Durban - Economists and investment analysts yesterday hailed Finance Minister Pravin Gordhan’s medium-term budget policy statement (MTBPS) as pragmatic in trying circumstances, but warned that policy uncertainty clouded his mission to save the country from a downgrade.
The experts said government moves to curb spending by R10 billion and plans to raise R43bn in taxes over the next two years were positive but warned that the picture that international investors had was of a country at war with itself.
Barclays Africa investment analyst Chris Gilmour said while Gordhan had steered the ship in a very difficult environment, the political noises and uncertainty continued to weigh down the country’s prospects.
Gilmour told an Absa MTBPS dialogue in Durban yesterday that political stability and policy certainty were needed to attract foreign investment into the country. He said of the five countries in Brics, only India showed a positive economic growth of 7.3 percent while China’s 6 percent growth per year had been on the downside over the past two years.
“To attract a foreign investment, the government and the private sector must work together. There are no quick fixes, said Gilmour. “The drought and the fall of the commodity prices had a negative impact on our economy. For us to reverse that we need to grow the economy between 6 percent and 7 percent for the next 20 to 30 years. Only then will we be able to make serious inroads to the unemployment rate in the country.”
University of KwaZulu-Natal lecturer Bhekithemba Mngomezulu said the political noise was not helping the country. Mngomezulu said the uncertainty was disturbing as politics and the economy could not be separated.
“There are two ways to look at this. If South Africa decides to be irrational and replace Pravin Gordhan, there is no way that the country can avoid a downgrade. But if the minister stays, we have a good chance that the downgrade can be prevented. Politicians must understand that the decisions they take have an impact on the economy,” Mngomezulu said.
He added: “Unity within the government is important. Our economy is not doing well, but we are not worse off. Brazil and Russia are in recession, so we are still doing better. But the key is to continue working together, if we don't, then the rating agencies will no doubt take a negative view on us.”
Others said the government needed to maintain its fiscal consolidation plans against increasing debt. Absa chief investment strategist Craig Pheiffer said the government needed to reduce its debt quite drastically. Neither the expected 1.3 percent economic growth next year nor the 2.3 percent in 2018 would be enough for South Africa to prosper.
BUSINESS REPORT