NEWS

Why Gigaba Failed To Make The Case For A 'Glass Half Full' Economy

The finance minister's approach to what are clearly crises is too laid-back.

15/06/2017 18:05 SAST | Updated 16/06/2017 07:09 SAST
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Analysis

Finance Minister Malusi Gigaba believes the state of South Africa's economy is a glass half full. But whichever way you argue it, it seems the glass is slowly emptying.

Earlier this month, ratings agency Fitch affirmed South Africa's long term foreign and local currency debt ratings at BB+ ratings with a stable outlook. S&P followed a day later and affirmed the long term foreign currency debt rating at 'BB+' and long term local currency debt rating at BBB- with a negative outlook.

On Monday this week, Moody's downgraded South Africa's long term foreign and local currency debt ratings at 'Baa3' with a negative outlook.

Gross domestic product (GDP) contracted 0.7 percent between the first quarter of 2017 and the fourth quarter of 2016. This followed a contraction of 0,3 percent between the fourth and the third quarter of 2016. This means we are in a recession for the second time in eight years.

The glass is certainly not half full.

In light of these events, the finance minister addressed the media on Thursday, outlining government's interventions in the hopes of stimulating inclusive growth. He said the country is at an inflection point, where we can choose to be negative and pessimistic, or positive and optimistic.

But remaining optimistic in these conditions is difficult to say the least.

A lack of urgency
We expected Gigaba to take the bull by the horns; to attack the issues facing the country's economy head on with a sense of urgency. But this was not the case. His speech seemed to be more '"we will do" rather than "we are doing".

Gigaba said his department has met with the business sector, having held meetings with Business Unity SA (BUSA), the Black Business Council, the Black Management Forum, the Association of Black Securities and Investment Professionals (ABSIP), and the Black Investment Managers Business Forum. Meetings with the manufacturing sector were said to be scheduled for Thursday afternoon.

He said it became clear that it would be a mistake to react to the recession by focusing only on the growth of established business, and letting economic transformation "fall by the wayside". He emphasized the need to advance inclusive growth and economic transformation.

While no one would argue that point, the fact is the economy is shrinking. Prioritizing transformation in a shrinking economy would be counterproductive. Growing the economy would be the first step.

In South Africa's case, this is a matter of urgency because the country needs strong economic growth to make inroads into socio-economic issues like unemployment, which currently stands at more than 27%.

A lacklustre approach
Gigaba said going forward, the focus will be on leveraging on improved conditions in agriculture; finalizing key policy in mining; reviewing incentives in the manufacturing sector; and engaging with the finance sector to iron out the "tightness" in the credit market.

But these are long-term plans rather than radical action which is needed immediately. Gigaba admitted himself that "it will take some time for some of [their] interventions to impact the real economy and result in improved growth".

The question is, how much time?

The ratings agencies effectively handed government a to-do-list when they provided the reasons as to why we were downgraded. On the list was slow growth, poor governance at state-owned enterprises and political instability.

Calls for president Jacob Zuma to step down, the recent midnight cabinet reshuffle and dossiers of evidence being reported on the capture of the state and its corporations can all be cited as leading causes to the current political instability which drove ratings agencies to their decision.

But Gigaba said little to nothing on how this issue in particular can be rectified.

He said Treasury is committed to strengthening South African Airway's board and is confident that Public Enterprises minister Lynne Brown will fill vacancies in the board and executive leadership of Eskom.

He concluded by urging citizens to remain optimistic "about the possibilities of South Africa" and work together to "realize a better future for all".

But he wants us to do so when only the mining and agriculture sector made a positive contribution to output growth. All other sectors contracted.

Business conditions are toughening. The demand for South African investment is down.

But actions do speak louder than words, and after the briefing, when Gigaba was grilled by the media, he said the public must judge officials by their actions and not what is said about them.

We will have to wait and see if Gigaba's plans come to fruition especially with the more political turmoil ahead.