Moody’s Warns Against Radical Economic Transformation: 7 Ways To Get It Right


In the midst of the breakthrough from the dreaded economic recession, rating agency Moody’s has warned that the Radical Economic Transformation would only return the country’s economy to its worst state.

South Africa’s economy spluttered back to life in the second quarter of 2017 after being in recession for two consecutive quarters but while the country still rejoices over the kick back, Moody’s warns that the economy may face its worst hit following Zuma’s transformation policy.

According to the rating agency, the implementation of the “radical economic transformation” could turn away investors, raise poverty level and curb Treasury’s efforts to rein in fiscal deficits.

It said in its research report that plans for land redistribution, preferential procurement and other forms of affirmative actions could be harsh for investors thereby forcing them to look elsewhere.

Moody’s had in June this year, downgraded South Africa’s credit rating to Baa3, the bottom of the investment grade table, with a negative outlook.

It cited some policies including the recently drafted mining charter and the removal of the then Finance Minister Pravin Gordhan as part of the issues affecting the country’s economic growth thereby reducing regulatory stability and further undermining investor confidence,”

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Agriculture, mining and finance were said to be the major sectors that helped to lift the gross domestic product (GDP) by 2.5% quarter-on-quarter but Moody’s senior analyst Zuzana Brixiova fear that these could die down if Zuma’s transformation agenda is pursued.

Opposition party the DA agreed with Moody’s about the newly launched transformation agenda meant to see lands redistributed. DA’s MP David Maynier said that GDP growth was not doing much for the unemployed as it is moving too slow to meet the growth target of just 0.5%  this year.

“The fact is that radical economic transformation is killing the economy and that is why we need a fundamental shift in economic policy to boost economic growth and create jobs in South Africa,” he said.

How To Achieve True ‘Radical Economic Transformation

However, the Free Market Foundation (FMF) which has been in support of the Radical Economic Transformation said it has been advocating such policies for over 40 years and that it believed that RET is exactly what South Africa needs.

But, the group warned that the new economic policy will work well only if the following rules are maintained. They include:

  1. If Goods and properties are not confiscated for political purposes and citizens are secure in the knowledge that their property is safe.
  2. If Taxes are low and are not used to fund massive bureaucracies.
  3. If Buyers and sellers are allowed to trade freely in an open market without Government interference and arbitrarily high prices are avoided.
  4. If ‘Licenses’ and ‘clearance certificates’are no longer required for people to do something they are perfectly capable of doing without state interference.
  5. If Corruption is substantially reduced with a lesser political involvement in the economy.This would reduce the possibility of cronyism and unethical ‘tenderpreneurship’.
  6. If people are allowed to start their businesses without the need to submit complex forms and documents mandated by financial services regulations or have to adhere to arbitrary zoning bylaws.
  7. If Purchasing smallholdings become the same as any other property transaction with no need to ask for ‘permission’ from the government to subdivide agricultural land.

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Meanwhile, Finance Minister Malusi Gigaba said while explaining what the ANC meant by “radical economic transformation, that the new policy centres on job creation, poverty alleviation and addressing inequality.

“We want programmes that are going to include as many people who are excluded from economic participation as possible,” Gigaba said‚ adding that there was no disjuncture between growing the economy and fostering inclusive growth.

“Everything we do must address the fundamental need to grow the economy and grow it inclusively … because ultimately what we need is accelerated growth,” Gigaba said.