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01 MAY 2018
SA economy on the right track for growth - director general
SA could improve its growth prospects by taking advantage of the “low hanging fruits” and dealing with policy uncertainties in critical sectors such as mining, says National Treasury Director General Dondo Mogajane speaking at the UCT Graduate School of Business recently.

SA’s economy can easily grow at 3.5% or more should the country get the basics right, according to National Treasury Director General Dondo Mogajane.

Ratings agencies have flagged SA’s slow economic growth as a major concern. The National Development Plan states that SA’s economy needs to grow at an average 5.4% annually in order to address the country’s high unemployment rate which is at 27%. But the Reserve Bank is projecting an expansion of just 1.4% in 2018 and 1.6% in 2019.

However, there is growing optimism around the country, which is shared by some of the major credit ratings agencies, that under President Cyril Ramaphosa’s leadership, SA’s GDP growth could surpass expectations.

This week, S&P Global Ratings revised upwards, SA’s GDP growth forecast for 2018 from 1% to 2%, citing strengthening domestic and foreign investor sentiment following a change in the country's leadership and ensuing policy announcements.

An ongoing global upturn is also boosting demand for both commodities and manufactured goods, the ratings agency said. It warned, however, that this was not enough to address the country’s unemployment crisis.

Speaking during the Distinguished Speakers Programme at the University Of Cape Town Graduate School of Business recently, Mogajane said SA was stabilising its finances, addressing various issues afflicting state-owned entities and SARS, and dealing with policy uncertainty in sectors such as mining. This would, going forward, help boost confidence in the economy, and drive growth.

“GDP growth forecast [by National Treasury] during the medium term budget policy statement was 0.9%, but this improved to 1.5% during the budget [in February]. By 2020, it is forecast to increase to 2.1%. But that 2.1% is not a real number. I can confidently say today that number can be bigger than that and change overnight,” said Mogajane.

He said SA could improve its growth prospects by taking advantage of the “low hanging fruits” and dealing with policy uncertainties in critical sectors such as mining.

“Economic growth is critical and key. I am happy that the [Mineral Resources] Minister [Gwede Mantashe] says in three months the mining charter discussions should be complete. In the last few years no new shafts have been sunk, no new investment has come through. We also need to release additional spectrum that will unlock value,” said Mogajane, adding that the country also needed to focus on boosting the agriculture and tourism sectors to improve economic growth.

By just boosting confidence SA could add 0.5% to its GDP, and another 0.6% by dealing with the challenges at state-owned entities, especially Eskom. Addressing barriers to entry would add another 0.6%, while transport reforms would also boost GDP by 0.6%, said Mogajane.

He also detailed how government had campaigned to avoid another credit ratings downgrade.

Ratings agency Moody’s gave SA a reprieve at the weekend when it maintained the country’s sovereign rating at Baa3, one notch above junk status, with a stable outlook. It cited, among other reasons for the decision to keep SA at investment grade, the change in the political leadership and the recovery of the country’s institutions.

A downgrade would have been devastating for SA as it would have meant all the three major ratings agencies had the country’s foreign currency and rand-denominated debt at sub-investment grade. The country’s debt service costs, which are currently at R180bn, would have increased by between R20bn to R30bn overnight, triggering SA’s expulsion from the Citi world government bond index and projected capital outflows of R100bn.

“We had to defend the [credit] rating with our lives. We went to London and New York last week and we had to make sure that our story is understood,” said Mogajane.

“Some investors that we spoke to were already saying if ever Moody’s downgrades you, we have been instructed by our credit committees to reduce our exposure by 90%...so holding guard on Moody’s was quite critical this time around.”

Responding to questions from GSB director Mills Soko on the contentious issue of fee-free higher education, Mogajane said National Treasury was surprised by former president Jacob Zuma’s announcement but that the government was prepared to honour the commitment. “We have had to cut budgets and there will be challenges sustaining this going forward,” he admitted.

In the budget delivered in February, the Department of Higher Education and Training was allocated additional funding of R57bn over the medium term. Taking into consideration provisional allocations announced in the 2017 budget, the total additions amount to R67bn. On an annual basis, the allocations for fee-free higher education and training amount to R12.4bn in 2018/19, R20.3bn in 2019/20 and just over R24bn in 2020/21.
Useful resources:

University of Cape Town Graduate School of Business
UCT GSB is internationally renowned as one of a few business schools in Africa with the prestigious triple-crown accreditation with endorsements from EQUIS, AACSB and AMBA. As a top school with more than five decades of experience in Africa and other emerging markets, UCT GSB has a responsibility to engage with its socio-political and economic context. Its teaching, learning and research are directed towards addressing the complex and pressing economic and social challenges of our world today. Visit our InfoCentre or website.

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