If SA Inc were a company, it would be planning a rights issue — to shore up the balance sheet and fix the debt-to-equity ratio.
We’re not a public company, but we are a sovereign state, and if we wish to stay that way we’d better fix our finances. If we don’t do it ourselves, we’ll be forced to by others, who otherwise won’t let us remain part of the world economic order. And then it’ll be on their terms, not ours.
SA’s national debt is R6.3-trillion. Our debt repayment obligation in the coming year is the highest single-line expenditure item (by far), at R432bn. If SA were operating on normal business ratios there would be simply be nothing left for shareholders (that’s us) and no further borrowing capacity. Printing money will just make matters worse.
When you need to raise capital the discussion moves beyond a casual conversation among management to an ask of the providers of capital, who have choices. For SA Inc the engagement moves out of the comfort of inner party politics, and even beyond the relative discomfort of the government of national unity. Government isn’t the shareholder, it’s the management; let’s get the hierarchy straight.
SA Inc has only one source of income, which is tax, and essentially two sources of capital — foreign direct investors and the private sector. To persuade either or both of them to send some of their money our way we have to convince them of the relative risk-adjusted attractiveness of our projects.
Things will have to change quite a bit for that to happen, starting with an investible proposition that is at least defensible, capable of execution by qualified teams, produces attractive enough returns, and is convincingly communicated to engaged capital providers.
As things stand there is little to support any investment case that won’t require at least public-private partnerships in its implementation. That, in turn, will require business and government to find and fertilise the middle ground, first having leapt across the gaping trust divide between them.
Successful projects will require both sides in the same team — there will be no handover of serious money without that. Time for speeches and workstreams is over. The rubber has hit the road and the fan is next.
Foreign capital has the widest choice, and it has pretty much left the building, having now reversed its entire accumulative investment in SA equities made in the first 20 years of our democracy.
The only way for government to earn enough money to service and repay debt and still have enough left to expand real GDP growth beyond population expansion is to invest in long-term serious growth projects and not consume what we haven’t yet produced. That will require a habit change that is beyond difficult, extraordinary discipline and leadership, but there’s no other way the sums can add up.
It’s only a matter of time before international ratings agencies and other influencers of our cost of capital make it almost impossible for us to generate attractive returns in hard currency. Once you overlay our projected exchange rate (which some loosely refer to as a proxy for our share price) into long-term projections, those returns are hard to find.
If we want to stay in charge of our destiny as an independent country we’d best knuckle down to actions that will attract capital into long-term growth. The latest budget (still not signed off) has been anything but a confidence builder. It suggests that government remains on a path of taking rather than making money.
This Robin Hood approach to economy management only holds good for so long as wealth stays in the forest. But it’s leaving in droves, as is the talent capable of producing more.
• Barnes is an investment banker with more than 35 years’ experience in various capacities in the financial sector.
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