Radebe urges against ratings downgrade in S Africa

24th February 2016 By: Kim Cloete - Creamer Media Correspondent

Radebe urges against ratings downgrade in S Africa

Minister in the Presidency Jeff Radebe

A sovereign rating downgrade would have ripple effects that would be felt by business and households alike, Minister in the Presidency Jeff Radebe said on Wednesday.

A sovereign ratings downgrade to subinvestment grade, or 'junk status' would raise the cost of borrowing and could result in capital outflows, leading to further currency weakness, and increasing the cost of living for ordinary people in South Africa.

Radebe told delegates at the Bloomberg Africa Business and Economic Summit that the government was giving its full attention to concerns raised by ratings agencies.

He said government had taken note of concerns about weak business confidence, rising government debt, a challenging environment for doing business, and policy uncertainty.

“We have reiterated our commitment to stabilise government debt. Cabinet has decided government will not raise its borrowing limit and we need to be more efficient with public resources. We need to get optimal value for every single rand we spend.”

He stressed that government needed to “explore ways” to curtail the extent of the public sector wage bill, which had grown faster than all other items on the national budget over the past year.

He added that the government would undertake all measures to manage its debt, while not negatively affecting social spending.

Radebe said the government was committed to reviewing regulations and laws that impeded investment in the economy. All future regulations and legislation would be subjected to a socioeconomic-impact assessment before being passed in Parliament.

The Minister also pointed out that government was concerned that foreign direct investment (FDI) flows had fallen 31% in 2015.

“As a government, we’ve developed a five-year programme in pursuance of the National Development Plan. We’re continuing our infrastructure build programme and the expansion of our energy capacity. We’re committed to ensuring our State-owned companies are properly managed.”

He acknowledged that government was aware of calls by the private sector to facilitate investment. “The importance of creating this environment for doing business has been raised several times.”

He said the government had been challenged by severe drought and labour relations disputes this year. Radebe’s comments dovetailed with several of Finance Minister Pravin Gordhan’s statements in his Budget Speech.

Lonmin CEO Ben Magara also told delegates at the summit that now was the time for change to avoid the “dreaded credit rating challenge” and that government needed to work together with the private sector.

“South Africa’s friends during the liberation struggle are not going to help to create jobs. Jobs can only be generated if you make a profit and that means involving business. We are reaching a cliff and we need to put our heads together. It takes two to grow the cake.”