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Finance Minister Pravin Gordhan is a realist. After the massive damage wrought by Nenegate, he wouldn’t have expected any miracles during an investor roadshow which now moves from London to New York. His intention, emphasised by the accompaniment of long-neglected big business, would be to show the world there are South Africans determined to reverse the national drift. Gordhan’s goal would have been to encourage foreign investors to stop selling South African assets. It would be a stretch even for this optimistic activist to expect them to start buying again while mercurial President Jacob Zuma remains in power. This reminds me of the events a decade or so back which turned perceptions that the Rand was a one way bet (down). Those exposed to the Finance Minister and his entourage this week will be less convinced South Africa is heading towards the fate of Zimbabwe. And, for now, that is enough for all concerned to be congratulated on a job well done. Hope Springs. – Alec Hogg
By Sujata Rao
LONDON, March 9 (Reuters) – South African finance minister Pravin Gordhan won applause for an impromptu London roadshow this week but left many global investors sceptical he could defend his country’s investment grade rating – or even stay in office.
Appointed after a predecessor’s sudden sacking, Gordhan is trying to woo back UK and U.S.-based investors and repair the damage from “9-12”, the December day when President Jacob Zuma suddenly switched finance minister. It took the subsequent appointment of Gordhan, respected for a previous stint at the ministry, to calm markets.
But “9-12” was seen to have seriously dented South Africa’s institutional credibility, adding to investor worries about an economy growing at less than one percent, high inflation, a balance of payments hole, weak commodity prices, frequent labour unrest and power shortages.
Hanging over all that is the very real risk South Africa will lose its investment-grade rating by mid-year, potentially raising borrowing costs for government and firms alike.
Investors who attended the London roadshow told Reuters they were open to being convinced by Gordhan.
“I left the place thinking the minister has good intentions, hopefully he stays in his job,” said Claudia Calich, head of emerging debt at M&G Investments. “But I wasn’t thinking ‘Wow, I should rush out and buy South Africa.'”
Minister Gordhan is currently on a roadshow in the US, trying to allay fears over SA's economy. He's also been in the UK, meeting investors.
— Proudly South African (@ProudlySA) March 9, 2016
With Treasury officials, heads of companies such as Investec and Barclays Africa, and representatives of powerful trade unions all wearing scarves depicting South Africa’s multi-hued flag, “it was clearly a show of strength and to some extent it worked,” said one bond investor who asked not to be named.
“But I didn’t hear anything that made me believe there would be long-term reforms.”
Gordhan told Reuters the gathering reflected a “new process of dialogue” in an economy sapped by labour unrest.
But on Tuesday Moody’s moved a step closer to cutting South Africa’s rating to junk while data showed the current account deficit widening further and more South African firms heading overseas to invest.
POLITICS LARGER THAN GORDHAN
With two major agencies rating South Africa just a notch above junk, Gordhan’s recent budget sharply cut deficit projections.
But sovereign bonds and credit default swaps (CDS) continue to price South Africa as if it were rated BB-plus, the highest junk category. Investors also questioned Gordhan’s revenue targets and the absence of privatisation plans.
Then there are doubts over Zuma’s backing for Gordhan after a public spat with revenue service chief Tom Moyane.
“People seemed too frightened to ask outright (about Gordhan) during the presentation,” another attendee said.
Finance Minister, Pravin Gordhan, says he is confident that South Africa will emerge from its economic woes and avoid a downgrade
— SAfm news (@SAfmnews) March 7, 2016
But Nomura strategist Peter Attard Montalto said Gordhan had been quite open during the presentation and one-on-one meetings.
“Investors remain very worried on the politics, and their views are not really shifting on the inevitability of downgrade,” he said.
Gordhan dismissed the fears, telling Reuters that Moyane was “merely the administrative head of an entity”.
Kevin Daly, a portfolio manager at Aberdeen Asset Management said he came away from the meetings “cautiously optimistic”, adding: “They did their best to allay concerns about the reputational damage of ‘9-12’.”.
Foreigners have sold stocks worth a net 14 billion rand ($910 million) already this year, an acceleration from last year’s 765 million rand net outflow, stock exchange data shows.
Local bonds, which yield 8-9 percent are however still attracting money after a net 6.5 billion rand in 2015.
The bond investor said his allocation was smaller than South Africa’s weight in indexes. Asked if the roadshow changed his view, he said: “I am not going to put more money in, but maybe I won’t take more out.”
The roadshow moves on to Boston and New York.
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