South Africa’s rating crisis – and the resultant confidence fallout – would have been considerably more severe were it not for the efficiency of the framework underpinning the country’s capital markets, said Prof Wiseman Nkuhlu.
Nkuhlu was was speaking in Johannesburg in the wake of his appointment as a trustee of the International Financial Reporting Standards (IFRS) Foundation, which is responsible for the governance of the International Accounting Standards Board, which issues IFRS.
“Understand, that the reason we are not experiencing a financial crisis of huge dimensions is that the bond markets have been positive; that we have been enjoying large surpluses on our capital account, which, fortunately, have been covering the deficits on our current account.
“And it’s all thanks to the efficiency of our capital markets, which are attractive to international investors because of our outstanding accounting standards and the world-class regulatory framework underpinning our capital markets.
“These factors are critical in ensuring the success of our economy. If we were to successfully tackle our problems of poverty, unemployment and skills, we would be a winning nation enjoying top investment ratings.”
Nkulu, who served five years as former President Thabo Mbeki’s economics consultant, highlighted investor confidence as a critical factor in the future of the South African economy.
“Our rating downgrades, labour upheavals and other negative issues making international headlines have translated into a situation in which international investors are starting to doubt the effectiveness of our institutions.
“It’s not that this country is poor; it’s that they doubt we can actually manage our affairs. They doubt our ability to take the decisions necessary to maintain stability; they doubt the political will of our leaders to ensure that they conduct themselves in line with the principles that underpin our institutions.
“Quite clearly, our mechanisms for settling labour disputes is ineffective when it comes to dealing with conflicts.” He said that investors were understandably deterred by a resultant inability to predict where South Africa is going; where it will be tomorrow.
“They seek clear rules and regulations and an adherence to them before they can say with certainty that they are aware of how the country will evolve. Simply put, investors want certainty and stability; without it they look elsewhere for a home for their money.”
Nkuhlu, a former president of the South African Institute of Chartered Accountants (SAICA), suggested that there was insufficient local appreciation of the active role that South Africa has played in the global accounting profession. It had helped to develop and maintain the standards that had contributed to investor confidence in the nation’s capital markets.
He pointed out that this was a key reason for South Africa’s top financial framework ranking by the World Economic Forum in its annual Competitiveness Report – the best in the world out of 144 countries. “This is high recognition of our exceptionally high standards.”
He hailed the several individual South Africans to have been globally prominent in this context, noting that their contributions had been “selfless”; that precious little monetary reward had been forthcoming.
“What drives us is our deep commitment to the profession; we enjoy working in the accounting arena; we understand the significance of high quality accounting standards for the country’s development. This is what drives me. I am passionate because I believe in the bigger picture; I am determined to do all it takes to advance South Africa’s standing on the world stage.”