Business banks on new growth path
No quick fix despite positive mood, economists warn
SOWETO Gold Brewery head Dumiso Madlala is banking on President Cyril Ramaphosa to kickstart the economy and help his business grow. The micro brewery was founded five years ago in the Johannesburg township but has struggled to grow in a fiercely competitive market for beer as high unemployment and a weak economy strangled consumer spending.
Madlala places much of the blame on the administration of Jacob Zuma, who resigned as president last week after a nine-year tenure plagued by corruption allegations and economic stagnation.
“We started at the time when the economy was not doing so well,” Madlala, a chemical engineer who previously worked at Heineken, said at his brewery, where the walls are adorned with photographs of anti-apartheid heroes.
“Now with Ramaphosa coming in, we really hope the economy is going to grow fast and with the economy growing fast, small businesses like ours can also grow at a much faster rate.”
He did not give more specific details of his expectations for the new government, but said his goal of selling one million hectolitres of beer by 2020, from 50 000 hectolitres now, could be achieved sooner if Ramaphosa boosted consumer confidence.
Soweto Gold currently only distributes its products to South Africa’s wealthiest province, Gauteng, but plans to extend to five more provinces by the end of next month before launching nationwide in August.
Madlala is one of many business leaders in South Africa, as well as investors at home and abroad, who are pinning their hopes on Ramaphosa, a former businessman who held stakes in mining company Lonmin, mobile operator MTN Group and McDonald’s South African franchise.
Yet despite the early optimism of Madlala and oth- ers, some economists and analysts caution there may be no quick fix for an economy that is forecast to grow just 1.4% this year and 1.7% next year.
South Africa needs faster economic growth to reduce the high joblessness rate – currently at 27% – and alleviate the widespread poverty that has persisted since the dawn of democracy in 1994.
Financial markets roared their approval when Ramaphosa was sworn in last week. The country’s main stock index surged as much as 5%, the rand hit its strongest levels in three years, while bond investors pushed the yields on the benchmark 2026 note sharply lower.
Banks, considered the barometer of South African political and economic sentiment, are among the best-performing stocks on the JSE, up nearly 8% – far outpacing a largely flat blue-chip Top 40 index as of Monday.
“President Ramaphosa has an opportunity to set out a new course and chart a clear vision for South Africa,” Nedbank chief executive Mike Brown said.
“We urge him to set out clear policy ambitions that will help unlock investor confidence and pent-up economic activity long stymied by policy uncertainty.”
Apart from revitalising the economy, business executives would like to see more policy certainty – particularly in the mining industry.
Investors, business leaders and rating agencies are also watching closely for how Ramaphosa is going to deal with corruption and clean up cash-strapped state-owned enterprises.
But for Madlala, the real test awaiting Ramaphosa is to raise the disposable income of consumers. – Reuters