The delicate art of turning an economic supertanker

28 Nov 2022

People often talk about the difficulty of turning a supertanker around, but how difficult is it? Turns out, pretty damn difficult.

Imagine you are an ocean traffic officer and you jump out into the pathway of a supertanker, adopt a grim and instructive disposition, and hold up your white-gloved hand. You point to … well … another part of the ocean and tell the supertanker to pull over. Often, a flashlight in this situation would be a useful accoutrement, a large one in this case.

If the supertanker was full and responded immediately, it would finally pull up between five to eight kilometres from the indicated point. And it would take about 20 minutes. And it’s not as though the tanker was travelling at rocket speed in the first place; supertankers can reach about 16 knots, or around 30km/h, but usually travel at less than that. Asking the supertanker to pull off the “road” also involves some effort, since a supertanker’s turning circle is about 2km.

The reason they take so long is obvious: they are pretty big. Oil supertankers carry about two million barrels of oil, which is enough to fill the petrol tanks of about five million cars.

So it’s not without significance that economists liken economies to supertankers. Although it often seems that economic changes happen at a hectic pace — and aspects do at regular intervals — the broader process of moving or changing an economy from its predetermined, erratic course is very much like manoeuvring that supertanker.

Marker points

In this process, it’s important to look for marker points that indicate progress in a positive or negative direction, and often those pointers are neither definitive nor even particularly obvious. But the SA economy has recently recorded a few such signposts.

Since March 2020, SA debt has been junk-rated by all three major ratings agencies. The ratings deterioration began during the Zuma administration, the result of gradual but persistent fiscal mismanagement, and the supertanker just pushed its inexorable way down. One of the touchstone jobs of the Ramaphosa administration if it wants to be regarded as a success, is to restore SA to an investment-grade rating and that means a careful and deliberate change of direction.

So how is the country doing? Actually, it is improving and although it’s incremental, it’s worth taking notice of because ... supertanker. Over the weekend, Fitch affirmed its “stable” rating of SA debt, and the week before, S&P did the same. Both Fitch and Moody’s earlier adjusted their outlooks from negative to stable.

None of this is quite what you would want it to be: these are changes in outlook and subsequent affirmations of that outlook. But actually, if you look at the economy itself, even those minor changes are somewhat hopeful, and steady goes the ship is better than further sinking.

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This is, after all, a government that is spending almost a fifth of its annual revenue servicing its R4-trillion debt. What SA needs is a definitive debt-rating improvement and that is not going to happen without a major transformation to its debt profile.

But on the margins, this is at least slowly pushing the supertanker back on to a positive route. In its response to the S&P announcement, the Treasury’s response was full of “fiscal sustainability”, “narrowing the budget deficit”, “stabilising debt”, and “promoting economic growth” and all that good stuff. The above-expectations increase in tax income was a definite plus.

There is one little potential fly in the ointment here and that is the ANC’s leadership conference being held next month. The difficult and fragile process of turning the supertanker could easily go horribly wrong if the ANC comes up with super-militant formulations to its existing policy.

The three red flags are the nationalisation of the Reserve Bank, over-promising on the National Health Insurance, and of course, reviving the land expropriation effort. If any or all of those get formulated in ways that are more than usually crazy, the little green shoots we are seeing are going to be tramped on pretty quickly. DM/BM

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Marker points