Pravin Gordhan. Picture: AFP PHOTO/MUJAHID SAFODIEN
Pravin Gordhan. Picture: AFP PHOTO/MUJAHID SAFODIEN

RECENT global and domestic economic developments, especially the startling decisions around the replacement of former finance minister Nhlanhla Nene last month, have led to widespread concerns about SA’s diminished economic prospects. The collateral damage in financial markets and to business confidence has been significant, and even the welcome reappointment of Pravin Gordhan to the finance portfolio has not yet fully restored trust and confidence.

The rebuilding of trust was a major message at Gordhan’s first media conference immediately after his reinstallation, in which he reaffirmed the official commitment to overall fiscal prudence. He is a safe pair of hands at the Treasury.

But what could be the game changers in a persistently fragile and volatile economic outlook for SA?

The global economy has been less supportive lately. This stems mainly from factors such as the drastic drop in commodity prices arising from the "rebalancing" of the Chinese economy, lukewarm European Union growth, and higher US interest rates.

But it would be unrealistic to attribute the bulk of the blame to global factors, or to use them as a smokescreen to avoid making difficult domestic economic choices. Overall, the world economic outlook remains positive, albeit weak, and in any event is driven by agents that lie outside SA’s control. SA must urgently focus on the internal factors that can carry the economy forward. The mantra "think global, act local" remains an indispensable dictum for SA.

Gordhan faces new challenges, including a severe drought. In this scenario, the growth outlook for 2016 as a whole hovers at just below 1%, there is again speculation about a looming possible "technical recession", the rand has not yet regained its pre-Nene levels, SA’s investment rating is now only just above "junk status" and interest rates are set to rise further.

Certain key targets in the fiscal consolidation programme might be in jeopardy. While the budgetary situation may still appear manageable, the economy is now much more vulnerable and the room for error has shrunk markedly. We must learn from our mistakes, not repeat them.

Gordhan’s reappointment, therefore, does not mean he merely picks up in 2016 where he left off in March 2014. It is just as well that he is thought of as having returned to the finance portfolio in a stronger position, given the circumstances of his reappointment. He will certainly need all the political clout he can muster, including from President Jacob Zuma, to implement the tough decisions required in certain key areas of policy.

Gordhan needs support from the Cabinet as a whole to enable SA to break out of its "low-growth trap" and avoid further investment rating downgrades.

Residual doubt has been expressed about Gordhan’s earlier track record as finance minister.

"Gordhan has been a soft finance minister," economist Iraj Abedian said in 2014. "On his watch, the fiscal deficit has shot up, the currency has lost almost 30% of its value, and he’s been too accommodative on fiscal discipline. Unless SA has a tough-acting minister of finance, confidence will be difficult to rebuild."

But recently, Gordhan has strongly demonstrated his determination to again tackle fiscal waste, corruption and cronyism. A tenacious finance minister is what the markets and business will be expecting in the months ahead, and is the litmus test of whether sensible fiscal management can begin to improve SA’s prospects.

Gordhan has emphasised that "the government cannot spend money it does not have". It either had to restrain spending or the government will eventually need to borrow even more money — or raise taxes.

The reality of SA’s thin tax base is well-known and the downside risks of "tax-and-spend" policies are high. Whether we like it or not, bond markets and credit rating agencies play an important role in defining SA’s economic prospects. Hence Gordhan will soon need to specify a fiscal path of least regret for the period ahead.

More than once, the International Monetary Fund and other reputable analysts of the South African economy have emphasised how urgent it is for SA to progress with planned structural reforms to boost growth and create jobs. It is a message as old as the hills, yet remedies are available.

The overall socioeconomic programmes SA needs are captured well in the National Development Plan (NDP), but after three-and-a-half years, perceptions about its poor implementation and realisation are extremely negative.

Several policy decisions, such as those on land reform and nuclear power, are seen to be in conflict with the NDP. One credit rating agency recently described what it saw as a large "credibility gap" between policies nominally espoused and the measures actually implemented.

Despite its imperfections, the NDP has been a valuable rallying point for business. But the general impression in business circles regrettably remains one of an overall lack of policy coherence and co-ordination that by greatly expanding the range of policy uncertainty has been damaging to investor confidence. Unless the policy signals now become more certain and positive, private investment will continue to languish or go elsewhere.

Gordhan certainly does not want to see SA’s growth engine emigrate. Nevertheless, the business community also needs to speak up on the issues that worry them and put solutions on the table. The general reaction of business to the removal of Nene was underwhelming. Organised business must be both a better consumer and contributor of ideas on policy implementation.

Facilitating an economic recovery is not only the task of the finance ministry — it also requires buttressing by regular reassuring statements from the ruling African National Congress to help change economic perceptions for the better.

Gordhan will also require strong support from the president’s State of the Nation address next month to create more certainty and predictability about the road ahead for SA.

This year is not only one of extensive economic challenges, but also one of governance. The address must provide the overall setting and leadership needs to restore confidence.

This will require a skilful balancing of pressing economic realities with the imminence of local elections later this year.

Steering SA between the Scylla of a sound economic recovery and the Charybdis of party politics will call for decisive leadership, as well as strong nerves among all stakeholders. This may be the last year in which the credibility of the NDP can be restored as a long-term vision for SA in the eyes of many stakeholders.

• Parsons is a professor at the North West University School of Business and Governance