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Gigaba skirts junk, talks radical change

May 07 2017 06:10
Justin Brown

HARD SELL Finance Minister Malusi Gigaba addresses journalists at this week’s World Economic Forum on Africa 2017, which took place in Durban. Picture: Reuters / Rogan Ward

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Johannesburg - "Finance Minister Malusi Gigaba will get a chance to show his mettle when he delivers his medium-term budget in October,” says Reserve Bank governor Lesetja Kganyago.

Interviewed at the World Economic Forum (WEF) in Durban this week, Kganyago added that “a month in office is too short to make a call”.

“A life of a finance minister is measured by how many budgets you have tabled. The Medium-Term Budget Policy Statement is coming in October.

"The minister will be able to demonstrate in that statement that he is not only able to run Treasury, but also to get the entire government behind responsible and responsive fiscal policy.”

Kganyago said he had had “the pleasure of working with him” during meetings with investors, finance ministers and policymakers from other countries and international finance institutions officials during the World Bank and International Monetary Fund meetings they recently held in Washington in the US.

“He has demonstrated an incredible ability to grasp very complex issues.

“We need to give him time and an opportunity to settle and build a rapport with the team that he has inherited. National Treasury has served the country with distinction.

"With such an ‘A’ team, he dare not fail. If he continues with that team, he will succeed.”

Cas Coovadia, managing director of the Banking Association of SA, said while Gigaba was “a capable person”, it was important to focus on the prize.

“As long as we keep to the policy trajectory and fiscal discipline, and move away from rhetoric – anti-business and anti-white rhetoric – we can start working together.”

Gigaba also got a nod from Barclays Africa CEO Mario Ramos, who called him a “smart man” who “has a huge task ahead of him”.

“Maintaining fiscal discipline is not going to be easy. The economy is not growing. We need to give him and his team time,” she added.

Much of the spotlight at the WEF summit – held at Durban’s Inkosi Albert Luthuli International Convention Centre – was on the new minister, who was appointed under controversial circumstances in President Jacob Zuma’s midnight Cabinet reshuffle.

Gigaba focused on poverty, inequality and unemployment while keeping the country’s credit rating on the back burner. In contrast, Gigaba’s predecessor, Pravin Gordhan, paid very close attention to trying to avoid South Africa’s credit rating from being downgraded.

The results of the downgrades by two ratings agencies that followed Gigaba’s appointment on March 31 have been raised borrowing costs and a weakened rand exchange rate, with job losses expected to increase and growth to decrease.

Although Gigaba has acknowledged that credit ratings are important, he has yet to explain how he is going to avoid more downgrades or how he plans to restore the country to investment grade.

At the WEF, Gigaba identified poverty, inequality and unemployment as the economy’s “most urgent challenges”.

“Whatever the name you give it, we all seem to agree that something urgent, big and more inclusive needs to be done to address these issues,” he said.

“Something must give. We must not be frightened off by demands for radical change. It is not sustainable for South Africa’s economy to grow without a role for the black majority.”

Gigaba’s thoughts echoed those of Zuma, who told the WEF:

“Growth must not be enjoyed by the few. We have not addressed adequately how we are going to address the gap between the rich and the poor.”

On the subject of black entrepreneurs, Gigaba said: “I have been quite critical of the black economic empowerment programme we have implemented … largely because it was focused on share ownership schemes.

“In the past two decades, we have created very few genuine black entrepreneurs and industrialists in proportion to the black population.”

Local businessmen and investors attending the WEF did not mince their words about wanting to start the process of getting the country’s credit rating back to investment grade.

During one session, Kuseni Dlamini, the chairperson of Massmart, said:

“I think we need to move beyond the downgrades and start having a conversation about investment grade recovery.

"Coming up with a plan requires vigour and a redoubling of the efforts that the CEO Initiative and government have been driving together.

“I think we can pull ourselves up and get back to investment grade,” he added.

“The first thing required is that we read the reports that the ratings agencies have put out on South Africa ... A second aspect is leadership – visible and felt leadership at a national level, showing that we are committed to doing the right things.”

Ramos told City Press that “the road back to investment grade tends to be quite a hard road … Unless we see demonstrable action, I do not see any change.”

Kganyago said South Africa needed to “get our act together” to mitigate risks of further downgrades and “leverage on our credit strengths” to protect the rating.

He said the structural reform programme, which had been spelt out in the National Development Plan and the nine-point plan to boost economic growth and create jobs, needed to be implemented.

“We need to take ourselves out of the perpetual discussion mode and move to execution phase.”

Kganyago said the momentum created by government, labour and business working together in the past 18 months should not be lost.

“We should not lose that momentum … We need to redouble our efforts.”

Coovadia said the downgrades were “a crisis for our country. We do not know if the new minister has a plan to restore the credit rating.”

The finalisation of the Moody’s review of South Africa’s status, due in July, was the next signpost, he said.

“If Moody’s downgrades us to ‘junk’ status, that will be severe.”

Geoffrey Qhena, CEO of the Industrial Development Corporation, raised lack of growth as a major concern.

“Collaboration is very important. We missed two downgrades because of that,” Qhena said.

Gigaba did give the country’s fiscal status a mention.

“We cannot spend money we don’t have … Our spending must be aligned with the growth patterns of the economy. We do not have enough fiscal options. Our debt ratio is high,” he said.

Deputy Minister of Finance Sfiso Buthelezi said a key point made to investors during Gigaba’s investor roadshow in Washington last month, was that the finance minister had been part of Cabinet for the past 13 years.

“I have been a member of the National Assembly and a member of the standing committee on finance,” Buthelezi added.

Buthelezi said he and Gigaba were worried about the country’s R2.2 trillion debt, adding: “We are not going to be reckless.”


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