South Africa’s government will get its stretched finances back on track and avoid a sovereign debt crisis, according to President Cyril Ramaphosa.
“I am certain that we will be able to bring our debt levels down and avoid what you could call a debt crisis because we are focused,” Ramaphosa said in an interview with Bloomberg Television at an investment conference in Johannesburg on Wednesday. “A country that needs to grow needs to reduce its debt.”
Finance Minister Tito Mboweni has repeatedly warned that borrowing has reached unsustainable levels and must be curbed. His mid-term budget last month envisions liabilities peaking at 95.3% of gross domestic product in the 2026 fiscal year. That’s two years later than forecast in February because the fallout from the coronavirus pandemic has slashed tax revenue.
Improving the government’s finances will hinge on freezing wages for 1.3 million state workers for the next three years, a proposition that labor unions have rejected. The Congress of South African Trade Unions, the country’s largest labor group, has warned it may withdraw its electoral support for the ruling African National Congress should the pay proposals not be revised.
Talks with the unions are ongoing and various options are under consideration, according to Ramaphosa.
The president also said the debt-stricken state power company, Eskom Holdings SOC Ltd., is finding ways to bolster its income and improve its debt collection. The utility’s 484 billion rand ($31 billion) of debt was once called South Africa’s biggest economic risk by Goldman Sachs Group Inc.
“Innovative ideas are being put on the table on how to deal with the debt,” Ramaphosa said. “We are determined to ensure that Eskom is not bogged down because of the debt and that Eskom continues to function.”
The investment conference is the third Ramaphosa has hosted since taking office in 2018, and forms part of a drive to revive an economy that the Treasury expects to contract 7.8% this year.
International Monetary Fund data show investment as a percentage of South Africa’s gross domestic product has been in decline since 2016 and the Washington-based lender forecasts that the ratio will reach a record low of 13% this year. That compares with 25.4% in Nigeria and 21.5% in Angola.
South Africa investment as a ratio of GDP has dropped for five straight years
The situation is reversing, and will be aided by the government and state companies increasing spending on infrastructure, according to Ramaphosa.
“We set ourself a goal of attracting $100 billion into our economy in five years,” he said. “We are already more than halfway there. Commitments are being made by companies and many of these commitments are being actualized.”
Fifty companies pledged to invest a total of 109.6 billion rand in South Africa at the conference, bringing total promises over the past three years to 773.6 billion rand. New commitments included 32 billion rand in financing from the New Development Bank and 8 billion rand from the state-owned Industrial Development Corp.
“Companies are looking beyond the pandemic to invest in a growing economy,” Ramaphosa said in his closing address. “There must be something they are seeing in our country.”
The president has made tackling the graft that became endemic during his predecessor Jacob Zuma’s nine-year rule a cornerstone of his plans to lure investment. Law enforcement agencies have made some headway in addressing the problem over recent months, arresting several high-profile individuals including Ace Magashule, the secretary-general of the ANC.
The party is still considering whether Magashule should vacate his post, Ramaphosa said.