15 June 2017

South Africa: Government Remains Optimistic Despite Challenges

Pretoria — Finance Minister Malusi Gigabi says government remains optimistic despite the current economic challenges.

"As National Treasury, based on our analysis of the global and domestic economy, we truly believe the glass is half full, not half empty," said Minister Gigaba.

Addressing reporters at a much-anticipated media briefing on Thursday, Minister Gigaba said government is committed to maintaining the fiscal framework announced in the Budget and the medium-term strategic framework.

The executive finance leadership is also committed to maintaining the stability of National Treasury as an institution, said the Minister.

The briefing comes as the South African economy has in the last few weeks experienced several economic developments.

On 9 June, rating agency Moody's announced that it had downgraded the country's debt ratings to 'Baa3' from 'Baa2', maintaining a negative outlook. The decision still puts the country at investment grade.

Earlier this month, Fitch affirmed South Africa's long-term foreign and local currency debt ratings at 'BB+' with stable outlook. Standard and Poor's (S&P), meanwhile, affirmed the long-term foreign currency debt rating at 'BB+' and long-term local currency debt rating at 'BBB-' with a negative outlook.

Last week, data released by Statistics South Africa (Stats SA) showed that the South African economy had entered into a recession following a contraction of 0.7% in the first quarter of 2017, after a decline of 0.3% in the fourth quarter of 2016.

At Thursday's briefing, Minister Gigaba said it is unlikely that the country will reach its 2017 growth projection of 1.3%.

"In this context, our 2017 growth projection of 1.3% may not be realised. This continues the trend of low growth over the last several years, undermining our progress in significantly reducing inequality, unemployment and poverty, which fundamentally disadvantages a large portion of our population, and is the cause of social instability.

"It therefore requires all social partners to reflect on our progress in bringing about inclusive growth and economic transformation, and to do all that we can and more," he said.

Government, Minister Gigaba said, is committed to restoring the country's sovereign credit rating to a favourable investment grade rating.

In the same vein, government has been deeply engaged with the issue of the recession with President Jacob Zuma having convened an urgent meeting with several Ministers last night. Critical interventions which need to be taken were discussed, with the President stressing the urgency of a coordinated response.

Despite the recession, there is some progress, Minister Gigaba said.

"It is worth highlighting that the economy, however low, expanded by 0.6 % on a year-on-year comparison between the first quarter of 2016 and the first quarter of 2017. We can still work hard to ensure that this is held up for the rest of the year."

There was growth in investments, as gross fixed capital formation expanded by 1% between the quarters, following a 1.7% expansion between the third and fourth quarter of 2016.

Government, the Minister said, was also happy to see a recovery in agriculture following the drought, as well as South Africa having moved from electricity shortages to a surplus of electricity, an issue which had previously been seen as a constraint to growth.

Moving forward, Minister Gigaba said several trends need to be focused on following an analysis of the economy in the first quarter.

Economic trends

The Minister said there is a need to leverage on improved conditions in agriculture to advance agro-processing and increase support for small and large scale farmers.

Minister Gigaba said the finalisation of key policies in mining is critical to unlock investment and leverage on improved commodity prices and favourable exchange rate effects.

The speedy finalisation of the review of incentives in the manufacturing sector so as to better expose areas of slack and low value for resources, and scaling up support for industries with the largest potential are also crucial.

Government will explore funding for a new economic competiveness support package. Minister Gigaba said the Department of Trade and Industry's Agro-Processing Support Scheme is a welcome development, and it is critical to build on strength in agriculture by capturing more of the value chain through processing.

Work is underway between National Treasury and the Department of Small Business Development to explore additional mechanisms to support small business.

Policy certainty and State-owned companies

Minister Gigaba said Cabinet has resolved that the country needs to conclude some unfinished policy discussions to unlock investment, which will spur growth, job creation and economic transformation.

The Minister said the Mineral and Petroleum Resources Development Act, the rollout of broadband as well as Independent Power Producer agreements must be urgently finalised.

Minister Gigaba said government remains committed to strengthening State-owned companies (SOCs).

Inclusive growth

Minister Gigaba said there is need to advance inclusive growth and economic transformation.

"In our engagements with business, particularly representatives of black business, 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 said government wants to see both big and small business expand.

"We also want industries to transform, to include black people and women in ownership, in top management and in professional work. It is not optional or a 'nice to have'," said the Minister.

Minister Gigaba said inclusive growth and economic transformation are the top priorities of government.

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