Finance Minister Pravin Gordhan must feel like he’s trapped between a rock and hard place. He’s currently on a roadshow, moving from London to New York, in a bid to reverse the current sale of South African assets. It’s a last ditch attempt to convince the rating agencies and investors that South Africa still has a lot to offer and is not worthy of ‘junk’ status.
While on the other hand, he’s getting roasted in parliament for not attending the post-budget debate. But amongst all this Gordhan is putting on a brave face, and managed to find some time and sit down with Bloomberg TV anchors Scarlet Fu and Joe Wiesenthal.
It’s a frank to the point discussion, where Gordhan outlines his plans for reversing the country’s current downward drift. There really is a lot of expectation on one man’s shoulders and one can only hope the feeding frenzy around him doesn’t impact his plans. The full interview and transcript are below. – Stuart Lowman
SCARLET FU: Pravin Gordhan, the finance minister of South Africa, joins us now with more. Bloomberg’s Joe Weisenthal is also with us.
Sir, good to see you here today in New York. I want to get your thoughts on what the response has been from the investors that you’ve been speaking with. What has been their biggest single concern?
PRAVIN GORDHAN: Well, on the one hand, we speak to many people who have a long-term interest in South Africa, and have been associated with us, particularly through the years of democracy, and believe that we have a good economy and good institutions.
And but some of their concerns will be lower growth, whether we can actually support the fiscal framework that we announced in our budget to have deficits declining to 2.4% in the outer years of our three-year cycle, and whether we can get the right kind of partnership between ourselves and the private sector in particular.
Now with respect to all of these, we’ve been doing some work which does provide some reassurance.
JOE WEISENTHAL: You mentioned that South Africa has good institutions. Your own appointment as finance minister came after a very tumultuous time. One finance minister left, he was replaced by another one who was just there for a couple of days, then you. That struck people as the classic example of a government that is not functioning properly.
How do you address that concern?
GORDHAN: Well, by doing the job that I did in the five years between 2009 and 2014, with a very good team at the national treasury, very high levels of credibility both within South Africa and across the globe.
And continuing to reinforce the message that the country’s finances are in good hands, that we intend to be prudent, and that we will demonstrate and practice what we say in words, i.e., fiscal consolidation, and that we will try and build, which we are doing now, the right kind of consensus to get all of the role players to focus on growth as the key issue.
Because we change the denominator, we change everything else.
FU: That is a pretty long to-do list. Where do you see the growth coming from in 2016?
GORDHAN: Well, in the first instance, we need to solve our energy problem. So we have got a number of plans to bring the private sector in on renewables, on coal, and on gas. Secondly, getting high levels of confidence with in our own economy, which will encourage the business sector to participate.
Thirdly, we have, what, almost R860bn of infrastructure investment that is planned in the energy sector, logistics sector, housing, and other areas of utilities as well. And fourthly, ensuring that we focus on concrete actions which deliver upon our plans and take on some of the strong or tough structural issues.
For example, reforms in our state-owned enterprises.
WEISENTHAL: Scarlet mentioned in the beginning there is anxiety about another downgrade coming imminently from Moody’s. Are you concerned about that? And what’s your case that you deserve the current credit rating that you have?
GORDHAN: Well, Moody’s has us two notches above sub-investment grade. And we will meet them in London, as we met the other two principal agencies as well. Both of the other two are waiting until June, so we have a bit of space. Moody’s itself is visiting us later next week to reestablish their fact base, talk to South Africans face to face, and to establish whether our narrative matches our actions in the short term.
And I’m hopeful that we are able to actually do that because we have decided as a country and as a government that doing the same old things isn’t going to get us where we need to get. We need to do something different, something which not only surprises the markets, but begins to energize our people as well.
FU: Is the government still considering a euro bond sale before the end of March?
GORDHAN: I don’t know whether it’s a euro bond sale, but we are out in the market for a billion dollars at some stage when the market is satisfying our needs and if there is appropriate levels of stability.
So usually these road shows take place immediately after our budget, and later in the year after the October medium-term budget policy statement.
WEISENTHAL: Emerging markets around the world have seen their currencies plunge, their borrowing costs rise, their economies slow down. How much do you see your fate being under your control and how much are the macro forces, the slowdown in China, whether the Fed will continue tightening, strengthening the dollar?
How much influence do you really have?
GORDHAN: Well, the global dynamics are a matter of concern, because for the first time after the Great Recession, we are actually seeing the two major economies in the world moving in different directions, in both growth terms and interest rate terms.
Secondly, the sentiment, again, in respect to the emerging markets is taking us back to the “taper tantrum” of 2013. And thirdly, the emerging markets are once again, if you like, the victims of very rapid and volatile financial flows in the world as well.
But regardless of that, we know that there are things that we have to sort out in our own country. And that is what our agenda is about. And we must do the best we can within the ability we have in respect — and there are lots of possibilities in our own country.
FU: We were just showing a chart of the dollar and how it has soared against the rand. The rand, of course, has had a much better going the last couple of weeks along with other emerging market currencies. Do you believe the rand is fairly valued at the current level?
GORDHAN: We normally don’t comment on that. So the rand is subject to all sorts of forces. I mean, it was almost close to 15 rands a couple of hours ago, and after the ECB statements, it has run to 15.40.
FU: Yes, but at the same, let me rephrase, does the rand – why hasn’t a weak given exports as much of a boost as it should, at least on paper?
GORDHAN: It has done well in some sectors and we can begin to feel that. There’s a great flow of tourists, for example, than we had before. And South African companies it will affect on their own competitiveness on the one hand, but also the huge opportunities on the African continent.
FU: All right. Thank you so much, Pravin Gordhan, South Africa’s finance minister.