Sacci calls on members to help avert ratings agency downgrade

6th October 2016

By: David Oliveira

Creamer Media Staff Writer

  

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South Africa’s current economic growth does not reflect the country’s potential and the South African Chamber of Commerce and Industry’s (Sacci’s) members must help build the economy and steer the country to success, says the chamber’s president Vusi Khumalo.

Addressing delegates at the Sacci Presidential Consultative Group Meeting, in Johannesburg, on Thursday, he stated that it was the responsibility of the chamber to prevent South Africa’s potential credit ratings downgrade to junk status.

Financial services provider Stanlib deputy CEO Patrick Mamathuba highlighted that the development of jobs was critical to ensure South Africa reached its economic potential, arguing that private- and public-sector partnerships in infrastructure development would jumpstart the country’s growth.

“Infrastructure is a critical component in the development of any economy. Business needs electricity and water to produce goods, as well as rail infrastructure, roads and ports to transport those goods,” he said, adding that infrastructure development comes at a significant cost.

A key consideration for ratings agencies when considering a downgrade was the debt levels a country’s economy can bear, Mamathuba noted, adding that national government could not bear the financial burden of infrastructure development through debt alone, which opened the door for private-sector participation.

He stated that corporate entities in South Africa jointly have about R600-billion with very low levels of debt and it, therefore, “made sense to use this capital to augment the economy and build infrastructure”.

However, Mamathuba pointed out that infrastructure ownership should remain in the hands of government and that business should provides the skills and funding needed to design, build and operate infrastructure projects.

He quoted the World Bank as stating that private- and public-sector partnerships are effectively able to eliminate poverty and promote shared prosperity, which are key economic policy drivers for South Africa.

Meanwhile Trade and Industry Minister Dr Rob Davies highlighted that South Africa’s low economic growth was mirrored across the globe and was particularly prevalent in mining jurisdictions, which were largely spared the brunt of the economic crisis in 2008 owing to the mineral commodities supercycle that subsequently slowed.

Despite the economic difficulties, the Minister asserted that there were things that could be done to lift the local economy. He pointed to a number of positive “green shoots”, including the clothing and textiles, automotive and agroprocessing sectors.

He suggested that South Africa’s economy could not rely on a mining industry solely focused on mineral production destined for export markets, stating that the country had to use its mineral wealth further down the value chain to generate greater value.

Davies pointed out that each rung of the value chain – such as manufacturing and innovation – generated more value than the previous and that mineral production and supply only contributed about 10% value to the overall value chain.

“We need to move up the value chain if we are going to develop our economy and I think that in [Africa], as a whole, there is a recognition that the next phase has to be industrialisation,” he said, noting that the Department of Trade and Industry had regularly launched [iterations of the] Industrial Policy Action Plan to better position South Africa for economic growth.

Davies pointed out that these action plans had showed “a few positive results”, but conceded that the country still had a long way to go before it achieved an industrial economy on a broad and deep enough scale.

He highlighted that South Africa’s gross domestic product (GDP) expanded by 3.3% in the second quarter of this year, against the expected 2.6% growth. During the same period, manufacturing contributed 8% to GDP, a turnaround on the negative contributions in the first quarter.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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