Growth below 1% expected
SOUTH AFRICA’S growth was expected to hover below 1% this year with challenges of ongoing policy uncertainty negatively impacting investor confidence and export levels.
International Monetary Fund senior representative in South Africa Montfort Mlachila, speaking at a public lecture at the Graduate School of Business at the University of KwaZulu-Natal last week, said policy uncertainty could lead to companies holding back on investments which in turn can lead to diminished exports. Mlachila said the IMF expected SA’s growth to be between 0.8% and 1% in 2017 with contained inflation but challenges of financially floundering State Owned Entities (SOEs) and policy uncertainty remained.
“SA’s growth trend and last year’s growth trend was about 0.3% and in real terms growth has been negative for the past three years.
“The income of South Africans has been declining and given the discrepancies in income the poor have become much poorer,” he said.
Mlachila said Eskom had managed to improve electricity supplies following its earlier crisis but SOEs remained highly indebted.
“SOEs remain more leveraged and less profitable than private firms.
“SOEs are unable to borrow on the strength of their own balance sheet and have to rely on the government for guarantees and have become less profitable than private firms. They have low returns,” Mlachila said.
“Households remain highly leveraged at around 75% in terms of debt service to disposable income and it shows there is little hope for further improvement in consumption for households,” Mlachila said.
Despite the high rate of unemployment, staff earnings had increased and outstripped growth in productivity which, he said, made it less likely for businesses to hire additional staff, a factor that had contributed to unemployment.
Mlachila said the IMF expected interest rates to remain on hold unless inflation rose.
Mlachila said sub-Saharan Africa (SSA) was now SA’s major export market comprising 30%, many local companies were now seeking to invest beyond the borders rather than domestically. By comparison, China comprises just 12% of the country’s export market.
“If you go around the SADC region you will see a lot of SA firms such as Spar and SA banks have also invested quite significantly in the region,” said Mlachila.
“This is driven by high profit margins and return on assets. On average investing in the rest of the region is actually more profitable for SA firms than investing in SA. There are other reasons why SA firms are not investing nearly as much in SA,” he said. Mlachila said the government should focus on structural reforms to rehabilitate the economy and produce robust growth, including further improving competition, making labour market policies more inclusive and improving the governance of SOEs.
UKZN economic historian Devon Windvogel said the fundamental cause of many of Africa’s burdens was the inability of elites to integrate their growing populations into the modern sectors of their economies.
“Unlike countries in the Far East like Singapore, Taiwan, South Korea and China, where more than 500 million people have been successfully integrated into the modern industrial economy in recent decades, African and Middle Eastern elites have spectacularly failed,” Windvogel said.