Country faces ‘extended period of upheaval’

THE BLEAK long-term outlook for the South African economy will leave investors with tough and calculated decisions to make concerning their money and assets. This is despite the country emerging from a technical recession last week.

The picture, which is not pretty, will only become clearer after the ANC’s leadership election conference in December.

Speaking at the Rode-REIM Real Estate Conference, Standard Bank economist Thanda Sithole said the country’s average gross domestic product (GDP) growth in 2016 was 0.3%, and 2017 looks to be about 0.5%. Growth predicted for 2018 is only 1%.

“The current economic conditions are not good. In terms of ratings, we are ranked at non-investment grade and although we do not expect a downgrade this year, it will possibly come next year. We are waiting for the outcome of the ANC elective conference to know more.”

Business and consumer confidence levels remain at the depressed levels of the 2008/9 financial crisis.

By comparison, Sithole said global growth looked set to be 3.5% in 2017, with a similar outlook for 2018. The biggest driver of this is the Eurozone, and the US economy is expected to grow between 2% and 2.5%, too, as a result.

“The global economy is set to recover, and this is important for South Africa because our economy is linked to the global economy. We can benefit through exports, especially to the Eurozone, and this will help South Africa in the near term.

“We expect the GDP to remain muted this year and it could even be lower than 0.5%.”

However, Sithole explained there was a high correlation between business confidence and fixed investment, and that business confidence would also depend on the outcome of the ANC’s December election.

“We do believe there is risk of further downgrades, but not this year. However, we will not benefit from the growing global economy if we do not address the political turmoil and business confidence.”

Much of this, and more, was stated by other speakers at the conference, including Andrew Rissick, managing director of Sable International.

He said: “The rand will continue to devalue as long as we do not create long-term solutions for capital and labour productivity. The rand is affected by South Africa’s structural economic environment.”

The situation looks like a tough one to emerge from, Rissick said, explaining that challenges, now and in future, exist. These include:

The need to export more than import.

The country’s GDP, commodities, unemployment and political instability.

Inflation levels above 5%. Emerging market growth/ industrialisation is still recovering. South Africa’s money market rates are among the highest in the world. The ANC leadership election and the country’s macro-future. SARS under-collection loom- ing.

Possible downgrade to junk status – this could be the trigger for the rand.

“In terms of gross government debt as a percentage of GDP, South Africa is moving past 50%. The government is running out of money and this crisis is potentially lying ahead of us.

“If we do go sub- investment grade, we estimate about R150 billion of forced sales, so in the short term we will see further rand strength, but further devaluing in the long term.”

In other words, the longer-term prospects for the South African economy are bleak, said Erwin Rode of Rode & Associates. Reasons include the country’s brain drain, “dysfunctional” education system, endemic corruption, and long-term growth expected to be less than 2%.

According to Rode’s economists’ growth predictions, South Africa is expected to reach a high of only 2.5% growth in 2021 and 2022.

Overall, Rode said, South Africa is headed for an “extended period of upheaval”.

PICTURE: PIXABAY Business and consumer confidence levels are depressed.