No ‘investment strike’ — Kganyago
Reserve Bank governor Lesetja Kganyago has dismissed assertions that South African companies have gone on an “investment strike” amid deteriorating trust in the relationship between business and the government.
Since the surprise Cabinet reshuffle last month, there has been growing talk of corporates holding off on spending in the local economy.
It cannot be called an investment strike, Kganyago said, because business and consumer confidence are needed for investment to happen. But amid declining economic growth, both metrics have been poor.
Nevertheless, policymakers had to “provide an environment where business confidence thrives”, he said.
His comments come as political and business leaders paused hostilities to present a united front at the World Economic Forum (WEF) on Africa in Durban this week.
But some analysts and labour leaders were unconvinced by the temporary rapprochement, arguing that the trust deficit between the parties is at an all-time low, if not irretrievably broken.
The relationship has been tense since President Jacob Zuma’s Cabinet reshuffle.
The axing in December 2015 of finance minister Nhlanhla Nene was the first blow to the levels of trust between the government and business.
Ratings agencies have cited uncertainty over economic policy direction and concerns about the contingent liabilities that state-owned entities pose for the state as being among the reasons for the country’s recent credit ratings downgrade.
“I think trust is very low and this is reflected in talk of an investment strike,” said Nomura’s Peter Attard Montalto. He said the president should not have opened “Pandora’s box” twice — with the axing of Nene and the reshuffle — particularly given the heightened tensions around the ANC succession battle.
Last month, Sibanye Gold chief executive Neal Froneman reportedly said the company would not invest in any new projects in South Africa because of political turmoil.
According to data from the Reserve Bank, the debt to gross domestic product levels of South Africa’s nonfinancial corporations are far below those of its market peers. In addition, cash deposits held by local corporates have continued to rise in recent years. The total cash deposits held by the private corporate sector — excluding financial institutions such as banks — was about R719‑billion in February.
But Kganyago cautioned against viewing these factors negatively. He said that globally there is growing worry over the sustainability of corporate debt levels. In an environment of low economic growth, South African companies have low debt levels, making them better prepared, in the event of an upswing, to borrow and finance business activity.
South Africa had to deal with the issues that had been identified by ratings agencies as constraining economic growth, including “sorting out issues to deal with business confidence”, Kganyago said.
The meeting between the president and business last Friday, ahead of the WEF, was “exactly the kind of things we have to be engaged with”, he said.
Following the meeting, the presidency said Zuma would lead “Team South Africa” to the WEF.
The Team South Africa banner was first formed under former finance minister Pravin Gordhan’s watch. It saw business, labour and the government unite to avoid a credit ratings downgrade after “Nenegate”, including joint international investor roadshows and sending a united delegation to the 2016 WEF in Davos.
As part of the work done to improve economic growth, a collective of business leaders, under the CEO Initiative, committed to making R1.5‑billion available to fund small businesses. The reshuffle has threatened the stability of such projects.
Trust has “broken down completely” because of the president’s actions, said Dennis George, general secretary of the Federation of Unions of South Africa. George was part of the labour contingent that travelled abroad with Gordhan to woo investors and placate ratings agencies.
He had been due to join Gordhan on the post-budget roadshow in the United Kingdom before the minister was recalled by Zuma, and axed days later. Businesspeople would not trust Zuma again, George warned.
Attard Montalto added that “Team South Africa” was never accepted by the wider ANC, the presidency or other ministries, and “after the reshuffle is just hot air”.
Although the show of unity helped to prevent a recession last year, business is a lot more sceptical and risk averse, and “will hunker down” or look for opportunities abroad, he said.