Dennis Dykes, chief economist at Nedbank, believes that, on the eve of South Africa's medium term budget presentation, the decisive thing for business confidence is for the government to give a clear indication of what they want to achieve.
“It’s very much a case of government actually putting forward a much clearer picture of where they’re going in the medium to longer term, and giving reassurances on a whole range of issues. It could work wonders,” Dykes told ABN Digital.
“There’s a lot going for South Africa, it shouldn’t be a bad investment destination by any means – good infrastructure, good corporate governance, good legal system. It is an ideal place to come to but you’ve just got to get the policy side buttoned up and over the last few years, with this administration, we’ve created a climate of uncertainty rather than a climate of comfort.”
BMW losing confidence in South Africa
This comes after BMW South Africa announced that it had been ruled out of the bidding for production of a new model, due to the recent strikes in the automotive sector.
“It does add to other concerns that have been expressed by big companies about the investment climate, which has become fairly negative with policy uncertainty. It does give foreign investors cause for thought, and also with labour relations, that are a little bit tense, it does give cause for concern and generally weakens business confidence,” Dykes indicated.
“We’ve had very negative press over the last year with all the labour problems and, of course, all the disparities that we’re seeing on the policy side. It does look a little bit in tatters. What is required now is a cohesive plan on growth-proven strategies not wandering back into the interventionist past, and we’re not projecting that sort of plan.”
The medium term budget presentation
South Africa’s finance minister, Pravin Gordhan, will be presenting the country’s medium term budget on Wednesday, and is expected to touch on labour relations in the country and what it plans to do going forward.
Dykes believes that there’s very little doubt over where the National Treasury itself stands on a lot of these policy issues.
“If you look at the budget review earlier this year, there’s a very clear setting out of what’s important and what actually needs to be done from an investment point of view, from a policy point of view, to encourage further investment. I don’t think there’s confusion there and I don’t think there’s confusion in the business community about Treasury’s good intentions,” he explained.
“The important thing now is to see some level of support for Treasury elsewhere in government. Tomorrow’s statement will be very important, it will be very important to see the same messages that were put forward in the February budget put forward again, in other words, supporting the National Development Plan, talking about the implementation of the youth employment subsidy.”
Rating’s agencies keeping a close eye on South Africa
In light of recent events in the automotive sector, ratings agency, Moody’s, flagged South Africa’s downgrade risk.
Dykes insisted that what is required now is boarder cabinet support for the National Treasury’s policies and plans.
“If S&P downgrades us, it would take us to BBB- which would make investors very nervous, particularly those who would be forced to invest or divest in a situation where South Africa does go into below investment grade. One could expect that there would be some lightening on positions if there were a downgrade, particularly by S&P,” he explained.
“On the Moody’s side, it would be quite a psychological blow. It would put pressure on the currency, put pressure on interest rates, inflation. It’s vital that we maintain investor confidence particularly for those investors that are investing in our bond market, directly supporting government spending.”
Proper policy and implementation
The establishment of proper policy has been highlighted as one of the issues facing potential investors in South Africa.
Dykes maintained that the country’s problems stem from proper policy formation as well as policy implementation.
“From Treasury’s point of view the policy is clear because they’ve had cabinet backing but every time a minister comes out with a new piece of legislation, we’ve seen it on the labour side, we’ve seen it in the mineral resources development bill, that legislation is in stark contrast to the principles that have actually been agreed to at cabinet level,” he said.
“We just need to get consistency coming through and then, it is a question of implementation. We all want an effective government, we want government to operate smoothly and carry out its mandates properly at the least costs possible. Government efficiency has always been a big theme that those in the private sector want to see coming through. It’s very important that the money is effectively spent.”