South Africa

News of growth forecast cut brings urgency to Zuma’s efforts to improve SA’s investment climate

By Greg Nicolson 19 January 2016

As President Jacob Zuma heads to Davos for the annual meeting of the World Economic Forum, on Tuesday he announced a government committee will try to boost investment in the economy. Meanwhile, the International Monetary Fund (IMF) has again slashed SA's growth forecast for 2016 and 2017. By GREG NICOLSON.

Ahead of the trip to Davos where he will try to promote investment opportunities in South Africa, Zuma announced that an inter-ministerial committee will look at improving support and assistance for potential investors. “Most potential investors complain about the time they have to spend visiting different government departments and institutions to fulfil regulatory requirements and the need to simplify the regulatory framework, among others,” a statement from the presidency said on Monday.

The committee, chaired by the president, who will be assisted by Trade and Industry Minister Rob Davies, will focus on nine issues: the coordination of economic policy and regulations, the improvement of South Africa’s investment climate to improve ease of business and competitiveness, aligning the country’s marketing and communication promoting it as an investment destination, promoting regional integration, and scaling up private investment, including support for the black industrialists programme and small and medium business development.

The presidency also said the inter-ministerial committee, which includes 16 ministries, will help coordinate the One Stop Shop service, aimed at fast-tracking investments and reducing red tape, to be launched this year. Some of the issues the inter-ministerial committee will look into follow on from the president’s nine-point plan to boost economic growth, announced during last year’s state of the nation address. In his 2015 end of year statement, Zuma focused on efforts to boost the economy and successful efforts to attract investment, such as in the automotive manufacturing and the ocean economy.

Zuma and Finance Minister Pravin Gordhan will lead the South African delegation at the World Economic Forum this week and are likely to punt SA as a favourable destination for investors.

The International Monetary Fund on Tuesday however cut the country’s economic growth outlook for 2016 from 1.3 percent to 0.7 percent and its 2017 predictions from 2.1 percent to 1.8 percent. “In advanced economies, a modest and uneven recovery is expected to continue, with a gradual further narrowing of output gaps. The picture for emerging market and developing economies is diverse but in many cases challenging. The slowdown and rebalancing of the Chinese economy, lower commodity prices, and strains in some large emerging market economies will continue to weigh on growth prospects in 2016–17,” said the IMF.

According to Bloomberg, Barclays Africa Group recently revised its 2016 growth forecast for South Africa down to 0.9 percent and Bank of America Merrill Lynch slashed its prediction to 0.4 percent. South Africa’s National Development Plan (NDP) targets a growth rate of 5.4 percent per year. Linking that aim to the NDP’s job targets, Minister in the Presidency Jeff Radebe last year said the aim is still to get GDP to 5.4 percent.

It predicted a gradual increase in growth for sub-Saharan African countries, revising its forecast from 4.3 percent to 4 percent but said countries like Angola, Nigeria and South Africa will suffer from lower commodity prices and higher borrowing costs. China’s economy is growing at its slowest pace in 25 years. While worries over China’s economy has led to dramatic falls in emerging market currencies like the rand, the SA currency rallied on Tuesday as some investors expect Beijing to push stimulus policies.

In December, business confidence in South Africa, according to the South African Chamber of Commerce, declined to lows not seen since 1993 as Zuma was criticised for adding to the country’s economic struggles by firing Finance Minister Nhlanhla Nene, replacing him with now Cooperative Governance Minister Des van Rooyen, and within days replacing him with current Finance Minister Pravin Gordhan.

Given challenges in the global economy and the increased perception of instability in the South African market caused by the president’s finance ministers’s musical chairs game, it will be challenging for Zuma and Gordhan to prove to investors South Africa is a favourable and competitive destination. After they sell the economy overseas, they’ll soon have to show South Africans what their plans are. In February they will need to balance the state of the nation and budget speech announcements, in an election year, with the increasingly difficult climate for growth. DM

Photo: South African President Jacob Zuma attends a session at the World Economic Forum (WEF) in Davos, January 27, 2011. REUTERS/Vincent Kessler.

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