Optimism that new confidence can help to boost growth
With the country ploughing through huge upheaval, it is insightful to take note of what two of our foremost market commentators are saying.
Colin Coleman of Goldman Sachs and Kevin Lings of Stanlib are optimistic that the new political dispensation will result in improved confidence that in turn should help boost economic growth.
Goldman Sachs is forecasting 2.3% growth for 2018. Stanlib is a little more cautious and looking at 1.9% to 2%.
Delivering the keynote address at an S&P Dow Jones Indices conference, Coleman set the scene with a comment that “for SA to grow at anything less than population growth is a disaster”. He followed this with a hard-hitting rebuke of the Zuma regime’s ruinous policies, then changed the mood with a much more expectant view of the future under Cyril Ramaphosa.
A fortnight of momentous events in SA will be replaced by relative calm under the new political leadership, albeit one that faces immense challenges.
Likening the dismantling of the Zuma regime to unscrambling an egg, the head of Goldman Sachs in sub-Saharan Africa believes that achieving growth in this country is paramount if we are to succeed as a nation. He takes heart from the ANC’s January 8 speech, as well as Ramaphosa’s “new deal”.
Coleman believes the Reserve Bank will cut interest rates three times in 2018, at 25 basis points each time. Although Goldman’s forecast of 2.3% growth is at the upper end of estimates, Coleman reckons that if we can just stop “scoring own goals”, then that forecast could be modest in retrospect.
Lings, the chief economist at Stanlib, is hopeful on SA’s immediate future but cautions that beyond the current “honeymoon” period of Ramaphosa’s appointment it will be difficult to achieve the desired outcome of 4% to 5% economic growth the country desperately needs.
Lings gives credit to unsung parts of the economy that have performed reasonably well.
Although some observers think the global economic upswing passed SA by, this is not the case. For example, SA has enjoyed substantial and sustained trade surplus for many months. In January, it was an impressive R15bn positive. Consumer disposable income has been surprisingly buoyant, as real income growth of about 2% has become apparent. But Lings points out that in most other economies any excess income growth tends to get saved, whereas in SA it is spent on consumer items as this “is a nation of resilient shoppers”.
The real damage to the economy has arisen because of a loss of confidence. Businesses have been on an investment “strike”, even neglecting to spend money on essential maintenance. Lings believes Ramaphosa’s most pressing item on his “to do” list will be to restore this confidence and kickstart corporate operational reinvestment.
Beyond confidence building, Lings says Ramaphosa needs to restore fiscal discipline, reform state-owned enterprises, ensure clear and consistent transformation policies and dramatically reduce corruption.
Lings showcased nightmare statistics on parastatals. Despite their infrastructure spend having stagnated, their debt has rocketed 16% a year in the past decade. Money has been frittered away on exorbitant salaries and generally having a good time, with a flagrant disregard for governance. On transformation, it is imperative to clarify land expropriation and ensure food security is not compromised, he says.
Getting to the 2% growth ballpark that Lings and Coleman expect should be straightforward. Into the realms of 4% and above will take huge and sustained commitment from the new government.