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Zuma courts CEOs as SA risks junk rating, recession

Seeking advice on ways to shore up the economy.
President Jacob Zuma
With South Africa at risk of falling into recession and having its credit-rating downgraded to junk, President Jacob Zuma is trying to patch up ties with business leaders and seeking their advice on ways to shore up the economy.

Zuma, 73, will hold a meeting with business leaders on Tuesday, two days before he delivers his annual state-of-the- nation address. Finance Minister Pravin Gordhan held unprecedented talks with about 60 chief executive officers on Jan. 29 to discuss how to boost investor sentiment and canvass their views before his Feb. 24 budget address.

Business leaders have repeatedly accused the government of implementing inappropriate policies and undermining private industry. Disgruntlement with Zuma’s management of Africa’s most-industrialized economy peaked in December when he shocked investors by firing the finance minister and appointing a little-known lawmaker in his place. He was forced to backtrack after the nation’s rand and bonds dived and named Gordhan to the post that he held from 2009 to 2014.

Build Reputation

Zuma “needs to be told that it takes a long time to build a reputation for good business and it only takes minutes to destroy it,” Piet Viljoen, chairman of Regarding Capital Management, which oversees about R8 billion ($503 million), said by phone from Cape Town. “Unfortunately, we have destroyed our own reputation. We need to rebuild it through consistent application of policy.”

While South Africa was judged the 49th most favorable place to do business out of 140 countries ranked in the Geneva-based World Economic Forum’s 2015-2016 Global Competitiveness Report, its government regulation was ranked the 117th most conducive to carrying out commerce.

“Business is not the enemy, it’s part of the solution,” Gareth Ackerman, the chairman of retailer Pick n Pay Stores, said in an e-mailed response to questions. “It is business that creates the jobs, maintains government’s ability to pay for social services and keeps the economy alive.”

Growth Slows

On Feb. 2, the World Bank cut the nation’s growth forecast for this year to 0.8% and warned the economy was “flirting with stagnation, if not recession.” Two days later, Moody’s Investors Service said state debt could climb to more than 50% of gross domestic product for the first time in more than a decade as tax revenue slows.

Moody’s cut the outlook on South Africa’s Baa2 credit rating, the second-lowest investment grade, to negative in December. Standard & Poor’s, which puts the nation’s debt one level below Moody’s, also changed its outlook to negative, indicating a possible downgrade to junk.

“Bold actions are expected from government to grow the economy inclusively and avert the possibility of a credit- ratings downgrade,” the ruling African National Congress’s national executive committee said in a Jan. 27 statement. “We must engender consensus between all key stakeholders to help stabilize the economy, save jobs and restore fiscal sustainability and credibility.”

Business Confidence

Gordhan will spell out details of the government’s program in his budget speech. Zuma told provincial leaders his administration plans to make deep cuts to budget allocations, necessitating spending curbs on personnel and infrastructure, Helen Zille, the premier of the Western Cape Province and member of the opposition Democratic Alliance, said in a newsletter published on Feb. 3.

Zuma’s overture to business is the first step toward getting the economy back on track, according to Isaac Matshego, an economist at Nedbank, South Africa’s fourth-largest bank.

“It’s time that government and business started working closer together,” he said by phone. “It has been postponed for far too long. It seems like business has a bit more confidence in government than it had before the meeting with the finance minister last week.”

The government has to be seen to be taking credible, feasible and consistent action to revive growth because “just having a nice chat with business” won’t be enough to restore business and investor confidence, according to Richard Downing, an economist at the South Africa Chamber of Commerce and Industry, the country’s biggest business association.

Business needs to shoulder part of the blame from South Africa’s malaise because it has failed to clearly articulate its views and concerns, according to Ackerman, who is also co- chairman of the nation’s Consumer Goods Council.

“The reach-out from the president’s office is a good sign,” he said. “We hope this will be the start of an ongoing dialogue, not a one-off engagement.”

©2016 Bloomberg News

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Wish the very corrupt ANC acted in the best interests of South Africans rather than ruining the economy, services and welfare by looting and pillaging only to try repair the damage (for the sake of saving their skin alone) once it’s too late

You are 100% correct. Any business leader who takes the lead from anything they hear from Zuma at the scheduled meeting of the ‘so called’ business leaders in South Africa should know that everyone will be questioning their judgement too in the light of ‘ the cart trying to pull the horse’ syndrome that we now find the country in.

Which business leader is going to believe anything our chief court jester tells them especially on the same day that the Constitutional Court is hearing the case of distrust, abuse and neglect of the oath of office of the very man bending their ears to believe what again will be reckless abandonment and who stands accused of ignoring the constitution.

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