South Africa has some unique prospects as an investor destination, but it will need to manage a growing number of risks, says Finance Minister Enoch Godongwana. “We have constructed a narrative which is finding some space within the investor community,” Godongwana said on the sidelines of the African Development Bank’s (AfDB’s) annual meetings in Accra on Friday.

Godongwana said that during an event he attended on the sidelines of the meeting on Thursday night, some analysts and investors told him that, “strange enough, despite all your challenges, there seems to be an emerging market in which South Africa is the darling”.

This is despite the conflict in Ukraine, which is expected to push up inflation considerably, and which has seen fuel prices rise to record highs, with another one in the offing 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 some bad news with the good for South Africa, Godongwana said. 

“We are going to see inflation rising a great deal,” he said, also due to the present strict Covid-19 lockdown in China, which is a major consumer of the commodities South Africa produces. “We are also going to see major supply disruptions,” Godongwana said regarding the Ukraine conflict.

He said although the conflict would also affect the wheat and rice imports from the Ukraine and Russia, South Africa was expected to have a good maize harvest season. Fertiliser would, however, possibly become an issue. 

“So there is conflict, yes, but the question is to what an extent are we going to manage the risk,” he said, “to such an extent that we don’t lose that confidence.” 

Eskom, “a major challenge for the state”, is one of the biggest risk factors from a public finance point of view and the lingering issue of e-tolls, which “is going to kill Sanral” if unattended to, Godongwana said. 

Transnet is also beginning to feature as a risk, South African Airways “is still lingering”, Denel is a problem, while state-owned enterprises “as a whole constitute a major risk”. 

The rising public wage bill is, from a market perspective, another risk. 

The petrol issue is adding to the risks, he said. The National Treasury gave consumers a reprieve by slashing R1.50 off the fuel levy in March to cushion the blow of the price rises, but, what this means, is that “it is containing the amount that should be available for economic development”, he said. 

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$27bn leveraged off COP26 pledge

The biggest news for South Africa from the five-day AfDB gathering last week was the fact that the bank has vouched to leverage $27-billion off the $8.5-billion (R130-billion) pledged in concessional finance and grants by the United Kingdom, the United States, France, Germany and the European Union as part of the Just Energy Transition Partnership forged at the COP26 gathering last year. 

This means South Africa will now have roughly three times the pledged amount at its disposal to reduce the carbon intensity of its electricity system, while also developing new sectors such as green hydrogen and electric vehicles.

Godongwana said it wasn’t just about countering climate change and “planting renewable plants all over the place and to forget that we’re talking about a just transition”.

When coal-fuelled plants are decommissioned in a place like Mpumalanga, there has to be an alternative development strategy, he said. “It’s no longer just about the environment, but it’s about an alternative development model.”

The money raised will be dispensed in tranches to the Presidential Climate Commission, headed by Daniel Mminele and deputised by Valli Moosa, Godongwana said.

Mminele and Moosa reportedly complained at a meeting in Pretoria on Friday that little progress has been made to finalise the funding. 

According to a joint statement between South Africa and the AfDB on Thursday, Godongwana also requested technical support with the Just Energy Transition process, which will be provided through the bank’s COP26 Energy Transition Council Rapid Response Facility, financed by the Bank’s Sustainable Energy Fund for Africa. 

“The technical assistance will be targeted at enhancing the capacities of relevant institutions in South Africa — primarily the Asset and Liability Management (ALM) Division of the National Treasury and the Presidential Climate Finance Task Team (PCFTT) — to engage and negotiate with external and internal partners of the South African Just Energy Transition process,” the statement read. 

AfDB president Akinwumi Adesina said at a media breakfast on Monday that the bank was working closely with the Bank of America to raise the $27-billion.

Godongwana said during the interview the AfDB had been funding a lot of infrastructure projects in South Africa, including the Medupi Power Project, and that South Africa was “a major shareholder” in the bank. 

He said the heavy rains in KwaZulu-Natal, as well as the floods last month, were a reminder that South Africa needed to prioritise climate change. 

Asked whether any of the $1.5-billion pledged by the bank for food security relief in the wake of the Ukraine crisis will be coming to South Africa, Godongwana responded in the negative. “The general view is that South Africa isn’t facing food scarcity [compared with many other African countries] and is not going to be a priority from that angle.” DM

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