Johannesburg - Now the country had dodged the bullet of a credit rating downgrade it was time to knuckle down and put a “universal focus” on lifting economic growth, Finance Minister Pravin Gordhan said.
This was not about satisfying ratings agencies but was “necessary whether we are about to be downgraded to junk or not”, he said on Saturday, responding to rumbles of discontent in some quarters over the appearance the government was being forced to bow to the interests of foreign investors.
Growth of 0.6 or 0.7 percent was “just unacceptable”, as were the low level of job creation and the loss of jobs.
Failing to achieve the right levels of investment in infrastructure and the real economy was also putting the future at risk. “So what we’re looking at here is not just for ratings agencies, it’s for the benefit of (the whole country) now and future generations, to ensure we remove hurdles and that we actually build a more positive narrative as we go forward.”
Responding to Standard & Poor’s concerns that rising political tensions ahead of the elections and the ANC’s leadership race could hamper implementation of reforms and damage the social compact between the government, labour and business, Gordhan said there would always be political debate and noise in any country.
“Look at what Brexit is doing to the UK at the moment,” he said. “What we need is to be mindful of how we conduct our politics and let’s not shoot ourselves in the foot.”
It was a relief that S&P, considered the more hawkish of the three major agencies, had affirmed South Africa’s sovereign investment grade on Friday evening, but there was a lot of work still to be done.
Referring to S&P’s concerns about the potentially adverse effects of low growth – which it saw at 0.6 percent this year and 1.6 percent next year – and the need for promised reforms to be implemented to turn the economy around, Gordhan said this meant the country needed to shift the focus from avoiding a downgrade and concentrate on what it would require to grow the economy.
“What do different role players have to contribute to that?” Gordhan asked.
Higher growth would “change the denominator” in a number of key ratios, including debt-to-GDP and the current account and budget deficits.
Gordhan said while it wasn’t possible to produce growth “at the click of a finger”, South Africa could demonstrate the right things were being done.
“So, are we supporting agriculture differently and is that going to give us dividends, both in terms of growth and employment, in terms of getting more farmers to become more productive, get state assistance in the right place, get the produce people are creating to the markets in a different way, just as one example.
“Are we able to build on the tourism dividend that we’ve already gained from and multiply it, because that also has huge benefits for employment in different parts of the country if we create infrastructure in the right kinds of places,” Gordhan said.
There were similar opportunities in the ocean economy, turning around mining and manufacturing in spite of the difficulties they faced and to seek opportunities on the continent for exports, which would also contribute to keeping the current account deficit in check.
As important were the required deep structural changes “about which we need frank and open conversations”.
These included concentration in parts of the economy and “really exploding the small business sector and even the informal sector, from which small business will grow”.
“We know what to do, these are all growth promoting things,” Gordhan said.
There were also constraints on the economy that should be addressed, including regulatory uncertainties like the Minerals and Petroleum Resources Development Act and the Mining Charter.
Private sector voices have expressed concern over provisions in the act which would grant the state a 20 percent “free carry” in new energy projects, with an option to take a 100 stake at an agreed price, suggesting these would discourage investment, and changes to the mining charter which require mines to maintain 26 percent black ownership regardless of previous empowerment deals.
Gordhan said it would help to settle these questions to create a more optimistic climate for local and foreign investors.
“So I think we have the basic formula in place and we now need to take it a few steps further and demonstrate concrete, even minimal shifts towards implementation,” Gordhan said.
He gave an assurance that the reprieve would not result in a loss of focus now the immediate danger of a downgrade had passed.
“I think this will propel us and motivate us to add more energy and work with greater focus and build on our successes.
“It would be foolish to let our gains just dissipate. I think the possibilities are there to do much better on our side, so we’ll start working at that in the course of the next weeks.”
Earlier, President Jacob Zuma also welcomed the S&P decision, congratulating “Team South Africa, constituted by government, business and labour, for the sterling work that has been done over the last few months to turn our economy around”.
The S&P decision, following a similar decision by Moody’s rating agency, “demonstrates that working together we can reignite our economy, attract investment and create jobs for our people”, Zuma said. “Let us use these positive developments to work even harder together to move South Africa forward.”
The decision was also welcomed by the private and banking sectors. Banking Association of SA MD Cas Coovadia said there was still a long way to go “in order to prove that we are firmly on a sound financial footing and economic trajectory”, but he was full of praise for Gordhan’s efforts, which, with the social partners, were “beginning to chip away at the implementation of budget consolidation and structure economic reforms to boost the economy”.
The ANC also applauded the social partners “for demonstrating unity of purpose”. “This is more important given the fact that S&P maintained the negative outlook on the rating, citing concerns about economic growth and warned it could lower the rating by year-end or next year if policy measures do not turn the economy around,” said chairman of the ANC’s sub-committee on economic transformation Enoch Godongwana.
But DA spokesman on finance David Maynier said while the S&P decision was welcome, it had raised concerns about “rising political tension”, the lack of “cohesion of the executive branch” and “periodic disputes between government institutions.
“That Standard & Poor’s did not downgrade us feels like a miracle given President Jacob Zuma’s protracted ‘dirty war’ against the Minister of Finance Pravin Gordhan and National Treasury,” Maynier said.
Political Bureau