Confidence essential if SA is to start growing
Economists fear that SA’s economic performance has remained weak in the second quarter. Some think the contraction may even have deepened and a few are revising down their growth forecasts for the year.
“Over the past month or two the narrative has changed considerably, from Ramaphoria to Ramafailure,” says analyst JP Landman. “The sense is that [Cyril] Ramaphosa is stuck and, with him, SA. Weak business conditions and poor growth numbers obviously contribute to this narrative.”
Just how bad the secondquarter growth figure is likely to be will become clearer in August, when high-frequency data releases for June (mining, manufacturing, retail sales, the trade balance and private sector credit) are published.
Sliding confidence has stoked fears that the economy has continued to underperform in the second quarter, following the shocking 2.2% quarterly contraction in the first quarter — SA’s largest quarterly decline since the global financial crisis.
In June, the SA Chamber of Commerce & Industry (Sacci) business confidence index (BCI) slipped again, from 94 in May to 93.7 — the worst reading in eight months. The BCI has declined each month from a high of 99.7 in January.
The BCI figures confirm Capital Economics economist John Ashbourne’s view that the inauguration of Ramaphosa has not translated into a real, sustained boost for SA’s longstruggling economy.
Ashbourne has cut his 2018 GDP growth forecast from 2%
The inauguration of Ramaphosa has not translated into a real, sustained boost for SA’s long-struggling economy
to a below-consensus 1.3% on the expectation that the economy will have a bad second quarter.
There are several reasons why he doubts that economic activity has improved sharply.
First, he says though temporary factors contributed to the first-quarter slump, they only explain a small share of the contraction in output.
Second, in Ramaphosa’s first few months in office there’s been a faster-than-expected move towards fiscal austerity, in the form of a VAT hike, as well as a lack of policy clarity.
Ashbourne singles out the delays in the renegotiation of mining rights and the reopen- ing of the land-reform debate as two factors that may have spooked investors.
Third, the optimism about Ramaphosa has been fleeting.
“This gloomy reappraisal of the economy’s prospects has poured cold water on hopes that ‘Ramaphoria’ will translate into a tangible boost to demand later this year,” Ashbourne says.
But Landman says the swing from Ramaphoria to Ramafailure is an exaggeration. He cites a recent Merchantec Capital opinion poll of 1,000 CEOs which finds that 47% give Ramaphosa 5/10 for his performance thus far, 32% give him 8/10 and 5% give him 9/10. So 84% of CEOs rate his performance at 5/10 or more.
This did not prevent CEOs’ overall confidence levels from slumping from 60% to 47.4% between the first and second quarters. CEO confidence is now back where it was in the last quarter of 2017.
Landman says most may be happy with Ramaphosa, but are not confident. “Unless CEOs feel more confident, investment will not take off and there will be little or no growth.”
Five reasons were advanced by the CEOs for their drop in confidence: the “Zuma hangover”, uncertainties surrounding land expropriation, the VAT increase, fuel-price hikes and rand/dollar volatility.
There’s not much Ramaphosa can do about the last three issues but he can influence the land debate and the “Zuma hangover”, says Landman, though his effectiveness will depend on his political position.
The Constitutional Review Committee’s report-back to parliament on whether section 25 of the constitution needs to be changed to facilitate land expropriation was initially due in August but has been pushed out to September.
“This is the single biggest risk to the economy and the investment climate,” says BNP Paribas economist Jeff Schultz. He will be scrutinising the rhetoric from the committee in the run-up to its report-back for any indication as to which way it is leaning.
Landman believes the Investment Summit could be “a game-changer” in terms of reigniting confidence but this is slated only for October, after the Jobs Summit in September.
So any impact on growth from the summits, as well as resolution of the land and mining charter issues, may not be felt before the fourth quarter. By then weak growth may be baked in for the whole year.
Landman says there is hope that noneconomic issues may boost confidence as evidence builds that the impunity of Zuma’s era is being rolled back. “These may do more for confidence than any investmentspecific announcements.”