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Johannesburg – Recent efforts by government to introduce economic reforms have fallen short of rating agencies' expectations.
This is according to Nomura's emerging markets economist Peter Attard Montalto. He issued a statement following the release of the long-awaited third mining charter, as well as Finance Minister Malusi Gigaba’s briefing on the way forward for the economy on Thursday.
The mining charter stipulates that mining houses increase black ownership from 26% to 30% within the next 12 months. Furthermore, prospecting rights will only be granted to companies that have a 50% plus one black ownership structure, Fin24 reported.
READ: Chamber to challenge new mining charter in court
Montalto said that the charter has done little to reduce uncertainty in the sector. “We think investors and ratings agencies in particular have been 'oversold' on the release of the Mining Charter as a positive in terms of reducing uncertainty.”
The charter will have a negative impact on growth, investment and job creation in the sector, said Montalto. "This 'reform' is highly unlikely to be a reform in any true sense if it is negative."
He said that the Charter reflects that government has acted against the interests of the private sector.
Chamber of Mines chief executive Roger Baxter had criticised the Department of Mineral Resources for the lack of engagement with stakeholders during the process. As a result, the chamber, which represents 90% of the industry, plans to challenge the Charter in court.
The chamber’s court bid may create more uncertainty, deterring investment, said Montalto.
Econometrix chief economist Azar Jammine also told Fin24 that the Charter will likely "stifle" private sector investment and will only be a direct benefit to those well-connected to President Jacob Zuma.
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Montalto acknowledged that the sector needs better representation of black workers at higher levels, however a healthy growing sector is needed to achieve this.
The Charter appears to benefit BEE entrepreneurs, which is unproductive. Montalto also pointed out that the capacity of the sector to achieve the listed targets within the limited timeframe is questionable. "These targets are more easily met in a healthier industry."
Finance Minister Gigaba welcomed the release of the Charter during a briefing about the economy, but noted that it already had a negative impact on stocks.
"We hope Minister (Mosebenzi) Zwane will engage with the sector – the Chamber of Mines and unions – as a matter of urgency to address concerns and to be able to continue to pursue transformation goals," he said at a media briefing.
ALSO READ: Gigaba: Economic transformation to push forward, despite bleak economy
Responding to reports on the recession as well as the credit downgrades by ratings agencies, Gigaba said that inclusive growth and economic transformation would remain a priority. He will meet with Zuma in two weeks to finalise policy reforms and the implementation thereof.
Nothing new from Gigaba
Montalto said that the Minister presented "nothing particularly new" in terms of reforms. "There was no rabbit-out-of-a-hat moment."
None of the reforms proposed would do much to improve growth in the medium term, nor do they address the trust deficit between government and stakeholders. Skepticism remains regarding the upcoming meeting with the President, he said.
“There have been many such Cabinet economic and investment subcommittee meetings – often chaired by the President – that have occurred since Nene-gate. Oftentimes no real new policy has resulted with no shifting of mindsets.”
Gigaba will have to be more specific in the medium-term budget speech in October to subdue market concerns, said Montalto.
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