Finance Minister Malusi Gigaba
Owing to poor economic developments in recent months, including three ratings downgrades, South Africa may not realise its expected 2017 growth projection of 1.3%, according to Finance Minister Malusi Gigaba, who spoke at a media briefing in Pretoria on Thursday.
Ratings agency Fitch this month affirmed its April decision to downgrade South Africa’s long-term foreign and local currency debt ratings at BB+ with a stable outlook. Thereafter, Standard & Poor’s affirmed the country’s long-term foreign currency debt rating at BB+, while affirming the long-term local currency debt rating at BBB- with a negative outlook.
Moody's Investors Services downgraded South Africa's credit rating last Friday, but kept it at investment grade with a negative outlook, citing the recent Cabinet reshuffle and reduced economic growth prospects as its reasons for doing so.
Compounding these ratings downgrades, South Africa’s gross domestic product earlier this week contracted 0.7% between the fourth quarter of 2016 and the first quarter of 2017.
“This followed a contraction of 0.3% between the fourth and the third quarter of 2016. This trend unfortunately implies that our economy has entered into a recession,” noted Gigaba.
He added that this continued the trend of low growth seen over the last several years, undermining the country’s aim of significantly reducing inequality, unemployment and poverty, which fundamentally disadvantages a large portion of the country’s population, exacerbating social instability.
“It therefore requires all social partners to reflect on our progress in bringing about inclusive growth and economic transformation, and to do all that we can and more from our respective positions.”
All three ratings agencies have raised similar issues, including the slow pace of growth-enhancing reforms, growing contingent liabilities amid poor governance at key State-owned entities and political risks.
“Our sovereign credit rating has huge macroeconomic impact, and affects government, business and ordinary South Africans alike. We are committed to restoring it to a favourable investment-grade rating with a positive outlook as quickly as possible,” he said.
Gigaba noted that South Africa should not lose sight of the fact that these issues need to be addressed “for the good of our country and to advance our national development”.
“We need to want to do the right things for our economy and our society, not just because credit ratings agencies are watching. Obviously these developments are not what we would have hoped, however it is critical that we are not despondent at this time,” he noted.
Gigaba added that government was “fully aware” of the economic trials in South Africa, but was adamant that its interventions would show positive results in time.
“Successful government interventions include having moved from an electricity shortage to a surplus, as well as launching Invest SA, making it easy to open a business and invest in South Africa. These interventions have resolved issues which, until very recently, have been seen as major binding constraints on growth.”
He highlighted, however, that the rebound in South Africa’s energy sector would not be immediate.
“Production capacity, which was lost owing to electricity unavailability or bitter labour disagreements, will take time to be reconstituted,” Gigaba said.
He pointed to a recovery in South Africa’s mining and agriculture sectors as a positive sign, as both sectors had had the biggest impact on the country’s slow growth over the past few years.
Gigaba further highlighted restoring consumer and business confidence as challenging, and called for South Africans to focus on the positive and not give in to negative thinking.
“We can’t say how much growth can be restored if all social partners begin to talk up what is working in the economy, but we know for sure that fixating on our challenges will not help us,” he said.
He added that the National Development Plan (NDP) highlighted South Africa’s task of driving inclusive growth and economic transformation as two necessary, mutually reinforcing and overarching objectives, which will enable the country to resolve its national challenges.
“Achieving Vision 2030 requires all of us to find common cause and to ask ourselves how we can contribute – as government, as business, as labour, as civil society – to inclusive growth and economic transformation.
“Nowhere in the NDP does it say it would be easy,” said Gigaba.