SA will be hard to sell in Davos for Mboweni
Mboweni has expressed confidence that they will present a strong investment case for the country as he leads a delegation representing the government, business and labour to the investor networking meetings.
Mboweni last week said they would be frank about the economic challenges facing the country, particularly the rolling blackouts that have crippled production.
But independent analyst Ian Cruickshanks said it was too late for the country to turn its fortunes around in the absence of wide-ranging economic reforms. Cruickshanks said it was time for the government to inspire business confidence, which remains at 30-year lows.
“It took 10 years to break this economy down, so it’s not going to get fixed overnight. There is no way we are going to get the economy back on track. It’s gonna be a difficult case to sell for Team SA. I’m sorry to be so negative, but we have to be realistic,” Cruickshanks said.
“We are also facing the risk of government interference at critical state-owned enterprises. Mboweni is one of the few people who have the depth to speak out about such things, but he puts his job on the line [by doing so].”
Mboweni expressed frustration at the slow pace of the implementation of his economic recovery plan that the National Treasury published last year.
The World Bank has lowered South Africa’s gross domestic product growth (GDP) forecast for 2019 to less than 1percent.
Moody’s Investors Service has cut the country’s credit rating to negative from stable and is expected to deliver its assessment on South Africa’s rating status after Mboweni’s February 26 Budget Speech.
FNB senior economist Siphamandla Mkhwanazi said economic challenges such as load shedding would make it tough for Mboweni to sell South Africa to attract investors.
“The task is more difficult now than it was a year or two ago. It’s been made difficult by the seemingly slow implementation of structural reforms, as well as the worsening energy supply constraints,” Mkhwanazi said.
“This continues to erode South Africa’s potential growth. So the team will have to convince potential investors that there is a concrete, workable turnaround plan to resolve the energy supply constraints, which is unlikely at this stage - this has been a long-standing promise.”
On Thursday, the SA Reserve Bank (Sarb) revised down the gross domestic product growth forecast for 2019 to 0.4percent from 0.5percent, and assessed the risks to the growth forecast to be to the downside.
Sarb’s monetary policy was dovish on low inflation expectations, supporting further rate cuts due to the low-demand environment as the bank unexpectedly cut the repo rate by 25 basis points.
Cruickshanks said the economy was facing a prolonged recession, shortage of development capital, and very low expectations for future prospects.
“The reason for cutting the rates is because there is no demand on price inflation. They have disinflation instead of inflation, meaning there is no growth,” Cruickshanks said.
“Declining activity supports rising prolonged recession risk, sovereign credit downgrade, and further foreign disinvestment.”