VANESSA VALKIN
As the country is increasingly plagued by slumping commodity prices, the worst drought in over a century, the global ripples of China’s economic woes, a plummeting rand and downgrades from the credit rating agencies, President Jacob Zuma and Finance Minister Pravin Gordhan have been seeking advice from CEOs and experts in the financial sector.
The recent State of the Nation Address reflected these consultations, while this week’s budget speech is expected to address some of the key issues the business sector has highlighted as well.
After SONA, but ahead of the Budget speech, SA Jewish Report spoke to the head of Goldman Sachs’ South African office, Colin Coleman, who has been involved in the discussions with government – about his views.
What did you think of President Zuma’s SONA and what needs to be done urgently?
President Zuma identified the key issues facing the economy in his SONA speech. He successfully captured the centrality of economic growth for job creation, and the need for a partnership with business to drive an effective response.
Specifics in many areas were, however, lacking. The market will now want to see meat on the bone, particularly on fiscal consolidation, removing wasteful state expenditure, management and funding of the systemically important state operated enterprises (SOE’s), “rationalisation” or “phasing out” other SOEs and labour market reforms.
Ultimately the market will respond to specific reform actions to modernise the economy. Nuclear power remains one area of uncertainty and is, in fact, academic until a feasibility study is completed. [Zuma said plans to build nuclear power plants remain in place but would only proceed at an affordable pace].
Finalising mining legislation and bold action to simplify visa regulations, particularly for tourism, needs urgent resolution to take advantage of the weak rand. Saving mining jobs requires urgent action to facilitate higher productivity at lower cost in a more certain environment, and much more needs to be done.
More than anything, South Africa must prepare for deep and wide cuts to state expenditure, and doing more with less. The President touched only the tip of the iceberg in that respect and we look to the Finance Minister’s Budget Speech for detail.
What has been the nature of the dialogue between chief executive officers and government?
In January there was a meeting pre-Davos, about 50 of us, with Pravin and Zuma and we set up working groups on different issues and then we reported back on what the challenges are and the important steps to be taken. Of these formal working groups – one was on the potential credit rating downgrade and how to deal with it; another was on small micro-enterprise initiatives. Then there were more meetings. There’s a lot of intensive dialogue with the business community and this is probably the deepest engagement with business yet. Usually it’s just the representative business organisations talking to government but these are the actual CEOs.
Gordhan is expected to present a tough budget to try to get debt under control with cuts in government spending and generating greater income from taxes. How do you think the austerity measures will go down?
They have to distil a mixture of fiscal steps that eliminate waste and get “bang for their buck” on public expenditure. Expenditure cuts are easy to talk about but difficult to effect. Raising taxes are also easy to talk about but difficult for the population to digest. VAT increases which effect the whole population are not easy and raising taxes on the wealthy may scare away a whole important and needed segment of the population.
South Africa is not at its optimal performance levels at present. That being said, neither are the other BRICS nations who are all having a difficult time.
Finance Minister Gordhan faces some difficult challenges ahead, and South Africa and the rest of the investing world will be watching closely.
