However, a credit downgrade may threaten plans to grow the province’s economy.
Makhura was speaking at a media briefing on the province’s progress in trade and investment in Sandton, Joburg, on Friday.
“A downgrade would be disastrous for an economy like Gauteng,” he said. “We are internationally connected. The outflows that would happen would harm us.”
He added that stakeholders should work together to avoid a downgrade of SA’s credit rating to junk status, but that there was a general sense of an improving environment from rating agencies.
The IRS, which was established last year, focuses on improving the trade competitiveness of Gauteng and aims to make the province a gateway for the rest of the continent. It seeks to strengthen political and social relations with regions such as Asia, the EU, North and South America and the SADC, Makhura explained.
Key objectives of the IRS are to boost exports from the province, draw in foreign direct investment flows and increase tourism. This will ultimately grow the province’s economy, create employment opportunities and improve citizens’ standard of living, said Makhura.
Gauteng MEC Barbara Creecy expanded on the tourism opportunities in the province. “The silver lining in the cloud of the weakness of the currency is that it has made exports more competitive and has made SA more attractive as a tourism destination for leisure and business tourists,” she said. “We can see the impact of the weakness of the currency in a positive sense.”
Gauteng’s biggest export trading partner is the EU, with trade valued at R175 billion, followed by the USA at R33 billion and the UK at R6,8 billion.
Exports include capital equipment, such as manufacturing and machinery. Future tradable sectors that have been identified include financial and business services, transport and communication, agriculture and mining.
Capital equipment exports largely occur among the SADC countries and are used for mining activity, he explained. In 2014, trade stood at R512 billion; it rose by R6 billion in 12 months to R518 billion, he said.
There are plans to increase trade flows going forward.
Makhura said the impact of Brexit on future trade relations with the EU is unknown. “The EU is a big driver, but the UK in its own right is a trading partner of SA,” he said.
Makhura said Gauteng would continue to focus on sustained trade and investment relationships with the UK and EU countries. “Our task is to ensure it helps fit into our strategy. We can’t be sleeping or leave it to chance,” he said.
Gauteng remains a key investment destination for the rest of the world and a trade gateway for imports and exports. The province has an economy worth R1,1 trillion, and contributes 35,1% to GDP.
Makhura said migration is important to bring skills to the province. “People complain about migration, but it also brings talent. Talent contributes to our economy enormously,” he said.
In a company note issued on Friday, economist Arthur Kamp of Sanlam Investment Management said SA’s GDP per capita level is declining, potential growth is low, the current account deficit is relatively large, the government’s main budget deficit remains wide, policy uncertainty has escalated over the past year and the economy does not count among the most developed ones globally.
Looking at these factors, SA is, indeed, at risk of being assigned a sub-investment grade rating, Kamp said.
Yet, ratings agencies Standard & Poor’s, Moody’s and Fitch have all held back on credit rating downgrades in the recent past. This, Kamp believes, can be attributed to the strength of National Treasury and the South African Reserve Bank.
Moody’s is currently the most optimistic, rating SA’s sovereign credit at two notches above junk status. The agency earlier said the chances of a credit rating downgrade is less than 50%. A cut from Moody’s would put SA in line with the rating assigned by Fitch and S&P at one notch above junk.
A number of analysts have predicted that at least one of the three major ratings agencies will downgrade SA to junk status by the end of 2016.
Source: News24 Wire