Finance minister Pravin Gordhan speaking in Johannesburg earlier this month. Gordhan said he saw more than 50% chance the country will avoid a downgrade by ratings agencies.
Finance Minister Pravin Gordhan is not in for an easy ride when he meets investors to sell them a good story about South Africa at a time when the bad news continues to take centre stage.
Ongoing political turmoil in recent months has placed added pressure on the flailing economy. Concerns over governance has already seen Futuregrowth, Africa’s largest private fixed-income money manager, announce it will no longer lend to six state-owned entities that regularly issue debt in the market.
Peter Attard Montalto, the head of emerging markets at investment bank Nomura, has just returned from a trip to New York where he spoke to some of the same people the finance minister will meet in an upcoming meeting with investor .
Attard Montalto said, on fiscal matters, the minister could present a picture that would still look okay to investors. But high-frequency data on growth will probably show that growth in the third quarter of the year will be weaker, he said.
Gordhan is expected to sell the line that the state-owned energy utility, Eskom, is now more stable – “although he will be pushed on how much is [chief executive] Brian Molefe’s doing and how much is [because of] lower demand”, Attard Montalto said.
“Gordhan also promised in March to stabilise SAA. That hasn’t happened yet but the new board is in place as a positive deliverable.”
The key issues are current and potential growth, and the acceleration of structural reforms – implying a change in the way government operates.
“I think it will be a tough challenge and he will be met with some scepticism,” said Attard Montalto – first, because of poor progress this year, and, second, over whether the government, other than the treasury, is on board about making structural changes, given the current political environment.
“Also, there is a risk that some negative factors are presented as reforms,” said Attard Montalto.
“The minimum wage is the most likely example of this, where Gordhan has presented it before as a labour reform but, in reality, it has the possibility to be very negative in an economy with 36% real unemployment.”