SA’s reforms held under global pressure, but the work isn’t done

The South African Reserve Bank (Sarb) made the right call last week, hiking interest rates by 25 basis points in response to rising global inflation. Governor Lesetja Kganyago and the Monetary Policy Committee (MPC) did not hesitate. With inflation at 4% in April and the Sarb projecting it will average 4.4% for the year, above its 3% target, the decisive response was essential.

Price stability is critical to businesses’ ability to plan and invest. It also protects consumers, particularly the poor, who are most exposed when prices rise. Economists now expect further hikes this year. That may be uncomfortable in the short term, but it is important for long-term stability.

Read: Sarb’s early hike may curb need for sharper tightening

What strikes me about this moment, with wars in the Middle East and Ukraine while the global rules-based system is being challenged, is how different it feels here compared to previous global crises.

South Africa is facing these headwinds from a position of relative strength, with public finances in better shape than they have been in over a decade, and structural reforms that are beginning to show real results.

Six years ago, when the Covid shock struck, our national debt was in genuine trouble and a sovereign crisis was a real risk. We are not in that position today.

Rand holding up despite global turmoil

That improvement is reflected in last week’s ratings actions. Moody’s assigned a positive outlook; S&P affirmed that it maintains its positive outlook on our credit rating.

Both could become outright upgrades if Finance Minister Enoch Godongwana holds course through to the October medium-term budget policy statement. The minister has shown the discipline and credibility to do so. The ratings agencies are watching. So are investors.

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Despite the global turmoil, the rand has held up relatively well, as have South African bonds and equities. We are benefitting from high global commodity prices – industrial metals, gold and platinum – which are providing meaningful support.

Read:
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And an independent Reserve Bank, free of political interference, remains one of our most powerful signals to global investors.

South Africa is behaving like a safe haven in the current environment. That is what years of reform and institutional discipline have bought us.

My view is that we should draw an important lesson from this moment. There will always be global factors we cannot control. The measure of a country is whether it has built the resilience to manage through them, and whether it uses the clarity a crisis provides to accelerate the work it was already doing.

Both government and business have committed to a reform programme over the last eight years, and now we are seeing the payoff. That must reinforce, not undermine, our resolve to continue.

Reform agenda must remain

On the things we can control: I have been consistent in BLSA’s engagements with government that the reform agenda must not slow down. The three priorities remain.

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First, logistics: Transnet and the ports must be opened further to private investment; the reform of our rail network and port concessions must move from policy commitment to operational reality.

Second, electricity: we need a competitive electricity market with an independent transmission system operator – the delay on the TSO is a vulnerability we cannot afford.

Third, a capable state: the quality of public services and accountability that has delivered the improved fiscal position must be extended across the public sector.

Read:
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The global environment will continue to throw us curveballs, and we need to manage them. Right now that includes finding secure oil supply sources internationally and actively pursuing favourable trade deals with the rest of the world.

What this moment shows is that reform pays off precisely when a crisis strikes. BLSA will continue pressing government to hold the fiscal line, accelerate reforms, and deliver the capable state our economy needs.

The rewards of doing so are not abstract – they show up in the rand, in bond yields, in investor confidence. We have earned that position and we must not squander it.

Busi Mavuso is CEO Business Leadership South Africa (BLSA). 

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