Finance Minister at Davos: SA open for business

As the World Economic Forum convenes in the snowy heights of Davos, Switzerland, South Africa's Finance Minister Enoch Godongwana is part of the “Team SA” delegation of ministers and business leaders on a mission to reshape the global investment narrative surrounding the nation.

Speaking to Investec Focus in Davos, Minister Godongwana articulated the compelling case for investment in South Africa, stating, “We've got a sophisticated economy. We’re linked with the developed world. We’ve got all the necessities people need for investment.” This assertion comes at a critical time when many investors seek stability and growth potential in an unpredictable global landscape.

Geopolitical risks abound

The finance minister did not shy away from addressing the pressing global challenges that could impact South Africa's investment case, including geopolitical tensions and the rise of protectionism.

“The current geopolitical situation, particularly the conflicts in Ukraine and the Middle East, pose a worrying factor for us,” he remarked. “As largely commodity producers and exporters, we are sensitive to global trade dynamics, especially with the ongoing trade tensions between the US and China.”

Annabel Bishop, Investec Chief Economist, emphasised the importance of trade in enhancing the economic landscape and improving people's livelihoods. She highlights that there has been recent progress in discussions between China and the US.

Speaking to Investec Focus on Tuesday, she said: “President Trump’s economic team is considering a moderate tariff strategy that would target only critical imports, as opposed to a sharp universal tariff approach on all imports. This more measured approach is expected to have a lesser impact on prices and economic growth.”

However, she also pointed out that President Trump isn’t backing down from threats of hefty (25%) tariff increases on Canada and Mexico to stem illegal immigration into the US.

Global fragmentation

Bishop noted that there has been a significant increase in geo-economic, geopolitical and financial market uncertainty, largely due to the fragmentation of the global economy into competing blocs.

“This shift has led to a decline in the post-Cold War trade boom and globalisation. Despite these challenges, global economies have shown resilience, with growth projected at around 3.0% over the next five years, albeit below trend.”

Bishop says that a crucial factor is the ongoing willingness of bloc members to engage in trade with one another. “Consumers seek price value, and corporates seek profits, with this transactional relationship extending between the geopolitical blocs as well.”

Improving debt trajectory

Amidst South Africa’s challenges, Minister Godongwana highlighted an expected shift in South Africa’s debt trajectory, saying that the country is on track to stabilise public debt in the 2025/26 fiscal year to[CO1]  75.5% of GDP, and then see it drop below 70% of GDP by 2030.

“We have said in our Medium-Term Budget Policy Statement that we are reaching the peak of debt to GDP, and we are beginning a trend line downwards,” he notes. This positive outlook is underpinned by an increase in the primary balance, signalling a commitment to fiscal responsibility.

Bishop is encouraged by this trajectory along with other improving metrics: “While our debt-to-GDP ratio is worryingly above 60% – the maximum sustainable debt ratio for an emerging market economy – it is positive to see the strong focus on working down public debt, while growth initiatives strengthen and infrastructure constraints are being eroded, with business confidence improving.”

Reforms, not ratings

In another interview with Reuters in Davos, the Minister said that South Africa is prioritising the implementation of growth-enhancing reforms, rather than focusing solely on restoring its investment-grade credit rating, a process that he said may take up to two years.

Talking to Investec Focus, the minister said: “We are investing a lot of time on structural reforms,” pointing to collaborations with the private sector on critical sectors like rail and electricity. “We believe these reforms will significantly impact growth and stimulate demand.”

Using G20 as a platform to tackle Africa’s debt crisis

Godongwana's vision extends beyond domestic reforms; with South Africa assuming the Presidency of the G20 this year, he aims to use the platform to advocate for a rethink of poor nations’ debt costs.

As of 2024, the World Bank says that total amount of money African countries owe to external lenders is equivalent to 24.5% of their collective economic output.

Godongwana expressed the need for concessional debt access, stating, “How do we make sure that the developing world, in particular the African continent, has access to debt at concessional rates?” This plea highlights the necessity for a more inclusive global economic architecture that supports sustainable development.

South Africa is open for business

As South Africa seeks to attract foreign investment, the message from Davos is clear: the nation is not only addressing its fiscal challenges but is also laying the groundwork for a more resilient and growth-oriented economy.

Bishop adds: “The South African economy is poised for substantially stronger economic growth, as structural impediments are eroded, sparking investor interest already, and reflected as well in financial markets.”  

With a further focus on improving its debt trajectory and fostering structural reforms, South Africa is positioning itself as an attractive destination for investors looking for stability and opportunity in a volatile world by improving the environment for doing business.