The rating agencies have so far used a remarkably identical song sheet, which ticks all the boxes to a degree warranting a reprieve, which we duly received. But is there something missing from the narrative?
Or to put it differently, we are undertaking to do many necessary things, but is it sufficient in the end to sustain the rating?

The focus is strongly on the fiscal intentions of government, assuming a Gordhan-type finance minister. These intentions, even on a three year view with poor economic prospects are believable. The minister is using the procurement scalpel to cut away a few layers of unnecessary, often rent-seeking expenditure, and he is allowing the tax burden to rise. This gives him more or less the targets agreed with the rating agencies.

The bigger question here is the presence of a Gordhan-type finance minister. Here we hear the rating agencies growl that government should desist from palace politics in the lead up to the succession. That doesn't tell us much, when the politics falls into two distinct camps, Zuma followers seem to have the vote sown up, the president has the final say about appointments.

Doesn't this mean the sword can fall at any time on anyone? Perhaps better timed than seeking an upset ahead of the 3 August local election. But thereafter is any appointment “safe” (meaning public spirited rather than private sought)? The suggestion we are getting is that rating agencies growling is all we need to keep political forces chained. Or is there yet a greater, more quaint reality not yet shining through?
We then hear endlessly about the fine quality of our institutions and macro policies generally. And yes, these are fine, except we are talking about a past legacy rather than a fast progressing future decay. Or has the latter already been arrested and turned around, with the rest of us not quite getting it yet?
We also hear that State Owned Enterprises cannot remain an open burden for the fiscal budget, and that their governance needs to be sorted. We are told “consider it done from yearend”, yet the politics seems to be somewhat more convoluted than that?

The more fascinating sharp end of the rating is that growth needs to come back. Here we get a lot of emphasis on our supply side. In other words, if something thrashed electricity supply, drought thrashed farming output, labour strikes thrashed mining and industrial output, and poor appointments thrashed (some) SOEs, and this together with a faltering terms of trade and commodity export price bust undermined growth, reversing these things will bring growth back.

Voila!

This certainly applies to drought. Let it rain and the great farming comeback can commence. Though let it rain first.

Succeed in achieving fewer strikes, and there will be more output. Though I fail to hear it at the coalface, let's assume that political deals can be done that will give us certain labour law changes (such as the secret ballot with as payoff the national minimum wage). Even then, labour militancy may not quite disappear. There is a much greater movement on the loose here.

Electricity is an interesting one. Give us back more electricity and they will come, seems to be the idea. But hasn't the economy adjusted, to less electricity at much higher costs than prevailing a decade ago? The interruptions then destroyed output. Restoring supply now into a changed economy won't necessarily see the full rebound apparently assumed.

Sorting out SOEs should reduce the growing drain on our national wealth from this source, but will it translate into faster growth?

These are all nice to have supply boosters. But will they be the crucial milestones in achieving a restarting of our growth engine.

Certainly the stabilizing of our commodity export prices and terms of trade is a plus, but it isn't the start of a commodity windfall traditionally kicking our private fixed investment juices into overdrive. Stabilizing isn't enough.

Moody's especially made mention for us of having to reinforce private business confidence in order to get private fixed investment going again, as a major part of the growth rejuvenation. But that is where it stopped.

What has been missing from the ratings reviews is a micro review. What business thinks it is doing, and why, and what government thinks it is doing, and why? This goes well beyond electricity, drought, strikes and SOEs. It also gets rather political, indeed philosophical, something there is no commenting on, at least in public. Interesting, as the rating agencies are quick to prescribe in certain areas, but apparently wanting to stay mum in others, besides general growling.

Unless, that is, there is a larger part of the puzzle missing from our public discourse, to be revealed perhaps after the local elections. We are left with the encouragement to get our supply side better performing as the key to getting growth going again. These are nice-to-have, normal, necessary requirements for the growth process, provided fully functional (about which some doubt is still warranted, as mentioned).

The deeper question is whether we are all on the same team, and here I haven't so much the Gordhan A-Team in mind, as the cabinet, the NEC, a few thousand boardrooms and beyond them a diverse cast of many millions.

Unless THAT story jells, it isn't quite obvious what will change our course, as much the progressive decay as the steady defensive retreat. For this, one turns to the greater overarching context. Either nothing will happen here, with the reality on display the only reality for years to come. Or there will be a new synthesis of some kind, apparently hidden in the shadows still covered by many veils.

That will be the true driver of our growth performance post-2016, and the market and raging agencies’ ratings. And so we wait to see what we are served up next. It has been quite a meal so far.

Cees Bruggemans
Bruggemans & Associates, Consulting Economists

Website  www.bruggemans.co.za
Email. economics@bruggemans.co.za
Twitter  @ceesbruggemans
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