It’s hard on the road but show must go on

IHAVE been on roadshows to London and the US to see some of the same investors that the South African delegation, made up of senior members of our National Treasury, the deputy governor of the Reserve Bank, business leaders and labour unions, went to see last week.

The schedule is gruelling — going from one investor’s office to another with little time for a break in-between.

Investors are sharp, understand our financial markets, the nuances of the country and, importantly, our politics. Their questions are targeted, unsparing and often hard-hitting. But they ought to be because we owe some of them more than R600-billion.

So when I saw pictures of our delegation adorned in scarves in the colours of our national flag, to keep the chill at bay, I beamed with pride because I know just how hard they are working to keep our flag flying high, the economy on a steady course.

When a country needs to raise money, issuing bonds is one way of doing so. A bond is like a loan between an investor and the treasury. Investors agree to give the country a specific period in exchange for interest payments at designated intervals. Countries issue bonds because they offer an alternative source of finance and, unlike loans from multilateral organisations, they don’t come with conditions.

Bonds carry less stringent terms with reasonable repayment periods. For investors, emerging market bonds are desirable because they give the opportunity to diversify risks and reap higher returns than those of developed countries.

The purpose of a Treasury roadshow to London and the US after the budget is to provide updates on economic developments in the country and plans for the medium term. It is also to reassure investors that South Africa is still a safe country to invest in.

The delegation in the most recent roadshow met more than 250 investors, who were mainly concerned about our fiscal risk and strain in the balance sheets of state-owned enterprises, the recent developments on sovereign credit ratings, slow economic growth, issues relating to business and investor confidence, regulatory clarity, labour and monetary policy and the political environment.

Fiscal consolidation requires the government to reduce growth in its spending. Despite lowering the spending ceiling in previous years, government spending has been a little excessive.

In his budget speech, Finance Minister Pravin Gordhan said: “We cannot borrow beyond our ability to repay . . . we have to be tough on ourselves.”

Investors follow our stateowned companies as we do. So when SAA is insolvent because of mismanagement and high operating costs and has become uncompetitive, investors become nervous and wonder how South Africa can afford to bail out the carrier. In

I beamed because I know how hard they are working

addition, six state-owned companies project total borrowing of R257-billion over the medium term.

Investors also follow data, which mainly points to a weaker economy in 2016, including inflation, which affects monetary policy and thus the bond market.

Some of our corporations also go on roadshows to see the same investors, who are told of the tough business and labour environment.

Investors are shareholders, so when our delegation returns from a gruelling roadshow to promote South Africa Inc, only to be met with political noise when the country is on the precipice of a sovereign ratings downgrade, you have to wonder where our priorities lie.

Leoka is an economist at Argon Asset Management