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The Finance Minister In The Trenches

FORBES AFRICA’s Managing Editor, Chris Bishop, talks to South Africa’s beleaguered finance minister, Pravin Gordhan, on his plans to rescue the country’s economy.

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It was a warm day for winter in Pretoria when I arrived to interview South Africa’s Finance Minister Pravin Gordhan, the man with one of the toughest jobs in African finance. He has to make cuts, balance the books, to stop the mighty South African economy falling over the cliff. This, following the crazy days of uncertainty in December when South Africa sacked Nhlanlha Nene; installed unknown Des van Rooyen; before retreating to the safe hands of Gordhan – finance minister between 2009 and 2014 – to steady the markets and resuscitate the currency. You could argue that a finger of one of those safe hands is in the dyke.

As the shafts of mid-morning light shone through the tall windows in the finance minister’s office, in the granite Treasury headquarters, it was getting warmer, but not as warm as the seat where Gordhan now sits.

In June, Gordhan helped South Africa stave off a downgrade, by the rating agencies, to junk status. If South Africa can show growth, prudence and greater fiscal discipline, it may escape a downgrade yet again at the end of the year.

The week of the interview was not a good one for growth in South Africa; it had just shown negative growth of -1.2%. Yet Gordhan, who chose his words very carefully, appeared more bullish than the economy.

 

Forbes Africa: It’s been a rollercoaster six months, how are you holding up?

 

Gordhan: I am used to rollercoasters in my life, so this is one more. This one has been very rewarding because the efforts that government has put in to join forces with business and labor have paid off as far as the first phase of our battle to remain outside of sub investment grade has been won. And largely through the joint efforts of all of us; and now we start the journey into the next five months which is a period where we must deliver on some of the things we have committed ourselves to. I am confident that as a country we will begin to do that because some of that momentum has already been building up.

 

Forbes Africa: You avoided the downgrade to junk status; a lot of people are still saying the country has merely postponed it for another six months. How likely is that?

 

Gordhan: It’s true that we have postponed it but you can’t call it mere postponement when you were about to fall over. Not falling over is a major and important victory for all of us; so it’s a question of  who is the narrative being created by; people who believe in a half full glass or a half empty glass… We still have investments coming in, we have kept to our fiscal targets and we will continue to actually do so. We will unite the key role players in this country behind the common program and we have got a few months to demonstrate we are capable of doing it. We have a clear program in terms of reforming key parts of this economy and making sure some of the key constraints are now taken out of the way.

 

Forbes Africa: Look at the latest data and the economy contracted for the first quarter by 1.2%. Does that make your target that much harder to achieve? How much reform are we going to have to go through for the next five months to ultimately head for that 2% target?

 

Gordhan: I set the 2% mark largely by saying we are going to get moving in the right direction. We all know that in terms of the National Development Plan, we ultimately want to move into the 5% terrain.

 

Forbes Africa: Another question people are asking, as you know, civil service is about 50% of your budget, maybe less than that but it’s still a lot, I was with a lot of financial journalists last night and they were saying why doesn’t the minister cut civil service and save?

 

Gordhan: How many more unemployed people do you want? Firstly, the cost of compensation is about R460 billion ($30 billion), currently that is about 37%, which is high. In the budget, we have said that we are now going to certain measures to start cutting that expenditure. Vacancies not being filled and the most recent report, that we have received from provinces, where a bulk of teachers and health staff are employed is very encouraging.

Forbes Africa: The ratings agencies have also stated that the risk of political instability, especially on the lead up to the August 3 municipal elections, could affect the economy.

 

Gordhan: Elections happen as part of a democratic society in South African and elsewhere… We are nowhere near disruption but what we do require is for political leaders to recognize that there is a relationship between the way we conduct ourselves politically and the confidence in our economy that we create and today we live in a world where politics and the economy are closely related whether it’s here, Brazil or anywhere else in the world. The prospect of a particular candidate winning the elections in the Unites States is also giving people a wake-up call.

 

Forbes Africa: You definitely can’t forecast the rand and I think that’s the problem right now; small businesses out there are saying they just need to know that there is some stability in the currency.

 

Gordhan: Currency volatility is something that nobody has control over. There are mega forces and dynamics in the globe that influence what happens to a currency as much as there are domestic factors as well, so, look at what’s happening to the pound, so every day that something happens to the dollar, something happens to the rand which are not necessarily related to domestic considerations as well.

 

Forbes Africa: In your efforts to reduce debt and cut expenditure, what kind of painful cuts do you think this country may be looking at in the next six months?

 

Gordhan: We have made the cuts for this year and we have to look hard to find money for a zero increase for student fees, finding money for our subscription to the BRICS New Development Bank, and a few other items that need to be financed both as a result of expenditure cuts and managing the tax side. We have indicated, very transparently, that in the coming two years, we have to find R15 billion (around $1 billion) each year, either from the expenditure or the tax side.

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