SA has impressed the IMF – but there’s still much to do

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JIMMY MOYAHA: The International Monetary Fund (IMF) has noted that they are impressed with South Africa’s current situation in some respects. They noted that the low inflation targeting and our removal from the Financial Action Task Force’s grey list, are two notable events that bode well for the South African story.

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There are still concerns out there around some other factors, but we’re going to get into this in a bit more detail now with the chief economist at Rand Merchant Bank, Isaah Mhlanga, who joins me on the line now to see what we make of it. Isaah, always lovely catching up with you. Thanks so much for taking the time.

Between low growth, a grey list, reciprocal tariffs and inflation adjustment, one can’t help but wonder whether or not South Africa is on the struggles package, so to speak. It seems as though South Africa has for many, many years been the hard version of economics.

Take me through just how important this shift and the sentiment shift start to become for our country.

ISAAH MHLANGA: They are very important from several perspectives. The upgrade in the credit rating that we got from S&P, still with a positive outlook, suggests the next rating might or is likely to be another rating upgrade over the next 12 to 18 months – and is a big positive, the first upgrade in nearly two decades.

That tells you that the economy has turned the corner and is on a positive trajectory.

Yes, in terms of economic growth, we still have low growth, a 1% expectation this year, but there is an improvement envisaged for next year.

What is the implication of this?

We have seen bond yields, which are essentially the interest costs that the state pays for borrowing money, have declined by about 230 basis points since May, which says the cost of debt for the state declines – and that also filters through into the cost of debt for banks, the cost of debt for individuals, the cost of debt for corporates.

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So the whole cost of debt for the economy reduces significantly and that’s on the back of better fiscal management.

It is on the back of your economic reforms that we have seen in energy. Nobody talks about load shedding these days.

We might talk about load reductions to an extent, but no one worries about load shedding when they go about their day-to-day decision making.

There have been some improvement on logistics – still at early stages – but we have seen major strides from a legislative environment that … trades the space for actual investments by the private sector into the logistics space.

And then there’s the greylisting matter that you raised. On average, countries take about three years to get out of greylisting, which is exactly what we have taken – just under three years.

It can take up to five years or never for some economies, which means we have addressed the 22 deficiencies quickly enough and aggressively enough to get ourselves off that dirty list of countries that have deficiencies in dealing with money laundering, financial crimes.

That means our country can be trusted again by investors without having to raise question marks before they put capital into the economy.

So it is a huge, huge success in terms of turning around from a policy perspective.

But we still lack fixed investment into the country, which means we still need to see business confidence rise. There’s still more that needs to be done from a policy perspective to lift that business confidence that can ultimately lift economic growth and job creation.

JIMMY MOYAHA: Isaah, Let’s take a look at the economy and kind of where we stand at the moment. You touched on the fact that we’re not out of the woods yet, and this is a sentiment echoed by the IMF.

When we look at the geopolitical tensions that we’ve seen globally, when we look at the word ‘resilient’, I’m tired of hearing the South African economy being referred to as resilient. It really does sound like we got the toughest soldiers package that we could have found, and we’ve been running with that for the longest time.

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But let’s take a look at perhaps the state of some of the key things that we can get done, because from a recommendation perspective the IMF has also put out a list of recommendations that could potentially be easy wins for us to implement if we are to start seeing more credible favour in capital markets, in global markets, and if we are to be an even more attractive destination.

Can we look at how we start to reposition South Africa, given that we have an opportunity to do that?

ISAAH MHLANGA: It’s not really rocket science. We don’t need the IMF to tell us what we should do. But yes, it’s great if they can validate those points on what we need to do. It’s the basics. Get the infrastructure working, get logistics right, [make] our ports efficient. It’s important for our mining sector, for our agricultural sector, the bulk goods movers and the exporters. It’s very important.

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Our rail infrastructure is important for the automotive sector. It’s important for the mining sector. So let’s get that sorted.

Our water infrastructure – any company that operates a manufacturing plant or a mining company that is mining gold or platinum needs huge amounts of water, and if our water infrastructure is not functioning it means those companies are constrained and therefore cannot grow, they cannot increase capacity of production, they cannot hire more people. So let’s get the water issues sorted.

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It’s issues of crime and corruption. When tourists look for destinations to go and visit, they tend to look at whether the country is safe for tourists or even for the locals, and they go to countries which are safer.

We just need to sort out our crime and corruption a little bit longer.

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Once we do all of those, which seem to be quite obvious really, because everybody can think about how these things help the economy grow, how they can attract investment, let’s just sort out the basics. Once we do the basics we will see confidence rise.

JIMMY MOYAHA: Isaah, the IMF still noted that some risks remain from the South African story perspective – and that risks tilted to the downside. Are these risks enough to deter investment on a larger scale or is it at the point where, if we address some of these risks, we could very quickly turn the story into an even more positive story?

ISAAH MHLANGA: The risks are large, but it always depends on whether those risks materialise or not.

If you look at some of them, if we don’t sort out our logistics quickly enough to a level that is sufficient to reduce the cost of doing business, if we don’t sort out our water infrastructure, the risk is that we’ll have civil unrest because of the high levels of unemployment.

So the more we delay in terms of seeing economic growth and job creation, the higher the likelihood of social and civil unrest.

But thank God we have social grants; that’s the insurance we pay to make sure that we don’t reach there quickly enough; but it’s not sustainable.

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Those risks will always be there as long as we are not solving these network infrastructure issues quickly enough.

JIMMY MOYAHA: If we solve our problems and we solve them with haste, we can avoid certain risks materialising and we can finally get our country back to achieving its full potential.

We’ll leave the conversation on that note. Thanks so much to the chief economist at Rand Merchant Bank Isaah Mhlanga, for joining us to take a look at the IMF’s latest sentiment that South Africa is on the right trajectory.

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