SA is a complex swirl of emotions: edginess, anger, despair and resignation. Most worrying is that such emotions apply to business too, putting the country at a very dangerous point — there is a risk of abandoning hope.
Hope should be carefully calibrated — both extremes are damaging. Too much of it leads to complacency, of which there was an excess in too many quarters between 2009 and 2018. Growth forecasts were constantly mean-reverting higher to precrisis averages despite the blatant evidence of serious damage being done.
Too much hope can mean people assume other people are doing the heavy lifting of reform and change or that solutions will magically present themselves because SA has been able to deal with its problems in the past. Some of this thinking infects policymakers now.
Panic is a good antidote to excess hope. As I wrote in December, we need to see hands-in-the-air panic on Eskom to drive change and clear political obstacles to taking the necessary decisions that are not being taken.
Moody’s Investors Service is quite clearly showing an excess of hope despite their framework being meaningfully shocked in October 2018 and now after the budget. As such we are unlikely to see any move in the rating level or outlook on Friday — indeed they may not release a report at all.
Just the right amount of hope is a necessary but not sufficient condition for a recovery in growth. Hope is another way of saying that companies and entrepreneurs are not overly risk averse and can take calculated risks with investment in an uncertain environment without derailing due to self-doubt.
Too little hope, and current growth falls and a lack of investment in productivity-enhancing improvements to human or physical capital lowers long-run potential growth.
This is the point at which we find ourselves at risk. Hope slowly faded during the Jacob Zuma presidency and resurfaced with force after the change of presidency in February 2018 and was sufficient to put a floor under growth falling significantly further but was insufficient without actual reform to meaningfully drive growth higher.
There was still a belief — a hope — that long-term potential growth, while driven down from 3.5% before 2008 to 2.0%-2.5%, was possible.
The Eskom situation risks removing this hope and making mean revision views of where the economy will go in future inappropriate. If no way out is seen and business invests even less than it has done in recent years, meaningful damage will be done to potential growth.
Long-term potential growth of 1.5%-2.0% is very different to 2.0%-2.5% — it’s the difference between per capita growth increasing or not. Per head incomes would steadily shrink over the long term — a continuation of what was believed to be temporary since 2013. This would have profound fiscal and job-creation implications.