Trudi Makhaya: Hope for SA despite junk-status red flags

As South Africa heads into its second annual investment conference on the back of Moody’s revising the country’s credit outlook from stable to negative, President Cyril Ramaphosa’s economic advisor Trudi Makhaya says the country is on the right track to turn the ship around. 

Makhaya was speaking at the Impact Investment Forum alongside executive chair of DNA Economics and chair of the South African Impact Investing National Task Force, Elias Masilela.

Moody’s announced its decision shortly after Finance Minister Tito Mboweni’s mid-term budget policy speech last week, which brutally outlined government’s progressively weakening fiscal position characterised by rising debt levels and stagnant economic growth saying there is a “material risk” that government will not succeed in arresting the downward trend. 

10 wasted years 

Asked why the president’s investment drive is critical in light of the review by Moody’s, Makhaya explained that at the centre of the rating agency’s concerns has been government’s fiscal stability – including the debt-to-GDP ratio that Treasury estimates will be north of 70% by 2023.

Makhaya said the reason the country is in this position goes back to how the state ramped up its debt profile over the past 10 years, and “we don’t have much growth to show for it, we don’t have assets that can demonstrate why we did this”. 

In itself, the idea of spending on healthcare and education is not problematic, what is problematic is that we have not had the fiscal multiplier to translate every rand of spending into economic growth,” said Makhaya. 

She said that every rand government is spending should be translating into far more economic growth than currently being seen. 

“Investment helps because it deals with that part of the equation [that] if our growth were to accelerate, suddenly our debt looks minuscule relative to the GDP,” she added.

Policy certainty

Moody’s said that government would have to show that it can contain the rise in debt through a credible fiscal strategy in the 2020 national budget in order to dodge a junk status rating. 

Or, in Makhaya’s words, the country needs to show that the economy is moving and that the state is taking key decisions and that economic growth is “poised to take off”. 

Part of that involves ensuring that the policy environment is enabling for growth.

“I do believe that we are doing that,” she said. 

Since Ramaphosa’s ascension to office, South Africa has managed to finalise the Integrated Resource Plan, the state has a road map outlining its first plans to restructure Eskom, there are talks with a strategic equity investor for SAA, there has been a little progress on visa issues – and, although contested, the government has produced a Mining Charter, said Makhaya.

The point is that the policy proposals have been put on the table [and] things like spectrum have been gazetted, so there is movement.

“In terms of the direction we are taking, we are on the right path to ensuring some of that policy certainty,” she added. 

The conference managed to raise R300 billion in investment commitments last year. While new investments are expected this year, the conference will also provide an opportunity for updates on the progress of the 2018 investments and policy commitments to be provided.