Business welcomes Sachs appointment as reform momentum builds

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JEREMY MAGGS: President Ramaphosa has turned to one of the architects of South Africa’s post-apartheid budgets, appointing former National Treasury budget chief Michael Sachs as his economic advisor.

The move has been welcomed by and large by business as a signal that fiscal discipline and economic reform may once again be moving closer to the centre of government.

Read: Ramaphosa taps former treasury budget chief as economic advisor

But is this appointment going to change the trajectory of the economy at all, or is delivery, as I imagine, the real test still? Let’s get some response to this.

I’m in conversation now with Martin Kingston from Business for South Africa. Martin, a very warm welcome. So what’s the single biggest signal then that the president is sending by appointing Michael Sachs?

MARTIN KINGSTON: Well, Jeremy, Michael is very well known to the business community, well known to the country at large, and indeed the investment community.

He did a superb job when he was in National Treasury, when he was responsible for the budget, and I think many of us have missed him when he left.

We welcome his return to play a critical role by the president’s side as his economic advisor.

My view is that he has an absolutely comprehensive and incisive understanding of the challenges facing the country and of the solutions that need to be brought to bear.

He’ll no doubt be able to use his authority, given his proximity to the president, and the influence that he’ll be able to bring to bear with regard to economic policy in the months ahead.

As you said, it’s not just a question of policy, it’s also a question of delivery.

We’ve already engaged with Michael about the work that we’re doing in partnership with government, and we want to accelerate that work. I would like to hope that he is very much focused on many of the same interventions.

JEREMY MAGGS: So is it simply good politics or maybe does it suggest, as I alluded to, a shift in some way or another in economic thinking inside government?

MARTIN KINGSTON: Well, I think it’s a progression rather than a shift. I think that there is already a recognition as to the need for both balancing our budget – and I think the Minister of Finance (Enoch Godongwana) has been very clear and consistent, as has the Director-General – but also the implementation of structural reform and playing to our competitive strengths.

We haven’t been doing that as a country, making sure that the constraints on real inclusive growth are addressed.

Michael, in my opinion and in my experience, understands all of that, living, as I said, within the constraints. That means, interalia, mobilising the resources and capacity of the private sector, wherever and whenever possible.

JEREMY MAGGS: Do you think the appointment strengthens the hand of reformers inside government, Martin, or do they still remain outnumbered?

MARTIN KINGSTON: No, I think that our own experience over the past three years of the economic partnership that you have discussed with me before has demonstrated that there is a move towards reform, which is embraced by many, if not all, of those in parliament and government.

Indeed, Michael’s appointment is, I think, a testimony to the fact that that needs to be both bolstered and reinforced, but also accelerated. I don’t think that it’s because there are laggards in the system.

I think it’s because there are capacity constraints and, as we know, the president hasn’t had an economic advisor by his side since Trudi Makhaya left, I suppose, some three years ago.

Read: Job creation in SA: the president’s advisors discuss what it will take

So it’s certainly absolutely timely and necessary, but I don’t think that it signals anything other than an acceleration and deepening of the commitment to the reform that you were talking about.

JEREMY MAGGS: Realistically, though, how much influence can an advisor really have if difficult political decisions still rest with cabinet?

MARTIN KINGSTON: Oh, I think advisors have very significant influence. We’ve seen that already with Dr Alistair Ruiters, who’s played a critical role not only on bilateral arrangements between South Africa and the US, which we’ve talked about before, but also the mobilisation of investment capital and unblocking critical constraints in the system.

I think that they have the ability, the flexibility and, in some respects, the autonomy to be able to move effortlessly.

When they are people who are highly regarded, as Michael Sachs is, who’s had considerable access to all of the key decision-makers, both in cabinet and indeed within the administration, and is well known to the president and the Presidency, I think that we shouldn’t underestimate their influence and their ability to secure critical outcomes.

JEREMY MAGGS: So where does he start? Is it fixing public finances, driving investment, or accelerating reforms?

MARTIN KINGSTON: Well, I would like to hope that it’s certainly in reinforcing public finances. We’ve seen only today the statement that the Minister of Finance has made with respect to the City of Johannesburg. It’s an absolute crisis in front of us that needs to be addressed.

Municipal financial reform must be at the top of any agenda, headed by Johannesburg, if we resolve that issue, and I think business has been very clear about its willingness to come to the party in the right circumstances.

That obviously must be one.

I think the second is obviously the parlous state that we’ve had with respect to state-owned enterprises and municipalities more generally. I have no doubt that that will be a focus of his attention, working closely not only with National Treasury, but also with the other arms of government to address those constraints.

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Then, as you said, obviously the acceleration of structural reform and facilitating many of the interventions we’re already beginning to look at as business with government.

JEREMY MAGGS: And no doubt ratings agencies are going to welcome this.

MARTIN KINGSTON: There’s no doubt. We’ve already seen, of course, a very positive response from all of the rating agencies as to the progress we’re making. I think that they all acknowledge it’s not fast enough and not broad enough. But somebody like Michael coming to the party will undoubtedly, again, encourage them that that progress will be accelerated and broadened.

I think that we will see over time, hopefully, if we maintain the trajectory, improved responses from the rating agencies going forward.

JEREMY MAGGS: Do you think that one of the reasons why this appointment has been made is the president is also trying to secure some sort of legacy before he goes?

MARTIN KINGSTON: Well, I would hope that whether it’s the president or his successor, that the trajectory we’re on is maintained.

There’s no doubt deepening the reforms that are already underway and the approach that, in particular, the fiscal policy that is in place will be a legacy of President Ramaphosa when he steps down ultimately as president of the country.

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But I think that we need to embed that in the cabinet more broadly and indeed in the way in which we approach our macroeconomic policy as a country. If we’re able to do that in the coming year or two, that will indeed be one of the legacies that President Ramaphosa can leave.

JEREMY MAGGS: Martin, to finish with the old trope, you can’t manage it unless you measure it. What sort of changes should investors and business expect over the next year or so if this appointment is to be judged a success?

MARTIN KINGSTON: Well, as you know, and we’ve discussed before, Jeremy, we do need to measure it and we need to do so on a regular transparent basis.

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I think if we’re able to demonstrate that there is progressive increase in GDP, and it’s unfortunately perilously low at the moment, if we’re able to address unemployment, if we’re able to increase the level of fixed investment, those will all be metrics that will be testimony to what we’ve been talking about.

JEREMY MAGGS: Martin Kingston, thank you very much.