Investors treat central banking issues as a sign of maturity in an economy. Can you keep your hands off the kitty or are you looking for easy ways out to avoid doing challenging structural reforms?
SA failed on all these fronts in the past week. The idea of quantitative easing did not just randomly appear at the ANC national executive committee but from a desire for easy ways out that have been contemplated for some time in some corners of government.
Yet ultimately the “sin” was something far more worrying. At root I believe the issue is that there was no realisation that this was a real, live issue until too late. It was dismissed as a “normal” debate rather than a political attack with credibility fallout.
As such, statements from Tito Mboweni and Enoch Godongwana — necessary and strong as they were — were insufficient. When the final statement came from the president it was too late.
The error should have not happened in the first place, but if it did it should have been corrected within hours. An instinctive reflexive reaction should have meant that internal balancing was set aside to make the correction and stamp authority.
The revealed state of affairs now is that “implementation” (such a crucial word for so many more intricate and complex issues) and leadership have not moved forwards to somewhere new after the elections.
How is a massively complex issue like Eskom involving multiple stakeholders with conflicting requirements meant to be dealt with if a simple statement cannot be corrected in time?
This is why Ramaphoria has been killed off now quite so decisively. I have been shocked by how negative sentiment onshore and offshore has come so quickly in the past week.
The barrier to turn sentiment now been raised higher still, given that fundamental building blocks are in doubt. This is a dangerous situation to be in now that 2019 growth is set to only be 0.5% and we don’t now see positive per capita income growth till 2022.
While dedicated emerging-market investors are used to dealing with such issues, the most important segment right now is those investors who raise their hands for advice only when there is a major crisis. They sit holding tiny proportions of SA assets they can ignore (but which is for SA a huge quantum). They last panicked after Nenegate. Their attention has turned back to SA in the past week — nothing riles them more than a central bank independence issue. They do not care for the ins and out.