FROM THE DESK OF THE PRESIDENT
Time to embrace, streamline and accelerate the application of PPPs
Bafikile Bonke Simelane, President, Master Builders South Africa
It was with great relief that we learned of the South African Reserve Bank’s Monetary Policy Committee Meeting decision to keep interest rates unchanged despite concerns regarding the risk of further downgrades to local currency debt and the impact thereof on the stability of the domestic financial system as reported in the last edition.
This was on the back of reports that South Africa is set to avoid slipping into a technical recession this year following surprise improvements in mining and manufacturing output, although the economy remains under pressure due to recent credit downgrades.
The economy contracted 0.3% in the final quarter of 2016 and a second consecutive contraction would have pushed the economy into recession for the first time since the global financial crisis of 2009.
This can only be good for boosting confidence about a positive future outlook notwithstanding the negative publicity around the recent downgrades by ratings agencies especially if the assurances by the new Finance Minister that National Treasury will continue on the economic trajectory of fiscal consolidation hold true.
According to Econometrix director and chief economist Dr Azar Jammine; despite the hype around the latest sovereign downgrades, South Africa has not hit rock bottom, nor has it experienced the worst-case scenario.
“It is a misnomer to say we [South Africa] have gone junk – we actually have junk on only a portion of debt – the rest of it is still investment grade,” he said, noting the differing ratings approaches of the three ratings agencies and the differentiation of rand and foreign currency-issued debt.
“We haven’t had the worst-case scenario of a collapse in the rand that will cause our interest rates to soar,” he told delegates at a Cliffe Dekker Hofmeyr ‘junk status’ seminar, in Sandton, pointing out that many positives still remained and many of the expected negative outcomes of becoming a sub-investment grade country had been somewhat muted.”
“It is not a new thing for South Africa to be in junk and, technically, only a portion of it was in junk,” he reiterated, commenting that the disappointment emerged from the timing of the downgrades – a moment where positivity was starting to shine through and South Africa was on a path of recovery.
He cited the overestimated negative impact of the drought, the dissipation of electricity constraints, stable industrial relations, lower-than-expected inflation, the unlikelihood of interest rate hikes and strong business balance sheets. This underscores the potential positive impact that greater private sector investment can have in staving off further economic deterioration to mitigate downgrades.
We are therefore buoyed by the foregoing and call for greater embracing, support and acceptance of Public-Private-Partnerships (PPPs) in the procurement and delivery of key economic infrastructure investments to stimulate demand and boost activity in the construction sector.
This can translate into greater investment in artisanal skills development and to build capacity for the sector to be ready for example for the R138 billion allocated for infrastructure development in Gauteng over the next three to five years while keeping a sharp focus on transformation as well as social and economic inclusion using such expenditure as a strategic lever and catalyst.
Bafikile Bonke Simelane