PETER ATTARD MONTALTO: Sipho Pityana’s Busa letter shows despair can be useful

Posted in: Economics, i-Blog, Politics on August 12, 2019

Business should crank up heat on government for its lack of solutions for SOEs such as Eskom and its misguided NHI

This column was first published in Business Day 

A kind of mass hysteria is breaking out, some of it justified. Sentiment is getting weaker because nothing is being done.

The primary question from investors and companies right now is exactly that: “Why is nothing being done?”

Many easy fixes have been written about in these pages in the past 18 months. This introspection by investors and companies is leading to some overdue conclusions about the current administration and its personalities, at least in private.

Such an environment leads to despair — not an unhelpful emotion when properly and strategically directed, as occurred successfully last week with Sipho Pityana’s letter to members of Business Unity SA (Busa), calling out the government.

A sense of the government just not “getting it” is another key issue and has especially solidified around Eskom. The state utility’s recent results were broadly as expected, but the realisation has dawned that there are no new answers.  This was reinforced by Eskom’s road trip to London and the US last week. Eskom’s treasury team has done all it can with creditors, but the issues are further up the food chain.

All issues are known, as are all potential solutions, and have been communicated to the government by everyone — the task team but also by Eskom itself. The chief restructuring officer (CRO) will be unable to conjure up new solutions, and the steering group to which the CRO will report will comprise the same egos and ideological blockages to the same potential solutions.

As ever. the answer is leadership, which is lacking. It is the only component that will shift the dynamic.

Hysteria can cause assumptions and the status quo to shatter. We may well start seeing more of this, especially if promised monthly meetings between stakeholders and the president fail to deliver anything new. As economic actors realise they are being played and become fed up, “no” will be the answer, and change will be forced.

However, much of the hysteria is misplaced. For instance, regarding the viewpoint that SA is close to being bailed out by the IMF,  many good and bad mitigation options are open to the government to avoid that for at least about the next year, if not longer.

The IMF is a useful stick with which to beat the government, but more through forcing it to consider the consequences than pretending they are imminent.

Thinking through an IMF bailout programme, and especially the negotiations that would occur, is useful. It would expose the hard, unavoidable choices very starkly, laid out to the government in scenarios with numbers.   It would likely place a key burden of delineated responsibility on government officials to deliver, or else face public rebuke by the IMF. This accountability and responsibility is lacking.

The hysteria is also manifesting in a dangerous vein of unorthodoxy from normally sensible quarters with a view of avoiding the IMF and the hard choices, and protecting and backing the president.

This has included a view of the potential need for fiscal stimulus, and for unorthodox monetary policy. But the most bonkers idea is that prescribed assets could somehow be used as a way out for the president. It is irrational because it:

  • Further misallocates capital away from the private sector-led growth recovery that is needed;
  • Is not the sort of thing that can be negotiated with the left and labour for the short term to be removed after a few years;
  • Plays right into the state-capture play book through failing to secure the economy against future state capture by precisely increasing the incentives and payoff for seizing and abusing power;
  • Would increase the risks of inefficient and wasteful expenditure and would largely be directed at hiring and paying more to public sector workers as well as keeping the energy system away from a least-cost model in its existing monopoly rut.

Avoiding painful decisions can never be an answer, while even the slight application of prescribed assets would accelerate the economy’s downward spiral.

National Health Insurance (NHI) fails on all four of these counts as well. It is simply not a credible policy in the absence of a meaningful and trustworthy government costing and impact assessment of it. The move could instead hinder the admirable aim of universal, quality healthcare that is free at the point of use.

The Davis tax committee’s work on NHI arguably underestimated the amount tax rates would have to be hiked, given that buoyancy is now so much lower, and so trying to raise the about R150bn gap per year for NHI would harm wider tax collection and hamper growth even more.

There is no point in implementing universal healthcare and, at the end of the process, driving up unemployment — just as it is senseless to try getting a new answer from the same set of proposed solutions and same group of policymakers on Eskom.

If properly directed, hysteria can break the country out of this impasse.

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

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