South Africa has a better than 50% chance of avoiding a ratings downgrade, but only if all parties in the economy, and especially the private sector, come to the party and work towards a common goal, finance minister Pravin Gordhan said at a Business Day and Financial Mail Investment Summit in Johannesburg on Tuesday.
An upbeat and jovial Gordhan called on the private sector to become more involved in the economy to increase inclusive growth, because if this does not happen every constituency of the economy will suffer.
Regarding the potential downgrade, Gordhan simply answered “yes”, to a question from Sanlam iTrade head Gerhard Lampen whether there is a better than 50% likelihood of South Africa not being downgraded later this year.
He later added that South Africa has done some “spectacular” work as a country during the first six months of the year. “We are working with the business sector, labour and government to formulate an action plan to engage the rating agencies as a national front.”
This in contradiction to several other opinion polls that suggest that the likelihood of a downgrade is much higher, some even suggesting a 70% probability.
He said although there are political noises that have a negative impact on investment decisions, there good things going for South Africa. “From government’s side we want to do as much as possible to remove policy uncertainty and to increase certainty around regulatory requirements”.
Gordhan added that he does expect growth to exceed the projected 0% for the year and that with the active participation of the private sector growth of between 2% and 3% over the next few years is not impossible.
Gordhan also took a leaf from JF Kennedy’s book to ask the private sector to positively contribute to the future of the country, and not to only look at government to take the lead. “We as government must do our share, but you as the private sector must also do your share to contribute to this environment. Often the narrative in South Africa (from a private sector perspective) is that you guys in government are the problem and the rest of us are fine.”
He said the interaction between the parties earlier this year has shown that different sectors can work together. “We can unite around a national interest. If we don’t we will all lose at the end of the day.”
He also said the private sector should reevaluate how investment decisions are taken. “Lots of cash is moving around in the world. It is predominantly invested for short-term yield and not in a productive way.”
He called on the audience to consider how many investment decisions are for the medium term and in productive assets, to ensure that investments contribute to economic growth. “Our focus is on investment and we know that in terms of the NDP we must have investment of 30% of GDP. Last year we achieved 20%. We need to increase this investment with the help of the private sector to achieve increased economic growth and to create jobs.”
Inclusive growth was a recurring theme throughout his presentation. “Growth in itself is not the panacea anymore. Citizens are becoming impatient with the elite, which includes all of us by the way (speaking to the audience), and the impatience is that growing GDP numbers are not a reflection of how the proceeds of growth are distributed in society, in our case to 55 million people.”
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