SA’s ‘quick fix’ taking too long
The country is more at risk in the global economic slowdown.
Legacy of poor governance has weakened economic growth prospects.
As an open economy, South Africa is more at risk in the global economic slowdown. This was the consensus view at this week’s JSE SA Trade Connect panel discussion. Between 2009 and 2017, the SA economy went backwards. Corruption, rising debt servicing costs, failure to pay value-added tax refunds on time, not to mention additional borrowing to fund Eskom and other state-owned enterprises (SOEs), has set the country back.
Investec SA chief economist Annabel Bishop says that despite talk of a new dawn, the country is still bleeding.
The legacy of poor governance during the 2009-2017 period has weakened economic growth prospects for the remainder of this year, she said. Added to this is the overhang of SOE debt levels, as well as the high regulatory and tax burden, which quells business and consumer confidence.
“The Eskom debacle continues to be a concern, dragging down the rand and resulting in low investor confidence.”
SA was showing a contraction in industrial production of around 8% before the power cuts this month and until the uncertainties around the SOEs are resolved, the country will not see its economy grow.
The consensus growth forecast for 2019 is now at 0.5% year on year, from closer to 1.5% year on year at the start of this year.
Government figures show gross debt was already at 58.3% of gross domestic product at the end of June (first quarter), versus the 56.2% projected for the whole of 2019-20.
Citi Research director Gina Schoeman says the knock felt by the primary and secondary sectors has now moved into the tertiary sector.
“Our tertiary sector and financial services have always been our darling sectors. But because we have had a decade where [agriculture, mining, manufacturing and construction] have really performed very poorly, they demand fewer services and they provide less income.”
This knock-on effect has resulted in the tertiary sector [services, retail, tourism] registering lower growth than in the recession period SA experienced.
Schoeman says institutional strength is central to rating agency methodology.
Rating agencies, such as Moody’s – which is holding off on downgrading SA to junk – are judging President Cyril Ramaphosa’s performance following the elections.
The country could possibly receive a negative outlook, giving it enough time to implement all the proposed economic policies, before it goes back to being stable.
Or, the rating agencies could say they will give the review after looking into recent developments in a couple of weeks.
On the other hand, Alexander Forbes group chief economist Isaah Mhlanga projects a negative outlook, due in part to lower economic fundamentals being worse than National Treasury expectations and increased debt costs related to SOEs.
“We have to accept that all of the solutions available to us are longer-term, structural measures,” Mhlanga says.
Though the panel has confidence in the current administration’s ability to deliver the much-needed economic turnaround and boost investor confidence, it urges the private and public sector to work together to achieve sustainable solutions.