Why ‘junk status’ is not the end of the world for SA

 ·7 Apr 2017

Despite the decision by Standard & Poor’s (S&P) to downgrade South Africa’s sovereign credit rating, the country could continue to improve its attractiveness as a Foreign Direct Investment (FDI) destination.

This was the consensus among leaders of some of the country’s most respected companies, who participated in a panel discussion hosted by Sanlam Private Wealth and Financial Mail on Thursday evening.

Naspers Group CEO Bob van Dijk, Lonmin CEO Ben Magara, and Sigma Capital executive chairperson Phuti Mahanyele emphasised that apart from a country’s sovereign credit rating, investors look at a basket of factors, including whether or not the regulatory regime can provide reliable long-term protection on investments.

Investors look beyond a country’s credit rating

During the discussion — moderated by Daniël Kriel, CEO of Sanlam Private Wealth — Van Dijk indicated that Naspers invests in companies with the potential of substantial growth over the next few years, including those in ‘challenging’ markets.

“We’ve invested a lot of capital in Brazil, for example, which has also been downgraded to junk status. But we don’t look only at a country’s credit rating. For us, the main question is around the business opportunity, but it’s also about being comfortable that an investment will be protected over the long term.”

Van Dijk cited India as another example of a ‘highly investor friendly’ emerging market. “The regime in India is committed to creating a stable and predictable environment for investment, and the country has enjoyed strong economic growth for a number of years.

“Also, India has invested heavily in technology infrastructure and has now overtaken the US in terms of the number of internet users. Three years ago, around 100 million people had internet access, but this number has now increased to 500 million. All these factors are very compelling from an investment perspective,” the CEO said.

Be aware of politics, but focus on policies

Lonmin’s Magara stressed the need to embrace complexity. “We ignore politics at our peril, because politicians make the policies that we need to grow our businesses.

“Consistency of policy and stability are crucial, and we hope that the new finance minister will realise the value of collaborative efforts such as the CEO Initiative in ensuring that we address the issues our country is grappling with,” Magara said.

Active corporate and individual citizens required

Sigma Capital’s Mahanyele – formerly CEO of Shanduka Group –  said the only way the country can pull itself out of the current quagmire is through the actions of ordinary citizens.

“We can no longer sit back and wait for the politicians to act. We all need to get involved. If South Africans stand up and show the world they want change, this will go a long way towards encouraging investor confidence.”

Constructive engagement and encouraging perspectives

Kriel told the panel that one positive development after the shock of Nenegate in December 2015 was increased collaboration between business, organised labour and Treasury, primarily to avert a sovereign credit downgrade.

“Business leaders are now speaking with one voice, as evidenced by the strong statement by the CEO Initiative over the weekend following Zuma’s Cabinet reshuffle.”

Asked what could be done to realise ‘radical economic transformation’, all three business leaders agreed that education and skills development were crucial.

“Transformation has to be about education, all the way down to primary school level. Our main task as a nation should be to empower our youth, and this can only happen through quality education, and access to jobs which can provide skills development,” said Mahanyele.

SA challenges remain

Van Dijk noted that in order to improve South Africa’s productivity, there must be concomitant skills training and education. “For example, South Africa has a huge shortage of software engineers. If we can encourage the development of maths skills at an early age, youngsters with these skills will be able to obtain well-paying jobs and add significant value to the economy.”

Kriel said the role of big business as responsible corporate citizens involves a more holistic view of investing, which includes supporting education initiatives and the skills development of potential future employees – as well as encouraging South Africa’s entrepreneurial culture.

Not all doom and gloom

“The situation in South Africa is not all doom and gloom,” Kriel said. “Three highly respected business leaders have made it clear that a credit downgrade is not the end of the world. We have work to do to improve South Africa’s attractiveness as a FDI destination, and this involves being more active corporate and individual citizens, as well as ensuring that a level of trust and reliability remains in our various institutions.”

In the context of the current policy and regulatory environment, Kriel asked the three panelists for their top tips for South Africa’s new finance minister, Malusi Gigaba:

  • Naspers Group CEO Bob van Dijk:“Focus on establishing credibility and stability, and co-ordinate education and skills development with the private sector.”
  • Lonmin CEO Ben Magara: “Don’t bring in changes too quickly, and don’t forget your oath.”
  • Sigma Capital’s Phuti Mahanyele: “Work on improving the relationship between the public and private sectors.”

Read: How long it could take South Africa to climb out of junk status

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