Government’s ‘reform’ is going to have the opposite effect: analyst
Following the release of the new mining charter on Thursday, 15 June, analysts have once again questioned what the South African government, and finance minister Malusi Gigaba mean when they talk about reform in South Africa.
In a speech addressing the country’s economic woes on the same day, Gigaba offered up very little in the way of a solid plan to stimulate growth, only to say that people should think positively, and allow the measures already in place to work.
Gigaba also pressed that “economic transformation” was key – repeating the line economists and analysts have been hearing over and over again: reform, reform, reform.
“Gigaba offered nothing particularly new on the reform agenda. There was no rabbit out of a hat moment,” said research analyst at Nomura, Peter Attard Montalto.
“Most of the ‘reforms’ detailed today we analysed in the past. Overall, we see them as not moving the medium run growth dial.”
More importantly, Gigaba failed to address the issues of trust and leadership deficits in place, which are the most serious and pressing restraint on economic confidence.
In particular, Attard Montalto considers rent extraction at SOEs as too important politically to allow reforms mentioned to be enacted.
“In this vein, we think markets and local media are overoptimistic about a turnaround at Eskom now that the CEO and Chairman are gone. Similarly for a new SAA chairman,” he said.
Speaking on the mining charter – while acknowledging that transformation of the wider mining industry in South Africa does need to happen, simple equity dilution is not going to have the desired effect, and will instead be negative for the country.
South Africa’s new mining charter stipulates that mines in the country should be 30% back-owned, and prospecting rights given to companies that are 50%+1% black-owned.
“The new Charter causes specific concerns for equity investors (and mining companies)…the urgency of their implementation here raises questions of capacity in the sector – these targets are much more easily met sustainably in a more healthy industry,” the analyst said.
“(Mining) minister Zwane is attempting to rush this Charter into implementation with it to be scheduled for the government gazette this week…this is likely to create more uncertainty for the industry and keeps it on the same path of external investor divestment and under-performance of the local sector vs the global commodity cycle.”
“This is the reason we think the markets overplay the terms of trade story for SA, given these domestic structural issues for the sector,” he said.
According to Attard Montalto, the ‘reform’ agenda is being overplayed, and government and the market are being over-optimistic about the outcomes – especially when there is barely any clarity on what it really means.
Nomura holds the view that we will have to wait and see what happens, and for further action down the line – but has a very low-growth view of the market. The firm’s projection of 0.2% GDP growth for 2017 remains.
Read: Gigaba’s solution to SA woes: positive thinking and economic transformation
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