Wessels: Developing a monkey puzzle to prevent junk status. Doesn’t start with ‘P’.

Johannes Wessels, Director of EOSA, initially tried to develop a monkey puzzle to assess SA's progress to prevent junk status. Considering Zapiro's predicament Wessels decided to avoid the monkey trap and rather stuck to an open book assessment of a range of questions. He reckons the only factor mitigating a downgrade would be if the recent influx of high yield-seeking funds chasing SA bonds and equities will continue for the second half of the year. – Stuart Lowman

By Johannes Wessels*

A guide for Rating Agencies on how to evaluate (apart from the double deficit) South Africa's creditworthiness.

Progress to achieve coherent growth oriented policies:

Did Government embark on pursuing policies and practices to create a business friendly environment, e.g.:

• Does Government achieve a 90% success rate of paying private sector service providers within 30 days at national, provincial and local government levels?
• Did they revise labour legislation and regulations to balance worker and enterprise rights and risks?
• Does the draft Preferential Procurement Regulations of 2016 (published on 14 June 2016 for comment) introduce a dispensation to minimise the opportunity tax on growth caused by BEE and transformation?
• Has the base been laid for increased growth or not?

Since it is an open book assessment, the following documents are important to arrive at informed answers:

• The Reserve Bank's forecasting 0% growth
• Yet another hole in the head: Frans Cronje of the IRR on the recently published Draft preferential Procurement Regulations of 2016
• David Lipton, First Deputy Managing Director of the IMF, on where South Africa is going wrong

Progress to reduce policy uncertainty and therefore improve investor confidence:

Did Government take steps to foster certainty and thereby restore investor confidence, e.g.:

• Is Government opening the scope for private sector investment and operation or is it still pursuing maximum government involvement in economic activities?
• Has Government shirked from signing the Expropriation Bill of 2015 into legislation?
• Was there any revision to the inappropriately named "The Promotion and Protection of Investment Act of 2015" to restore the guarantees for foreign investors that they previously enjoyed under treaties?
• Was there any acknowledgement that the proposals to transfer 50% of all commercial farms encourages divestment in agriculture and therefore lower returns and increased job-shedding?

The following open book resource material is relevant:

• Eskom announced there will not be more bids for Independent Power Producers since it needs to protect its own income stream. There has been absolute silence on the part of both Lynn Brown and Tina Joemat-Pettersen. Is the Eskom yo-yo game of "yes-we-need-more-IPPs/no-we-need-no-more-IPPs" contributing to investor confidence?   (http://www.bdlive.co.za/opinion/editorials/2016/07/22/editorial-state-must-flick-eskoms-switch )
• Pres Zuma signed days before he fired Nene as Minister of Finance the "The Promotion and Protection of Investment Act of 2015": an act severely criticised by the both the European and American Chambers of Commerce in South Africa. The absence of any review process to strengthen the protection of foreign investors cannot contribute to an environment conducive for FDI in our productive sectors. (http://www.derebus.org.za/protection-investments-act-balancing-act-policies-investments/ )

Do robust institutional counterweights ensure transparency, respect for the rule of law and adherence to democratic decisions?

Critical issues to consider here, include:

• Is the IEC competent and, as Caesar's wife, reputable?
• Are the dictates of the SABC's Hlaudi Motsoeneng meeting the requirements of a public broadcaster during an election or will it give ground for claims of an unfair election?
• Did the Presidency, Parliament and the SABC adhere to binding decisions of the Public Protector (and Court verdicts giving weight to her findings) or did they half-heartedly by mere compliant-sounding utterances whether apologies or reprimands? Are there instances where such verdicts are still ignored?
• In view of polls indicating that the ANC may lose control in some of the metropolitan councils, will they willingly vacate the corridors of power?
• Is the NPA under Shaun Abrahams instilling confidence or are there indications of Machiavellian manipulation?

The following open book resource material is relevant:

• On the IEC the Constitutional Court on two occasions rapped them over the knuckles: in September 2015 the ConCourt found the IEC was breaking the law and in June found that the IEC failed to comply with the Constitution
• On the NPA read the following two pieces and decide whether Abrahams is using his position to achieve political outcomes (Claims that there were similar political considerations were used by a predecessor of Abrahams to withdraw charges of corruption against Zuma). The first piece deals with Abrahams decision to appeal against the verdict that the corruption charges against Zuma should be reinstituted. The second article deals with the decision by Abrahams to investigate Willie Hofmeyr during the time when Hofmeyr is on the shortlist of candidates to succeed Thuli Madonsela
• On the situation at the SABC, reflect on Zapiro's cartoon:

• On whether the ANC respects democratic outcomes, reflect on the situation in Oudtshoorn where it refused to vacate the mayor's office after losing control of Council, reflections on what will happen if the ANC would lose some metros, and three posts indicating how democratically the ANC operates at their conferences with violence, intimidation, stabbing and dictatorships

Have we made progress to stem corruption in and advance effective governance in State Owned Enterprises and managing public assets?

Critical issues to consider here, include:

• What progress has been made of consolidating the public-owned airlines as promised by Pravin Gordhan?
• Has unauthorised expenditures and contracts come to an end?
• Has the pursuance of an unaffordable nuclear energy programme been stalled?
• Is Government prudently looking after public assets, e.g. strategic oil reserves?
• Can Pravin begin to utter the "P" word?

The following open book resource material is relevant:

• Three months ago it was announced that the merger was "close to completion". Since then there has been no feedback.
• Dudu Myeni appointed a firm to access its financial obligations at a fee of R250 million. When it became apparent the appointed firm's licence was revoked, the deal was cancelled but Myeni wants a R50 million cancellation fee
• Despite unbelievably high costs which SA cannot afford at this stage of double deficit, the wheels are rolling whilst Eskom announced that it would ditch further contracts with Independent power producers
• The way – apparently without adhering to the right procedures – SA's strategic oil reserves were sold at the rock bottom price of 28 US dollar/barrel to be built up again at an oil price substantially higher than that is not the kind of prudent dealing with public assets that Treasury (or the rating agencies) would consider as an act that will prevent a downgrade. It sounds like looting with official condonation.
• No wonder the "P-words" that the Minister of Finance utters are "Please help me, it is p Millions of people will pay the price…"

• Johannes Wessels, director at EOSA (Enterprise observatory of South Africa)