Gordhan worries about downgrade, 0% growth

26 July 2016

Johannesburg – South Africa can achieve 1.5% growth, but that is not enough, according to Finance Minister Pravin Gordhan.

Speaking at the EY and Johannesburg Chamber of Commerce and Industry (JCCI) business breakfast in Sandton on Tuesday, Gordhan highlighted the importance of achieving inclusive growth. Gordhan has recently returned from the first National Development Bank (NDB) Annual General Meeting held in Shanghai, China, last week.

“The country is sitting at 0.58% of GDP and needs to hit 1.5% as a target,” said Gordhan. Within the short term the government and the private sector need to work to keep the economy above 0% and avoid a credit downgrade in December. Once that is done, the country can focus on what needs to be done afterwards," said Gordhan.

Improving infrastructure is crucial for the development of South Africa and the African continent. It encourages investment and creates job opportunities, he said.

Investments by companies and the government need to meet the 30% target of the National Development Plan, it is currently at 20%, said Gordhan. “We need to develop trust, confidence, dynamism and collective thinking for investment.”

More losers than winners

Stabilising debt, fiscal consolidation and generating economic growth are not the end goals for a country - institutions need to find a way to connect the greater population to the economic and social development.

“There are more losers than winners. The winners take care of themselves and the losers are left on their own,” said Gordhan. This is opposite to the values set out in the Constitution which promotes inclusivity.

Gordhan drew analysis from various G20 reports which seek to promote inclusive growth. This includes promoting trade and investment. “The world is becoming protectionist… Protectionism is useful in some instances but it can be destructive in other instances,” he said. We need to get the balance right between openness and managing protection.

Further, labour market and education reforms must be introduced. This is not only formal education, but awareness of what is happening around the world. “If we do not have informed citizenry … we will open up ourselves to a vicious form of populism,” said Gordhan. It is also important to encourage innovation and competitiveness.

There are concerns about product market concentration. Too many major players inhibit development of Small and Medium Enterprises (SMEs). “The quantitative generation of small businesses is not happening on scale and purposefully as we require.” Product market concentration is restrictive, he said.

If we adopt these approaches, we could be on a better economic trajectory in two or three years, said Gordhan.

This article first appeared on Fin24, see here.