The downgrading of South Africa’s sovereign credit rating last week by Standard and Poor’s to a BBB rating represented the country’s first credit downgrade in two years and sent worrying messages to the global investment community. This was followed by similarly pessimistic warnings from Fitch Ratings that, although its BBB rating would remain, its outlook would move the country to a negative status, raising the risk of a further downgrade in the near future.
Such pronouncements have a hugely negative effect on South Africa’s global reputation, on business confidence, and the country’s overall ability to position itself effectively and positively as a competitive investment destination of choice in the global marketplace. This comes against a backdrop of domestic, self-inflicted factors such as the ongoing unrest in the mining sector and the challenge of effectively managing monetary policy in a difficult global economic environment.
As other global economies are beginning to make positive movements out of the deep financial crisis experienced over the past few years and into more positive territory, it is critical that South Africa learns the lessons of these crises and recognize that the power to move the country forward lies in its own hands.
In the words of Gill Marcus, the Governor of the South African Reserve Bank in a recent speech to SAICA (South African Institute of Chartered Accountants) earlier this month, “the solutions are in our own hands and as a country, instead of focusing on whether we are entering a recession or not, we should all be striving to restore the economy to the strong growth path that it is capable of achieving”.
However, there are undoubted challenges for South Africa ahead if it is to become once again confident in its ability to position itself positively in the eyes of the world’s investment community and to effectively compete for business as a BRICS player.
One only has to look at the recent economic growth rate in the country, -0.6% in the first quarter of the year, with concerns mounting over those growth figures going forward for the remainder of the year, compounded by much publicized labour disputes.
There is no doubt that global investor trust and confidence is built over time and South Africa needs to rapidly re-build that confidence. This can be done through a single-minded focus on effectively implementing the positive strategies that have been put in place. In this way we can ensure that the right messages are sent to the world that South Africa is still ‘open for business’. The country continues to have a solid platform on which to build, such as the strength of its financial and governance standards, despite the negative impact of the current labour dispute challenges, which will hopefully soon find a lasting resolution.
As the Reserve Bank Governor has rightly pointed out, the domestic economy is facing enormous headwinds, many of which are of our own making, and therefore within our capability to resolve, not least of which is the current debilitating labour relations environment. It requires everyone in the country to stop and think carefully about the negative impact such disputes have on South Africa and its reputation in the global business community and to instead think about the long-term future of the country.
It requires every South African to unite behind a common goal of addressing our challenges together and thinking about the bigger socio-economic picture, instead of short-term gains. At the end of the day, it is the responsibility of all of us – government, business, and citizens of this nation – to work together to resolve these issues and find sustainable solutions that are good for the country as a whole and its future place in the world.
As a developing nation, South Africa will be continually confronted with considerable socio-economic challenges that need to be resolved. However, the development of powerful interventions such as the National Development Plan and the New Growth Path, provide broad yet strong blueprints for dealing with these structural issues, and the focus should remain firmly on the implementation of such plans for the good of the country and all its citizens.
At the end of the day, in order to create a better climate for economic growth in South Africa, we need to leverage what we are getting right and find effective and long-term solutions to the challenges that exist. Sending negative messages to the world and damaging Brand South Africa and how it is perceived will ultimately impact on these efforts. The time is right for the country to unify in the search for inclusive, constructive, and progressive solutions to the challenges our society faces.
We undoubtedly live in a time of unprecedented economic upheaval. As has been seen and experienced elsewhere in the world, no country or its national policy makers are immune from the buffetting of strong, negative economic winds – this has certainly been the case in recent times with South Africa and its strikes and downgrade.
However, Government remains firmly committed to taking the necessary measures to enhance the growth potential and competitiveness of the South African economy. The current labour disputes have also highlighted the need to urgently address strained relations between labour and employers. This is not healthy for the economy, or the country’s reputation.
The country owes it to itself to be focused on adopting a combination of strategies needed to ensure that it is poised to combat rampant unemployment, as well as inequality.
However, we must not lose sight of the things we are getting right and government and society need to work in genuine partnership to pursue the country’s current economic vision with conviction and vigour. In the meantime, South Africa needs to continue to send a message to the world that it is still very much ‘open for business’.