Resilient SA economy can still avoid downgrade - Gordhan

13 September 2016

Although growth my be challenging going forward, Finance Minister Pravin Gordhan said that growth will be above 0%.

Gordhan was speaking at the Investment Summit, in collaboration with Sasfin Wealth, and publications Business Day and Financial Mail , in Sandton on Tuesday.

The 3.3% growth achieved in the second quarter may have got a few people excited, said Gordhan. “But that is not necessarily sustainable in future unless we do something different in areas of economy,” he said.

Gordhan added that the country faces a challenging two months as government, business and labour work to avoid a downgrade. He remarked that the different sectors had worked hard to present a national front to rating agencies earlier this year.

In response to a question about whether South Africa can still avoid a downgrade later this year, Gordhan said yes because there are positive things happening in the country. “We have many things going for this economy. South Africa is still the most sophisticated economy in the continent,” he said. “South Africa has better prospects of pulling itself above 1%, if we give it the opportunity to do so.”

“The next year is critical, not just for ratings purposes but for ourselves as an economy,” he added.

Among the positives is a strong focus on investment despite the limited resources. The National Development Plan (NDP) has a goal for investment to reach 30% of GDP by 2030. Last year South Africa achieved investment worth 20% of GDP, he explained. Investment in the real economy will drive growth and job creation and inspire hope in young people, he added.

Government will announce a new youth development and engagement project that will give disadvantaged young people an opportunity to gain work experience for a period of one year, he said. Gordhan called on the private sector to take an active role in reducing unemployment levels and to make the benefits of growth more inclusive.

Government has made a commitment to “retain and sustain fiscal credibility”. This will be at the expense of growth and expenditure, but necessary for Treasury to stick to deficit and debt targets, he explained.

Secondly, government will endeavour to protect services offered through social wages which support the unemployed who are trapped in poverty. “Many South Africans are still living in poverty.  Something significant must happen to uplift people from poverty.” Gordhan said this involves rethinking investment programmes.

Building more confidence among labour and business partners is important too. “Consumer confidence is crucial for investment and for increased economic activity,” he said. As a result government should work to remove areas of policy uncertainty and create certainty in terms of regulatory requirements.

This article first appeared on Fin24, see here.