South Africa has unique prospects as an investor destination, but it will have to manage a growing number of risks, said Finance Minister Enoch Godongwana. “We have built a narrative that is finding a place within the investment community,” Godongwana said on the sidelines of the African Development Bank’s (AfDB) annual meetings in Accra on Friday.
Godongwana said that at an event he attended on the sidelines of Thursday night’s meeting, some analysts and investors told him that, “strange enough, despite all your challenges, there seems to be an emerging market in which the ‘South Africa is the darling’. .
This is despite the conflict in Ukraine, which is expected to drive up inflation significantly and which has seen fuel prices soar to record highs, with another in sight this week.
On the other hand, Russia is no longer an option for investors in emerging markets, with financial sanctions from the West making it an “uninvestable” destination.
There is bad news with good news for South Africa, Godongwana said.
“We are going to see inflation rise significantly,” he said, also due to the current strict Covid-19 lockdown in China, which is a big consumer of the commodities produced by South Africa. “We are also going to see major supply disruptions,” Godongwana said of the conflict in Ukraine.
He said that while the conflict would also affect imports of wheat and rice from Ukraine and Russia, South Africa is expected to experience a good maize harvest season. However, fertilizers could become a problem.
“So there is a conflict, yes, but the question is how well are we going to manage the risk,” he said, “to such an extent that we don’t lose that trust.”
Eskom, “a major challenge for the state”, is one of the biggest risk factors from the point of view of public finances and the persistent problem of electronic tolls, which “will kill Sanral” if it is not taken care of, Godongwana said.
Transnet is also starting to feature as a risk, South African Airways is “still hanging around”, Denel is a problem, while state-owned companies “as a whole are a major risk”.
The increase in the public wage bill is, from a market point of view, another risk.
The gasoline issue adds to the risks, he said. The National Treasury gave consumers a reprieve by cutting the fuel tax by R1.50 in March to cushion the blow of rising prices, but that means “it contains the amount that should be available for development economic”. he said.
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27 billion dollars mobilized on the promise of COP26
The biggest news for South Africa at the AfDB’s five-day meeting last week was that the bank pledged to mobilize $27 billion of the $8.5 billion (130 billion rand) pledged in concessional funding and grants by the UK, the US, France, Germany and the European Union as part of the Just Energy Transition Partnership forged at COP26. last year.
This means that South Africa will now have about three times the promised amount to reduce the carbon intensity of its electricity system, while developing new sectors such as green hydrogen and electric vehicles.
Godongwana said it was not just about fighting climate change and “planting renewable plants everywhere and forgetting that we are talking about a just transition”.
When coal-fired power stations are decommissioned in a place like Mpumalanga, there must be an alternative development strategy, he said. “It is no longer just about the environment, but about an alternative development model.”
The money raised will be donated in installments to the Presidential Climate Commission, headed by Daniel Mminele and deputized by Valli Moosa, Godongwana said.
Mminele and Moosa allegedly complained at a meeting in Pretoria on Friday little progress has been made in finalizing funding.
According a joint statement between South Africa and the AfDB On Thursday, Godongwana also requested technical support for the Just Energy Transition process, which will be provided through the Bank’s COP26 Energy Transition Council Rapid Response Mechanism, funded by the Sustainable Energy Fund for the Bank Africa.
“Technical assistance will aim to build the capacity of relevant institutions in South Africa — primarily Asset and The Liability Management Division (ALM) of the National Treasury and the Presidential Climate Finance Task Team (PCFTT) – to engage and negotiate with external and internal partners in the Just Energy Transition process in South Africa “, indicates the press release.
AfDB President Akinwumi Adesina told a media breakfast on Monday that the bank was working closely with Bank of America to raise the $27 billion.
Godongwana said in the interview that the AfDB had financed many infrastructure projects in South Africa, including the Medupi power project, and that South Africa was “a major shareholder” in the bank. .
He said heavy rains in KwaZulu-Natal, along with flooding last month, were a reminder that South Africa needed to prioritize climate change.
When asked if any of the $1.5 billion pledged by the bank for food security aid following the Ukraine crisis would come to South Africa, Godongwana said no. “The general opinion is that South Africa is not facing food shortages [compared with many other African countries] and will not be a priority from this angle. DM