---

---

South Africa: Tone Down the Leftist Posturing - Economists

Mariam Isa

18 November 2008

---

Johannesburg — THERE is mounting concern over the possible effect of calls for shifts in economic policy from left-wing politicians, given that global turmoil has already put SA's foreign capital inflows in jeopardy.

Analysts warn there may be a high price to pay if investors take fright at the open debate on whether to keep existing policies, which have placed SA in a better position to handle the global crisis than other emerging markets.

So far this has not been the case. Markets are not expecting prudent fiscal policy and inflation targeting to be dropped or influential companies such as Sasol to be nationalised.

They also do not expect the introduction of a basic income grant - widely seen as unsustainable for state coffers - or the imposition of officially "prescribed investments" for companies.

Nonetheless, all of these changes have been put on the table by the ruling African National Congress (ANC) and its alliance partners, the Congress of South African Trade Unions, and the South African Communist Party. The fact that these are up for discussion means that in theory they could be adopted, which would not go down well in financial markets.

Last week, Iraj Abedian, one of the former architects of SA's economic policy, warned that left-wing politicians should watch what they say as they could destabilise the economy during a period of severe global turbulence.

RMB chief economist Rudolf Gouws has added his voice to those advocating discretion at a time when global risk aversion has significantly eroded the value of the rand and local equities.

This is worrying as SA relies on foreign capital to finance the ballooning deficit on its current account, its broadest measure of trade in goods and services.

"Policy can be debated as long as one knows the potential damage which can be done," Gouws said.

If foreign investors had a choice between a country where policy would not change and a country where policy change could lead to financial, fiscal and currency problems, they would choose the former.

Continuity in fiscal policy is key. Since 1994, SA has steadily reduced its overall and foreign borrowing, which means its debt costs do not rocket when local interest rates rise or the rand depreciates. It also means that investors are willing to buy government bonds, which help to fund official spending on infrastructure and social welfare.

Absa research head Jeff Gable said while it was "inconvenient" for markets to digest "excitable" comments from politicians, that was the way a democracy worked. It was also better for markets to have an inkling of what could be coming than to have it sprung on them after being shrouded in secrecy. "It is going to get noisier and noisier and I have no doubt that some things are going to change, but not radically."

Most analysts agree. Gouws said it was unlikely SA's economic policy would change much. "It's a risk, but a small risk. I think the people that matter understand."

Stanlib economist Kevin Lings said uncertainty was inevitable given SA's political transition, but more clarity on what would and what would not change after next year's election would help.

He said he was worried by the way in which ANC president Jacob Zuma -- who is likely to become SA's president next year -- was sending different messages to different audiences. "He will say things in a business forum which emphasise the role of the private sector and deregulation in markets, particularly labour markets.

"In other forums he won't voice that view at all; his tone and approach will be different, which leads to different inferences."

Lings said the policy debate should focus on how to create jobs, rather than revisiting the policies that had worked well.

"Right now we could do without this uncertainty, but to some extent it is inevitable - we can't have absolute clarity."

Be the first to Write a Comment!

---