Gigaba’s 14 point plan: Will it work?

Minister of Finance Malusi Gigaba announced a detailed 14 point action plan yesterday, which aims to bolster South Africa’s struggling economy. The country entered a technical recession in the first quarter of this year, and the action plan, it is hoped, will help lift the country out of this.

Gerard van der Westhuizen, dealer at TreasuryOne stated: “The main focus of the plan was to set out goals in which we can dodge another downgrade and create growth in the economy. The highlight feature of this detailed plan will be the mandate given to the Mineral Resources Minister, Mosebenzi Zwane, to reopen engagements of the new Mining Charter that focuses on the local mining and minerals industry. If this charter succeeds, foreign investment into local mining industry will take a hit and could create big capital outflows from South Africa.”

Gigaba’s 14 point plan has been met with caution and scepticism by some experts. Nomura research analyst Peter Attard Montalto noted that there were no “real pro-growth reforms; what was offered up instead were measures that should help stabilise the economy at this very weak place by providing a floor under sentiment but not provide upside to per capita income growth in our view.”

According to Montalto, only time will tell if this action plan will see ratings agencies give the country the benefit of the doubt as to whether or not this plan will stimulate growth, leading to some delays in the ratings timeline.

Professor Raymond Parsons, an NWU School of Business and Governance economist, said: “The acid test for finance minister Gigaba's 14-point action plan today is whether it will boost confidence in the economy by producing real outcomes.”

Parsons highlighted that the action plan reveals that Gigaba is aware of the tough decisions that are required to address the serious economic and political headwinds facing the country. “In promising action the Minister's plan can be seen as a step in the right direction. Although there were no new proposals in the plan, the fact that firm time-lines for implementation of previous decisions have been indicated, and the development of framework for greater private sector participation in projects run by the government and state-owned enterprises (SOEs), are welcome,” said Parsons.

The plan

In his speech, Gigaba highlighted the low growth experienced by the country in recent years, as well as the low growth expected for 2017, calling on government, business, labour and civil society to play a role in helping growth for the economy.

“In my view, at this moment, all relevant role-players need to unite behind the urgent action steps we must take to re-ignite growth in our economy and avoid much of nomenclature that from time to time characterises our discourse,” said Gigaba.

In Parsons’ view, the 14 point action plan reveals that government is beginning to engage with what needs to be done to turn the economy around and to break South Africa out of its ‘low growth trap’. However, he pointed out that as further details will only be unpacked in the Medium Budget Policy Statement (MTBPS) in October, it is impossible to say at this stage whether the announcement of this action plan will be adequate enough to restore confidence in the country and economy.

“For ultimately the success of latest action plan will not rest on technicalities. It will instead depend upon whether Minister Gigaba's 'message' overall can rebuild investor and business confidence, as well as reduce the policy uncertainty which is bedevilling SA's economic performance, given other political factors,” elaborated Parsons.

Montalto stated that the 14 point action plan does not offer anything new in terms of actions. However, it does provide timelines for each of the actions, which is new, as well as naming the authorities responsible for implementing the various interventions (see below for more details). “Both of these factors have previously been missing from such plans, so while the content is not new, this does ‘elevate’ it somewhat.”

Is it enough?

Montalto noted that with regards to the action plan being enough to satisfy the ratings agencies, he does not believe this is the case.

“The issues in this plan have already been discussed with them. We don’t think they will find anything new here. However, ratings agencies may give more benefit of the doubt and shift back timelines, watching for implementation. The National Treasury (NT) may well have carefully constructed the timelines here with that in mind (as the ratings dates are known for this year and roughly forecastable for next year). Ultimately, we think the growth needle not moving will be enough to secure further downgrades,” elaborated Montalto.

According to Montalto, the new 14 point action plan has not led Nomura to change its growth outlook for the country from 0.2% for 2017.

The details

The action plan lists the following interventions and deadlines:

Details of the action plan can be found here