With South Africa’s recent ratings downgrades sparking a short-term action plan to claw back its investment grade, it would be more prudent for the country to focus on establishing a stable, healthy, societal base able to leverage regained ratings levels, according to Makhaya Advisory South Africa CEO Trudi Makhaya.
Speaking at the Metals and Engineering Indaba, in Sandton, on Friday, Makhaya told delegates that the country was focused on the benchmarks of its peers and “doing everything it could” to reach their levels.
Following the country’s downgrades to junk status earlier this year, Finance Minister Malusi Gigaba scrambled to formulate an urgent, albeit short-term, 14-point action plan to regain its investment ratings.
The country is therefore working on its metric positions, including debt-to-gross domestic product and deficits, to reverse the junk status.
“That is a very narrow way [to tackle the challenge],” commented Makhaya, suggesting that, instead of an “obsession” with the credit ratings, a moment should be taken to focus on internal structural issues that had, in part, led to South Africa’s downfall.
These included the high rates of poverty, inequality and low labour absorption.
Nascence Advisory and Research director Xhanti Payi agreed, adding that everything the country thinks it should be doing to ensure an upgrade are actions that South Africa should already be taking.
“If we get these things right, we do not really need the rating,” he explained, noting that all the relevant country metrics would fall into place, leaving the rating as only a superficial measure of confidence.
Makhaya noted that South Africa should be embarking on structural reforms, eliminating spatial disparities and accelerating transformation so that when the investment grade was restored, it would be from a solid base.
“Those are the kinds of issues we need to be thinking about to restore our investment grade,” she said, pointing to four potential pillars that South Africa could start focusing on, including the restoration of macroeconomic certainty and microeconomic policy, human capabilities, healthcare and education, the spatial legacy of apartheid and reducing barriers to entry for new small and microenterprises through procompetitive regulation.