Gordhan takes a stand for emerging markets at #WEF17

By Drum Digital
18 January 2017

Although the US as a super economic powerhouse impacts the rest of the world, emerging markets also matter to the global environment

Cape Town - . This was the message from Finance Minister Pravin Gordhan on the global stage at the World Economic Forum (WEF) in Davos on Tuesday.

Wearing a black suit, white striped shirt and blue tie, he said optimistically that in his view South Africa is relatively in a safe space in light of an accelerating dollar, owing to a rise in US benchmark interest rates.He was speaking in a panel discussion about the outlook for global growth markets.

"The US is very big and they say whenever it sneezes the rest of us catch a cold," Gordhan admitted, however he also noted the inter-connectedness of emerging markets and the US.

"If emerging markets and developing markets are the major contributors to global growth, globally speaking, what happens is, in respect of growth in those countries, matters to the global environment as well."

Gordhan said in the last two year the Fed has displayed a kind of sensitivity to their decisions having particular kinds of negative impacts on emerging markets.

"[That is a factor we hope will not be lost ... because US decisions are not contained within the US borders, they actually impact on the rest of the world and particularly on emerging markets as well". The Internal Monetary Fund estimate that economic growth in emerging markets and developing economies would rise to 4.6% in 2017 from 4.2% in 2016. But with the dollar appreciating, it could pose risks to the emerging market.

Following the Fed’s 25 basis-point rate hike in December 2016, the rand fell by 2% to R14 to the dollar, but later strengthened to about R13.60/$. This was mainly attributed to the fact that the market had priced in the increase.

Gross government debt will likely increase from 47.4% of GDP to 49% through 2016, Gordhan indicated in his mini budget in October.

However, the minister said in Davos that South Africa has the advantage of less dollar-denominated debt compared to other emerging markets that may have borrowed heavily in dollars when they were cheap.

"Over and above dollar denominated debt and so on, in the South African case, we have a 10% limit for foreign currency debt and we are okay in that sense."

Deputy President Cyril Ramaphosa, who led the South African delegation to Davos, boasted about the country's 'world class' Independent Power Producer (IPP) programme for renewable energy.He said governments should work closely with the private sector to power the African continent and eventually reach a point where the private sector generates power independently.

“In South Africa we have seen the effectiveness of involving the private sector to set up independent power projects,” said Ramaphosa. About R194bn worth of investments and 2500 MW of power generation were a result of giving the private sector an opportunity to generate power independently.

President Jacob Zuma unexpectedly pulled out of this year's 47th annual WEF. In attendance are high profile ministers Jeff Radebe, Rob Davies and Ebrahim Patel and senior businessmen.

Source: Fin24

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