of the challenges facing the country. In March 2012 - almost four years ago - the National Treasury said the government would "continue to place higher economic growth and job creation at the core of economic policy".

In January 2013, responding to another downgrade, the Treasury said government was "aware of the challenges of poverty and unemployment". Two months later the Treasury declared that the government would address these challenges and invest in infrastructure.

Since then infrastructural investment has lagged and unemployment has continued to rise. The only reason why poverty is not worse is that its incidence has been reduced by social grants, continued financing of which is one of the challenges facing Mr Gordhan as he prepares his 2016 budget.

Two years ago Mr Gordhan urged the private sector to "come to the party" and drive the economy, with the state playing a facilitating role. Since then we've had a spate of legislation undermining property rights and the confidence of investors. Punishments for infringements of racial and labour laws have been made stricter. The Treasury is not responsible for this, but these developments contradict its promises and assurances about growth and jobs. Does it even believe its own press statements? Does Mr Gordhan seriously think all these interventions will entice business to come to his "party"?

As for the Cabinet, its special meeting on the economy last month decided on "strategic interventions to restore the momentum of economic growth". But the ANC government's track record since it came to power is that its "strategic interventions" have done more to retard than to accelerate growth. 

The ANC itself lives in a dream world on economic policy. "At the centre of our efforts to turn around the economy" it declared after a meeting of its national executive committee at the end of last month was "land reform". This despite the fact that agriculture accounts for only 2% of GDP and 4.4% of employment, while even the minister of rural development and land reform, Gugile Nkwinti, admits that land reform has been largely a failure. Yet a month ago in his speech on the ANC's 104th anniversary, Mr Zuma promised that land reform would be "radically accelerated" to address "the challenges of poverty, inequality, and unemployment". Faster land reform of the kind the ANC has in mind is likely to make all three worse, not better.

In January 2013, when Fitch downgraded South Africa a notch, it expressed the hope that the recent election of Cyril Ramaphosa as deputy president of the country would lead to "more effective leadership and a greater focus on structural reforms". In the three years since then we have seen no evidence of either.

Mr Ramaphosa himself said that if the agencies looked more closely at the ANC's "great policies" the downgrade would be turned into an upgrade. Well, they have looked, and they are not impressed. And their views matter because many foreign asset managers will not put money into a country whose government debt has junk status, while the cost of government borrowing abroad will rise. But the ANC is stuck in an ideological rut from which it has neither the wish nor the means to extract itself. 

* John Kane-Berman is a policy fellow at the South African Institute of Race Relations, a think-tank promoting political and economic freedom.

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