Newspaper headlines that greeted the appointment of Malusi Gigaba as the new finance minister of South Africa were perhaps a little too biased and judgemental. So much so that when investment number crunchers and economists looked at the hard data, they could present a picture that is a little different to that painted by newspaper headlines.
Yes, the international market does not know much about Gigaba but that should not be the reason to doubt the man, says Stanlib’s chief economist Kevin Lings.
Together with the recent good rains, which boosted maize production and are likely to bring down inflation, Gigaba could just turn around the fortunes.
Lings, who gave an economic presentation in Windhoek last week, a day after the downgrading of South Africa’s investment grade following the replacement of Parvin Gordhan as South Africa’s finance minister, pointed out that while markets were quick to convey their sentiments, Gigaba could also turn out to be a good finance minister. And that is something that investment managers would be looking at going forward.
“The fact that he has no financial background does not mean that we should underestimate him or lose confidence in his abilities,” said Lings, pointing out the fact that it was under Trevor Manuel who trained as ‘a carpenter’ that South Africa received international recognition for its fiscal management.
Under Manuel, who trained as a civil and structural engineer, and served as finance minister from 1996 until 2009, South Africa managed to acquire its investment grade, after nearly a decade of fiscal discipline since 1994.
What should interest the markets, says Lings, is the question of whether Gigaba would be able to influence confidence and boost business confidence. “That should be what is looked at,” says Lings.
“We are hoping for a one percent growth in South Africa but the country needs to revitalize confidence – especially business. We hope that Gigaba will inspire confidence which will lead to growth,” says Lings.
The market might have reacted negatively at the news of Gordhan leaving, however business has long lost confidence in the South African economy. Lings points to the data that shows that businesses stopped investing in South Africa way back in mid-2015. “They did not stop trading, but they are just not investing anymore,” he says.
The trading continues as could be seen from the fact that nearly N$750 billion was deposited by businesses with the banks. Lings says this amounts to the highest deposit figures in decades, which businesses could invest if they wanted to but chose not to.
Going forward South Africa would have to manage its debt levels, which also went up gigantically in the last 7 years, whereby it jumped from N$20 billion in 2010 to nearly N$120 billion annually. In total South Africa borrowed nearly a trillion worth of rands in the last years. “That is some [economic] stimulus [package] on steroids, and it excludes debt and government guarantees against borrowings by state-owned enterprises,” said Lings.
“With the junk rating it now costs more to conduct business and investors want to see a better return and not a higher risk. However we hope that the new finance minister will inspire confidence which will eventually lead to growth,” Lings said.