Moody’s downgrade of SA is ultimately the result of a lack of progress on turning around growth – that shouldn’t be forgotten as we endure the coronavirus crises, Intellidex’s Peter Attard Montalto told Power FM. 

By Mmamoletji Thosago

The coronavirus is carried by people and their movement enables it to spread exponentially – where one infected person potentially can transmit it to, say, two or three people, who in turn each spread it to two or three others. The real danger is that symptoms take anything from two to 14 days to appear (reports on this vary), so people can spread it unwittingly and that is why it is so difficult to curb its spread.

Multiple countries have initiated national lockdowns as a solid strategy, with SA’s lockdown beginning at midnight on Thursday night. Semi-formal and informal trading zones are likely to be the hardest hit economically during the lockdown. We anticipate that the lockdown in SA will have to be extended and the more prolonged it is, the more damage it will do to our already fragile economy. A critical concern is that post-lockdown recovery strategies have not been communicated by government.

Between Covid-19 being declared a national disaster on March 15 and President Cyril Ramaphosa announcing a lockdown starting at midnight on 26 March, I casually observed several densely populated areas, particularly trading zones. This follows my earlier blog when I scouted three townships and one Johannesburg downtown market on 15 March.

Wednesday morning

Midvaal, Meyerton Municipal clinic; theme: last-minute medical check-ups and procedures

Patients are sanitised as they enter the gate and medical staff occasionally wipe door handles. People are seeking medical attention before the lockdown. The majority are from townships around Meyerton.

One pregnant Malawian lady stands outside a door marked “mother and child”. She speaks little English and does not understand any local languages. The medical staff are on a hunt for anyone who is from Malawi to interpret – there are over 120 people including children here, it is not even 8am.

The young man I am sitting next to is from Kwekwe, a small town in the Midlands province of Zimbabwe. He is getting his wisdom tooth extracted prior to the lockdown. The lady on my left is from the neighbouring township and she is also having a wisdom tooth extracted. She tells me she does not want to be stranded during the lockdown.

Wednesday late afternoon

Ekurhuleni, Katlehong; theme: no economic safety net

Rasta’s eatery is usually full around this time as patrons come by to grab an early dinner or late lunch. The eatery sells traditional meals. Today, there are two patrons, in sharp contrast to when I was here on 15 March. Our eyes meet and he immediately puts his hands together and nods, we cannot shake hands. “How are you doing today, ntate Rasta?” – me. He points to his two customers and responds by giving me an update. Business has not done well since lockdown announcement, he tells me. He needs to pay labourers’ wages and feed his family for the next 21 days without the eatery operating. He will be cash strapped.

Johannesburg, Newtown taxi rank hair salon; theme: will there be a safety net for migrants?

KB is from Nigeria; she tells me her contract is on a no-work no-pay basis. With the lockdown occurring tomorrow at midnight, she will use the money she made this week to stock up food. She will be staying with her fellow country men and women and rely on social capital to get by.

The salon owner, also from Nigeria, tells one of her customers that should the lockdown be extended, the South African government might prioritise citizens over migrants.

Wednesday early evening

Pretoria CBD; theme: these vegetables should be sold before lockdown

I usually buy vegetables across from the bus stop, it is convenient for commuters. The difference today is that the street vendors have stocked more vegetables than usual from the Tshwane market. The problem is, if they do not sell by Thursday night, they won’t get another chance to sell the perishables.

Thursday early morning and late afternoon

Pretoria North town; theme: mayhem, earth is closing tomorrow

Retailers are adhering to restricting stores to 100 customers; trolleys and customers are sanitised. Customers are queueing outside, but no one is keeping to the one-metre distancing standard. Shelves are either empty or nearly empty, including those reserved for essential items.

The gas store owner is turning people away because he ran out of gas – but the lady behind the counter gives me a tired smile and advises me to leave my bottle and come back at 16H00. I think she just extended me a favour but my gas cylinder is only 3kg. Gas is an essential and the store has been granted permission to sell during lockdown. Oom, the owner, has not figured out his lockdown trading hours, but he will gauge how the store operates during normal trading hours – clearly his assumption is that customers will not be using public transport. Oom tells me that he can allow only two customers into the store at a time. Failure to comply might result in store closure during lockdown. There is a Coca Cola 2-litre bottle filled with green liquid – he tells me he made some sanitiser spray.

I have not witnessed war, but I have read a couple of books and watched several Leymah Gbowee documentaries/talks; this feels like war, an invisible war. We are fighting a virus in our highly unequal societies. Our small towns, township and downtown economies thrive through semi-formal and informal operations. These operations will be closed during lockdown which will increase economic distress, force company shutdowns, increase labour layoffs, heighten food insecurity, etc. There is a need for interventions for small town, township and downtown-based vendors to get by through the lockdown, irrespective of their nationality.

Rapid intervention suggestions  

Self-employed in the informal sector

Rotating savings and credit associations, referred to as stokvels in South Africa, are prevalent across dwellers and vendors in townships, informal settlements and downtown areas. These should have distribution systems adjusted to ease lockdown economic pressure.

Typically, payouts are either on a monthly basis whereby one member receives that month’s savings, or the stokvel funding is distributed during specific holidays to all members. For the lockdown period, distributions should be made as if making use of the holiday payout procedure.

Vendors in stock-buying stokvels should consider using a portion of their savings for this period.

Traders who are non-stokvel members will have to be given safety nets by government (see below).


When offering government support to households and businesses during the shutdown, we should cater to migrants as well. We should always avoid coming across as being xenophobic. This is a chance for South Africans to exercise humility to all migrants, documented or not.

Business closures: labourers’ protection

Some of the businesses in downtown areas, small towns and townships have employees. Owners are responsible for wages and salaries during the lockdown. Some businesses are even tax compliant.

Government should consider foregoing business VAT payments during the shutdown period; these VAT payables should be paid to employees who might lose their jobs during lockdown or employees who are not paid during lockdown (however, payments need not replace UIF claims).

Tax grants can also be offered to SMMEs for a set period. These should be directed to labourers as wages and salaries.

Set an emergency government aid for:

Overall, a post-lockdown strategy from the government is urgently needed. Failure to secure and implement one might lead to an economic collapse and, in all probability, to social unrest as unemployment surges (which might increase by at least 1.1-million due to Covid-19). We cannot deny that the formal sector, particularly the banking sector, might be the quickest way to revive the economy. However, in so doing, we dare not neglect the semi-formal and informal sectors.

The government will attribute slow growth and recovery to the coronavirus and low global demand.

This column was first published in Business Day.

SA won’t be surprised by the Moody’s Investors Service downgrade — such has been the boredom in having to continually discuss it for three years.

It is tempting maybe to think in this coming week that everything is “fine”, because the impact will get lost in wider coronavirus volatility in markets and was surely priced in anyway.

Yet these views are wrong. The downgrade still has real impacts. There are cliff-edge events that occur with a downgrade — especially in how both the government and companies deal with offshore creditors, the pricing and terms of borrowing in junk. Equally a non-linear event like this can never truly be priced in and there is still an expected R5bn of outflow to occur in two segments — this week, and then at the end of April when SA actually falls out of the World Government Bond Index.

However, all this misses the point — there is blame and it needs to be apportioned.

This may well sound unnecessary in the current times of turbulence and lockdown. Yet if anything it is doubly important for blame to be processed in the proper way so the correct lessons are learnt.

The coronavirus crisis exposes the underlying economic vulnerability. Removing these vulnerabilities and shifting the cost-benefit of doing business in SA in the post-crisis period is going to be crucial. The ideas are not new — indeed they are the same and we end up sounding like stuck records — structural reform, the Tito Paper and so on. It’s all there already. The National Treasury and finance minister Tito Mboweni have worked tirelessly to try to push reform yet been rebuffed.

To shift the risk reward for business to drive the recovery means a fundamental mindset change is required. Some ministers are going to have to be fired for being deliberate blockages to reforms.

The government has a habit of wrapping itself back in on its own spin. Recent utterances from the top down have placed the blame for low growth on the 2009 global financial crisis for instance. We are likely to hear now that low growth and a slow recovery is blamed on the coronavirus and lower global demand.

This misses the whole point. SA has performed so poorly in recent years, and will perform so poorly during the next recovery phase precisely because the government has chosen — yes actively — not to take the necessary reform steps to have a more dynamic and flexible economy that grows faster and creates more jobs instead of being more concerned with vested interests and political balancing.

Moody’s did not downgrade because the economy was left at the end of the Zuma administration in a weak place. It downgraded because it has failed to make enough progress in the two years since when the space was available to turn the trajectory. Interestingly and importantly Moody’s laid out the lack of reform that has occurred but also specifically mentioned energy policy.

Energy policy is where the solutions have been laid out continually and publicly by experts who have been dismissed as technology evangelists. Energy is also where speed has been completely lacking, no real sense of crisis seen as a kicker to action and the risks of corruption being introduced has (rightly) kept civil servants risk averse. The recent scheduling of a new Schedule 2 to the Electricity Regulation Act is not even close to the liberalisation that was promised in the state of nation address and is a distraction.

The risk now is that the government will only be able to think sequentially and the coronavirus outbreak implies all reforms will be pushed back by at least six months. That will raise the risks of a likely second downgrade by Moody’s in the next year, as well as other agencies also cutting sooner.

The strong leadership on the coronavirus by the president provides the perfect platform for pivoting into sweeping reforms. Yet with the coronavirus all social partners are facing in the same direction. That isn’t the case on structural reforms. Hence we remain deeply sceptical that the reform will progress. It would require cutting loose traditional partners and comrades. It would require an end to social compacting — the doom tool that is partly responsible for bringing us to this point.

The alternative has been played out after previous shocks to the economy. A permanent loss of output (maybe about R300bn in 2020 prices will be permanently lost) and a permanent loss of jobs is likely to happen — up to 1-million jobs could be lost. Such shocks would create societal problems.

The Treasury and the SA Reserve Bank are likely to have to take additional, previously unthinkable, steps in the coming weeks to keep the show on the road. An emergency budget, large-scale guaranteeing of new bank lending to stimulate the economy and “real quantitative easing” are all likely to come eventually. But we should not forget that what happens in the short term will largely play out regardless.

The choice really comes about the style of recovery SA wants — at the moment it is still looking like one hand will be tied behind the economy’s back.

• Attard Montalto is head of Capital Markets Research at Intellidex.

The impact of the coronavirus on banks’ balance sheets, as they offer repayment relief, can be managed with the right regulatory frameworks – and banks have to work with regulators to ensure that is done, says Intellidex’s Stuart Theobald on kykNet.

The Reserve Bank buying government bonds for corona relief is a major and necessary crossing of the rubicon, says Intellidex’s Peter Attard Montalto on The Money Show with Bruce Whitfield on 702.

By Peter Attard Montalto

The president’s response to the coronavirus has been solid while the Reserve Bank upgraded its response to bazooka-level; but the economy still faces severe contraction, says Peter Attard Montalto, Intellidex’s head of capital markets research.

The 21-day lockdown to slow the spread of the coronavirus will have a severe economic impact – and there is a strong risk that the lockdown will have to be extended. President Cyril Ramaphosa announced the lockdown and some economic support measures in a well-received, robust and very clear speech on Monday night, which clearly saw him stepping up to the plate on a range of issues, related both to health and the economy.

It was a dramatic move but a strong response, because SA is acting before the first local death from Covid-19 and at a much earlier case load than other countries taking similar measures. This shows resolve certainly, but we should also be cognisant of the much higher underlying risk in South Africa related to health issues, poverty and seasonality.

While a lockdown is enforceable in middle class and affluent areas, the key will be in townships and the informal economy. These large and densely populated areas see poor living conditions that will be hard to patrol and where basic services (such as shops for essentials) can be some distance away. We therefore are sceptical of the effectiveness of such a move in these crucial areas. That is not to say there was any other option  –  we don’t think there was – either in terms of the epidemiology or the politics; the point is that we should not expect this to stop spreading, merely to slow it down.

graUP 1

Testing will be ramped up during the lockdown to identify and isolate pockets of outbreak more effectively. However, of the 12,800 tests carried out so far, we believe 80% or so have been in the private sector. The public sector, while increasing its rate, is still not near to hitting the required rate of 5,000 tests a day. As this starts to happen, however, we should get a better idea of intra-township spread, which is crucial given that is also where the highest prevalence of underlying respiratory illness is. This will initially cause a marked steepening of the case curve.


Economic impact

The economic impact will be severe, clearly, with all businesses except essential services being forced to close. This includes mines and all industry except those involved in refining, food and medical supplies manufacturing. Banks will still be able run but only with core-function staff.

However, the ability for traders locally to still operate and the JSE to remain open is an important point to recognise.

The severe suppression of economic activity for three weeks would represent a drop of 5.8% from full-year GDP. Consumption of essentials will remain while some output will happen for the manufacturing of essentials. Trade will largely stop but agriculture will not. However, many parts of GDP will be displaced and not lost (for instance with mines, where we have often seen decent recovery curves after loadshedding over a period of three to six months).


Economic stimulus package

Ramaphosa announced a set of economic interventions and the Reserve Bank is contributing with the emergency measure of buying an unspecified amount of government bonds, with varying maturities, to ease the liquidity crunch. It is the first time the Reserve Bank has intervened in the bond market in such a manner.

In a statement the bank also said it would offer repurchase agreements, or repos, for periods of seven days to longer-term maturities of up to 12 months.

After deteriorating liquidity conditions and the bond market becoming effectively dysfunctional this week, the SARB has decisively stepped up to the plate and upgraded its tool kit to a bazooka. 

After the repo rate cut last week and then the Reserve Bank’s liquidity measures announced on Friday (which were incentives and optionality-based for banks only), more was clearly needed. Liquidity needed to be forced into the system and the bond-buying programme offers that. It pumps cash directly into the secondary market and adds a backstop bid to the market where there hasn’t been any in recent days.

This is a programme announcement, it gives the SARB the option. We think it will indeed be doing this in the coming days and weeks, but the expansion of the tool kit is the announcement, not a firm commitment it is doing it. This difference is important. The SARB wants to keep this open-ended, unlimited and mysterious. The “fear” factor works to its advantage (the bonds immediately reacted positively) and it reduces the amounts that need buying as a result.

Looking at the economic measures announced by Ramaphosa, it is very hard to describe this as a stimulus. The broad takeaway is, as expected, there is no macro-fiscal stimulus into the economy given the lack of funding space. We also don’t really see this providing meaningful support to prevent a deep fall in GDP in Q2, but more that it creates a lessening of the existential question for SMMEs in particular and an up-ramp for recovery by keeping businesses alive and people employed.

There is actually very limited call on fiscal resources at all at this stage. We look at this below.

The measures were:

Overall then, we can find only about R8.125bn in new spending, with possibly a few billion rand more for employment relief yet that is yet to be defined, some deferments through tax holidays and about 13.7bn of other funding. These numbers do not move the dial at the macro level.

Like in other countries, we expect authorities to come back with more iterations week by week as the impact is felt and the political pressure builds. We should therefore expect more to come, just as we expect an off-cycle April meeting of the Reserve Bank’s monetary policy committee.

For more i-Blog insights, click here


By Mmamoletji Thosago

Vodacom, has agreed to cut its data prices following the Competition Commission’s data services market inquiry. Although the network provider has succumbed to two price cuts, the first on 1 April this year and the second a year later, it is still adamant that greater data cost reductions could be achieved should spectrum auctions be rolled out. We agree. Limited supply is bound to increase tariffs, among other factors. Moreover, we argue that delays in the spectrum rollout are having a major impact on key socioeconomic activities including in relation to digital television – visual communication and information is vital.

The rollout process of the International Mobile Telecommunications, referred to as high-demand spectrum allocation, began in 2006 when the Independent Communications Authority of South Africa (Icasa) sought written comments on procedures and criteria for issuing and granting a radio frequency licence. Minimal milestones have been achieved since then with a substantial one being Icasa’s announcement that the spectrum licensing process was scheduled for the second quarter (April-June). However, the 13-year delay places South Africans at a disadvantage; we are far behind other countries in rolling out policies aligned to spectrum such as shifting from analogue terrestrial television to digital broadcasting. Namibia and Botswana are already ahead of us on this aspect.

We have particularly noted how foreign equity investors saw the negativity from South African telecoms companies during 2019 as a much broader and deeper sign of the negative shift on the reform trajectory.

As a key bellwether, we have also pointed investors towards the fact that spectrum has been one of the few areas where President Cyril Ramaphosa has deployed (some) political capital in order to move the WOAN and high-demand spectrum processes in parallel. This is an area with many vested interests. Yet as we shall see below there is still a long path ahead.

Spectrum timeline

Icasa announced that spectrum licensing would begin following three months of public submissions closure (closure was on 31st January 2020) and Ramaphosa affirmed the announcement in his state of the nation address (2020 SONA), saying Icasa would conclude licensing by end-2020.


Source: Intellidex

The set licensing date for commencement is not far apart from that of switching from the current analogue television system to digital terrestrial television; the cabinet-approved digital migration date is July 2020; date approval was prior to coronavirus outbreak. Given coronavirus (covid-19) outbreak, we predict a further delay for at least six months.

Although we are undergoing a pandemic, delaying policy reform, including spectrum, is not advisable. More so as employees who are granted leeway to work from home need high speed Wi-Fi, a critical input for rapid information and communication on covid-19.

Spectrum relations to digital TV

The current analogue television system “requires a large amount of bandwidth to transmit picture and sound information” while digital terrestrial television requires less bandwidth and recent generation technology, i.e. 5G, would be more effective than 3G and 4G. Migrating towards digital terrestrial television would increase the demand for spectrum. The global international digital migration deadline set by the International Telecommunications Union (ITU) was in 2015; SA still doesn’t seem to be close to migrating.

Sport broadcasts and licensing

Sport channels planning to restructure and use internet instead

Although SA’s timing might be off given that we missed the 2015 ITU deadline, we can console ourselves by arguing that reducing data prices and implementing digital migration coincidentally is occurring as sport channel airings are shifting from pay TV to over-the-top (OTT) media services – we got lucky. Spanish La Liga launched its OTT selected sports platform in March 2019 and the Union of European Football Associations (UEFA) unveiled its OTT in June 2019. In 2021, UEFA plans to air its Champions League matches via the OTT platform; this could potentially reduce the uptake of pay TV (such as MultiChoice’s DStv).

Concluding thoughts

Delaying policy reform could be fatal as uncertainty and lack of confidence are anathema to investors and business. We cannot afford to cross our fingers and hope for the kind of luck we had with spectrum and falling data prices. This blog has merely highlighted spectrum delays; a topic we’re interested in exploring as a follow-up is that delayed spectrum distribution based on old regulation raises risks of first-mover advantage resulting in oligopolies and high market entry costs.

Delaying reform, including spectrum, would place SA at the risk of nonrecovery post-covid-19. Therefore, government need not slow policy reform further.

This column was first published in Business Day

This is war. There is a health front, but also an economic front. Saving the economy will require wartime thinking.

Start by considering the radical steps other countries are taking.

The UK government last week announced that all workers whose jobs are made redundant because of the Covid-19 pandemic will be paid 80% of their salaries by the government up to £2,500 a month (R50,000).

Businesses and the self-employed have been given a six-month extension on paying income taxes to January 2021 and three-month VAT holiday. The government and Bank of England have created a loan scheme allowing the central bank to lend directly to large companies that face liquidity strain while bank loans to small companies will be 80% guaranteed by the government.

The government has put up £20bn of grants to cover rent and business rates that companies cannot afford. The Financial Times believes the direct costs will be £43bn assuming only 1-million workers end up on the salary support scheme.

Add in the loss of tax revenue from a recession and the UK budget looks set to require an additional £100bn of funding this year, equivalent to 2% of GDP, because of Covid-19. And that is before any direct bailouts of companies including the possibility of direct investments in airlines and other firms that are facing collapse.

The Bank of England will be effectively printing money to support the loan schemes and other liquidity measures it is taking, after cutting interest rates to 0.1%, the lowest level.

That is what economic warfare against the economic impact of the virus looks like. The UK’s measures are the furthest yet by a developed country, but those by Italy and Spain are similar in scope and ambition, while the US is preparing wide-ranging interventions too.

The resulting budget deficits are likely to be bigger than those experienced during the financial crisis, approaching levels not seen since World War 2.

In SA, however, the response has been tepid.

The Reserve Bank’s 100 basis points interest rate cut last week was substantial, but the press release with it was surprisingly “business as usual”.

There was no “do whatever it takes” rhetoric that authorities elsewhere have offered the market. Oddly, the Bank waited until the next day to announce new liquidity support for the financial markets, an announcement that could have been made together with the rate cut to show it means business.

Over at the government, there have been talks about talks, but no real solutions delivered. The president was due to speak as this column was going to press, after meetings with business, but expectations of sweeping government-led interventions such as tax payment holidays or loan guarantee schemes were low.

Of course, warfare is hard when SA’s arsenal is empty. After years of low growth, government debt levels are already at record highs]. The economy was already in crisis with growing unemployment and companies struggling. SA does not have the luxury of the low interest rates of the US and Europe.

Indeed, the crisis has already forced government bond yields higher and risks are rising that its already higher-than-usual fundraising requirements will not be met by the market.

There are certainly some pots of money that can help. The state’s R5bn contingency reserve will barely scratch the surface, but the R150bn surplus in the Unemployment Insurance Fund is an obvious opportunity to mitigate some of the employment effects. A further R35bn of emergency spending could be accessed if a state of emergency were declared.

The Reserve Bank can use its liquidity windows to further support the financial system. Banks could be supported with a special rate window (repo less 100 basis points, say) specifically for Covid-19 liquidity they could use to provide forbearance to clients in trouble because of the epidemic.

Standard Bank said it would provide a payment holiday for certain categories of clients including students and small business. It is the first bank to do so. However, it is administratively complex for banks to provide relief to clients.

Accounting rules require banks to raise provisions if clients fall behind, but there is some wiggle room for clients who are granted forbearance before they miss any payments (so, actually, getting ahead of client defaults with forbearance is wise).

Otherwise, banks must find a way to get clients into new loan agreements with more relaxed terms, a huge administrative burden. Regulators need to work with banks to temporarily relax accounting rules, so they don’t have to raise provisions for Covid-related forbearance.

Regulations in terms of the National Credit Act may also need to be relaxed so that banks don’t have to apply the usual affordability assessments in rescheduling loans. Getting this right would require co-ordination between the Reserve Bank, the Treasury and the department of trade & industry.

That, however, seems like something a war footing should already have achieved.

While a 100 basis-point interest rate cut is going to provide some support for the economy, that support is really going to be marginal, says Intellidex’s London-based head of capital markets research Peter Attard Montalto. Listen to the interview on CNBC

While SA may end up with an official coronavirus rate which is relatively lower than peer countries, the pandemic may trigger an Eskom “shock” and shrink the economy by 2.4% this year, says Intellidex’s Peter Attard Montalto. Featured in Fin24