THE HEAD of the ANC's transformation policy committee Enoch
Godongwana on Wednesday morning gave a very important and interesting interview
to Bloomberg. He is responsible for guiding various policy topics through
Mangaung in two and half weeks.
In this interview he said (and this comes from someone on
the "conservative", investor friendly wing of the party) that the ANC
should ignore the warnings of Moody's and S&P and impose taxes and more
aggressive redistributive policies on the mining sector at Mangaung, to then be
implemented more rapidly by the government.
Till now Nomura had highlighted the risks of post Mangaung
downgrades due to "deleterious" policies being enacted and the
agencies latching onto these (as per Moody's downgrade statement last time).
However we had always thought the ANC would shy away from
such specific acts in terms of conference policy outcomes, instead, expecting
broad generalities and inclusion of terms like economic nationalism.
As such the possibility of downgrades on fluffy generalities
was more uncertain. However if what Godongwana says is actually enacted (and
with its discussion will probably come much more active discussion of
nationalisation than might otherwise occur) then downgrades in the first
quarter of next year actually now become more likely again.
Redistribution from the mining sector is certainly necessary
though we should not forget it already does occur under the existing tax
framework to some degree. The issue here is if monetary redistribution is
really acceptable if it risks jobs and investment in the industry (when added
to the existing non-competitiveness and labour unrest). My gut instinct would
be no and that it should be phased in very slowly over the longer term and
offset by jobs growth or investment incentives... but that's exactly the debate
the ANC will have at Mangaung.
I still think the ANC may struggle to reach agreement on
specifics though the lack of specifics from the June policy conference was more
of a function of the leadership battle as opposed to policy. Equally we should
be careful that even a final policy statement couched in generalities might
still have implicit direction to government behind the scenes.
Other areas to watch for that are rating negative are
greater use of state owned banks, proscribed assets (though we disagree this is
a bad thing with ratings agencies) and possibly very aggressive targets around
NHI or wider restrictions on the private sector in order to construct a
Minimum wages will be a hot topic but probably not overly
ratings negative given there are already numerous sectoral minimum wages.
*Peter Attard Montalto is an emerging markets economist at
Nomura, all opinions are his own.
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