JOHANNESBURG – South Africa needs to provide “concrete evidence” over the next few months of how it is addressing issues that worry foreign investors and ratings agencies, if it wants to convince them that it is not “just talking”, finance minister, Pravin Gordhan told journalists on Monday.
Gordhan last week led a delegation, which included representatives from government, business and labour, on an investor road show to discuss the Budget Review and latest economic developments in the country.
Businessman Christo Wiese and CEO of the JSE, Nicky Newton-King, were among those who joined the delegation, which met with more than 250 foreign investors across London, Boston and New York who collectively manage several trillions of dollar assets. Among them were some of those who government owes in excess of R600 billion, with gross government debt currently around R2 trillion.
Foreign investors queried a number of political hot potatoes, including the unceremonious removal of former finance minister, Nhlanhla Nene; labour instability; and the drag of state-owned enterprises (SOE) on government finances.
Gordhan said there is “a global awareness” of our economy and that the economy and South African society needs to win back credibility. He said investors wanted to know where economic growth was going to come from.
According to Gordhan, Treasury will be scrutinising government programmes to establish “what we really need to spend money on in government if circumstances around us don’t change” – i.e. if economic growth and revenue don’t increase.
“Government has a lot of space to cut expenditure further if needed,” Gordhan said.
He said government would “rationalise” many smaller SOEs, particularly where there is duplication, while attending to governance and financial stability issues in each of the “major ones we are dealing with”, so that they can operate on the strength of their own balance sheets.
On Nene, Gordhan said, “All they [foreign investors] want are indications of stability and we assured them as Treasury that we are here to do a piece of work and we will continue to do a piece of work as long as we can and will serve the country as long as required”.
Deputy Reserve Bank governor, Daniel Mminele said that, following the events of “9/12” (December 9 2015), investors asked questions around central bank independence and “those fears could be allayed”.
President of Business Unity SA (Busa), Jabu Mabuza, who has spearheaded interactions between business and government in recent months, said that business-government working groups would provide reports to the President – on concrete steps to boost small businesses and industries such as manufacturing and tourism, for example – by May.
“The interaction with the ratings agencies, including senior people from Moody’s, was an extremely constructive interaction and one I hope will mean that we will be given some breathing space to demonstrate that we can concretely take South Africa’s economy in a very different direction,” Gordhan said.
Moody’s, which has us two notches above junk, arrives in South Africa on Wednesday to begin its review of the country’s credit rating.
Gordhan said that while investors did raise the issue of a credit ratings downgrade, some said that they don’t take ratings agencies seriously and have their own country analysis.
If South Africa gets downgraded to sub-investment grade by one of the agencies, its “plan B” would be to “get upgraded”, Gordhan quipped, acknowledging this was not a simple thing to do.
Fitch and Standard & Poor’s cite six to eight years as the average time taken four a country to regain investment grade status.
Chairperson of Barclays Africa, Wendy Lucas-Bull, who accompanied the delegation, said the resounding message from investors and rating agencies was that the Treasury, Reserve Bank and Minister had enormous respect and “this was not to be underestimated”.
According to Lucas-Bull, the Minister made a “critical decision to take this trip at this time”. “We can’t underestimate the urgency with which these issues need to be dealt with, this could not be delayed,” she stressed.
Gordhan said that foreign investors still have confidence that there’s a leadership team inside and outside government with the ability and resources to move the economy to higher levels of growth.
“The time is now for South Africans to show similar confidence in the economy and demonstrate that we are capable of working together and I’m sure we are,” Gordhan said.
Launched at the weekend, the Socio-economic Future of South Africa (Sefsa) aims to encourage dialogue between civil society actors and has been endorsed by religious, business, labour and government leaders.