Cape Town - With South Africa at risk of falling into recession and having its credit-rating downgraded to junk, President Jacob Zuma is trying to patch up ties with business leaders and seeking their advice on ways to shore up the economy.
Zuma, 73, will hold a meeting with business leaders on Tuesday, two days before he delivers his annual State of the Nation Address (SONA). Finance Minister Pravin Gordhan held unprecedented talks with about 60 chief executive officers on January 29 to discuss how to boost investor sentiment and canvass their views before his February 24 budget speech.
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Business leaders have repeatedly accused the government of implementing inappropriate policies and undermining private industry. Disgruntlement with Zuma’s management of Africa’s most-industrialised economy peaked in December when he shocked investors by firing the finance minister and appointing a little-known lawmaker in his place. He was forced to backtrack after the nation’s rand and bonds dived and named Gordhan to the post that he held from 2009 to 2014.
Build reputation
Zuma “needs to be told that it takes a long time to build a reputation for good business and it only takes minutes to destroy it”, Piet Viljoen, chairman of Regarding Capital Management, which oversees about R8 billion, said by phone from Cape Town. “Unfortunately, we have destroyed our own reputation. We need to rebuild it through consistent application of policy.”
While South Africa was judged the 49th most favourable place to do business out of 140 countries ranked in the Geneva-based World Economic Forum’s 2015-2016 Global Competitiveness Report, its government regulation was ranked the 117th most conducive to carrying out commerce.
“Business is not the enemy, it’s part of the solution,” Gareth Ackerman, the chairman of retailer Pick n Pay Stores, said in an emailed response to questions. “It is business that creates the jobs, maintains government’s ability to pay for social services and keeps the economy alive.”
Growth slows
On February 2, the World Bank cut the nation’s growth forecast for this year to 0.8 percent and warned the economy was “flirting with stagnation, if not recession”. Two days later, Moody’s Investors Service said state debt could climb to more than 50 percent of gross domestic product for the first time in more than a decade as tax revenue slows.
Moody’s cut the outlook on South Africa’s Baa2 credit rating, the second-lowest investment grade, to negative in December. Standard & Poor’s, which puts the nation’s debt one level below Moody’s, also changed its outlook to negative, indicating a possible downgrade to junk.
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“Bold actions are expected from government to grow the economy inclusively and avert the possibility of a credit-ratings downgrade,” the governing African National Congress’s national executive committee said in a January 27 statement. “We must engender consensus between all key stakeholders to help stabilise the economy, save jobs and restore fiscal sustainability and credibility.”
Business confidence
Gordhan will spell out details of the government’s programme in his budget speech. Zuma told provincial leaders his administration plans to make deep cuts to budget allocations, necessitating spending curbs on personnel and infrastructure, Helen Zille, the premier of the Western Cape Province and member of the opposition Democratic Alliance, said in a newsletter published on February 3.
Zuma’s overture to business is the first step toward getting the economy back on track, according to Isaac Matshego, an economist at Nedbank, South Africa’s fourth-largest bank.
“It’s time that government and business started working closer together,” he said by phone. “It has been postponed for far too long. It seems like business has a bit more confidence in government than it had before the meeting with the finance minister last week.”
The government has to be seen to be taking credible, feasible and consistent action to revive growth because “just having a nice chat with business” won’t be enough to restore business and investor confidence, according to Richard Downing, an economist at the South Africa Chamber of Commerce and Industry, the country’s biggest business association.
Business needs to shoulder part of the blame from South Africa’s malaise because it has failed to clearly articulate its views and concerns, according to Ackerman, who is also co-chairman of the nation’s Consumer Goods Council.
“The reach-out from the president’s office is a good sign,” he said. “We hope this will be the start of an ongoing dialogue, not a one-off engagement.”
BLOOMBERG