Finance minister Pravin Gordhan, opening the first Business Day/Financial Mail investment summit in more than two decades this week, struck a surprisingly upbeat tone, even as the odds on a ratings downgrade continue to shorten.
When asked specifically if there was more than a 50% chance that SA would not be downgraded this year — given poor growth, a haphazard parastatal sector and political instability — Gordhan simply answered: "Yes."
"It’s going to be a tough sell, I’ll admit that, but hopefully you’ll join us," he said in answer to Sanlam iTrade head Gerhard Lampen, but speaking to the investment community.
"Yes, there are those difficulties you mentioned, but there are also positive things that are being developed in the country — we just need to highlight them."
Another factor driving SA towards the precipice of a downgrade revolves around Gordhan himself, and a bizarre criminal investigation by the Hawks into whether he technically infringed the Public Finance Management Act and was involved in a "rogue unit" at the SA Revenue Service during his tenure there.
But Gordhan won over the audience when the lights failed in the auditorium, light-heartedly asking the presenter: "Do you work for the Hawks?"
The audience responded by clapping for Gordhan — recognition of the stress he is under in piloting the economy through the threat of a downgrade while resisting what appears to be a bogus, politically driven criminal probe.
But as much as they were sympathetic, some leaders have suggested Gordhan may be striking an overly optimistic tone on a downgrade, particularly given the political wrangling over treasury, which won’t please the ratings agencies.
During a panel discussion, Goldman Sachs investment banking MD Willem Baars said it was "impossible" to see what the ratings agencies will decide. He said investors have priced in a ratings downgrade to SA government bonds, but it wasn’t a "foregone conclusion".
Old Mutual’s Siboniso Nxumalo said: "The downgrade, whether it happens or not, is largely in the price. But what’s not in the price is how we respond to it."
Earlier this week, FirstRand CEO Johan Burger said the "probability has actually increased for a downgrade". If there is a downgrade, Burger said, it would lead to banks curtailing lending as the currency weakens and interest rates rise.
However, some fortuitous elements aligned for SA recently. On Tuesday, the current account deficit — the measure of how much more SA pays to buy goods and services from overseas compared with how much it exports — narrowed to 3.1%. This is better than expected, bolstering Gordhan’s argument against a downgrade.
It’s good news on the eve of the formal rating process.
Said Gordhan: "Ratings agencies will come back, starting in a few days’ time, and [say to] us, ‘well, you told us in March this year that these are the areas you’re going to be working on, show us the results’."
The good news, said Gordhan, is that the country has stuck to its promises on fiscal discipline, despite weak growth and creeping pressure from politicians to loosen SA’s purse strings.
This week, water & sanitation minister Nomvula Mokonyane, one of President Jacob Zuma’s biggest supporters, became the latest to speak out about the need to "reconsider" treasury’s powers. "We must change the system," she said.
The ratings agencies will also be scrutinising the parastatals, where Gordhan has struggled to rein in the board of SA Airways under Dudu Myeni, and Eskom, which has failed to be transparent over coal contracts it struck with Zuma’s friends, the Guptas.
Speaking before the event, Gordhan said state capture isn’t a new phenomenon.
"You’re going to have all these competing forces, which are saying, ‘I want more influence over the state,’ or ‘I want to influence a particular policy in a particular direction.’ It’s perhaps an opportunity for democrats to stand up," he said.
Gordhan’s main message to the summit was that the business community needs to become more proactive, and work towards creating a conducive environment for investment.
"We’re not in recession territory. We have interesting small green shoots ... If we nurture those shoots and create the right kind of ecosystems, we can certainly get back to 2%, 3% growth in the next two or three years," he said.
Gordhan’s message was an optimistic one, but it was clear that the crowd of about 250 people was sceptical.
Of course, if the Hawks cloud hanging over Gordhan were removed, the mood would instantly brighten.