National Treasury officials and business leaders set off on a roadshow last week in the UK and US with rating agencies and investors.
The South African delegation has met rating agencies Fitch Ratings, S&P Global Ratings and Moody’s Investors Service, and bond investors. The purpose of the roadshow is to sell the country’s political and economic story. The aim is to convince international investors to invest in South Africa as the country plans to raise $3 billion from capital markets.
Dr Jabu Mabuza, chairman of the Eskom board and Business Unity SA president, spoke to Moneyweb about how team South Africa was received by investors, whether rating agencies will hold off on further downgrades and what investors think about South Africa’s plan to expropriate land without compensation. – RM
RAY MAHLAKA: Thank you so much for agreeing to speak to us. Perhaps where we can start off, Mr Mabuza, is that you were part of the SA delegation with the roadshow in London, together with the National Treasury and the Reserve Bank, is the climate now quite different in terms of how investors and ratings agencies received the SA delegation now that there’s a new political leadership?
JABU MABUZA: I think we were very well received and the Rama-phoria was being felt everywhere and also more than just the euphoria, we had a better story to tell. When we last were speaking to investors the big issue towards the end of November, early December, just weeks before the ANC elective conference there would have been political uncertainty, three months to the day, the elective conference did take place, resolutions were passed, elections took place, we have a new president.
We embarked with his Exco on a transitional engagement that in the scheme of things, when you look at it now, was much quicker and relatively smoother than what it could have been. We have a new president who presented the State of the Nation Address that sought to give some clarity, particularly on areas of the economy, economic growth, policy certainty, policy clarity and predictability. He [Cyril Ramaphosa] went to Sona and committed to the [Justice Raymond] Zondo commission [of inquiry into state capture], he announced a number of initiatives to address investment and stimulate jobs with an investor conference and jobs summit. We have since had a Minister of Finance that tabled a national budget that had fiscal consolidation that recognised that on the revenue side, there’s very little fiscal space to increase corporate and individual tax given that the economic standards in the developing world are already at a high level, did increase VAT for the first time in 23 years. Lastly, we have since had a Cabinet reshuffle and the ministers who have been put in those portfolios and most of them are in the economic space. In minerals we have got former Secretary-General of the National Union of Mineworkers as an example, the former Minister of Finance is back in finance. So all those were pointing to a better story to tell.
RAY MAHLAKA: We are on thin ice with the rating agencies, we know that two of the three have already rated us as junk. One of the reasons they did so is they cited concerns about South Africa’s fiscal health and the governance structures within SOEs. Was the message that you sent out to rating agencies, did it resonate with the rating agencies and do we have an indication on whether they will hold off on further downgrades?
JABU MABUZA: Those are the people whose body language is difficult, if not impossible, to read but I guess we have given them answers that are cogent. We have given them answers that speak to where we think growth is going to come from, not just some pray and spray answers. Treasury was at pains to explain in its brief what kicker the investor confidence is going to give, about half a percentage point in GDP, some of the reforms in telecom sector, some of the work that’s done in transport, tourism and agriculture, so that was another area.
We also dealt with the concern about the land expropriation to address that the Parliamentary Review Committee is the best place to deal with this issue with a view to try and find certainty. So I think we have given them answers and I think it’s not going to be an easy issue to get away with. They [investors and rating agencies] would think very, very hard and the next few days on our criminal justice system and strengthening of this is going to go a long way. So I’m confident that we told a good story.
RAY MAHLAKA: On the land issue, as you have rightly noted, it’s emotional, we have seen that the government has proposed for the expropriation of land without compensation but you’ve seen a lot of investor talk at this point regarding this proposal, a lot of people are raising their fears about how onerous this piece of legislation or proposal is at this point. But did this proposal dominate your talks with investors and ratings agencies?
JABU MABUZA: Yes and that was welcomed, we took a lot of time to explain this, to explain that this is an issue that as a country we have not dealt with in the last 20 years. We also emphasised that it would have been disingenuous of the president not to put the issue on the table and it would not be characteristic of the person that he is. But having put it on the table there has been an undertaking that this is going to be done in a manner that does not harm the economy and that does not undermine food security. We should be trusted, we have dealt with more thornier issues, whether it was nationalisation, arms struggle, we’ve dealt with those in a manner that the world at least should give us the credit, that we have been faced these issues, we didn’t duck and dive, we faced them and dealt with them in a sober sense. In this one it won’t be different, it is being put in the place where it should be so that we can all participate in finding the proper solutions, being guided by knowing what we should not do. We might know not what to do but we know what we should not do, the world has a lot of examples of why we should not do what people in Venezuela have done. We’ve seen our neighbours, how they have dealt with this, we know what not to do, and I have got every confidence that the South Africans sitting at that table and the committee that reviews the constitution on this issue, will have all that it takes, guided by our one mission to create a united non-racial, non-sexist society.
RAY MAHLAKA: As the voice of business, are you concerned by the manner in which this proposal was pushed through? What I mean by that is when you look at when it was announced in December at the ANC elective conference, there were no cost analysis studies being done, there was no white paper or policy documents introduced on this topic. So, right now, we sit with uncertainty about how this amendment to Section 25 of the legislation will be done. As the voice of business, aren’t you concerned about how the governing party is pushing this through?
JABU MABUZA: As I say, we as business have approached this acknowledging that Section 25 does deal with three elements as we sit. It does deal with restitution, it does deal with redistribution, it does deal with expropriation without compensation, it does deal with that. I think conferences are what they are, they take a resolution that this is what we’re going to do and you must go and work out and see how you will get it done. That’s where we have got faith that the system and the processes are in place to make sure that we do it in the proper way. We have already had an undertaking from government that they are going to do an audit on just how much land is there, where is it, how much of it is required, we’ve got that undertaking. This committee will be back by August, we are told, and ours as business is to make sure that we make our contribution in this debate in the search for a solution.
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