Con­fi­dence es­sen­tial if SA is to start grow­ing

Financial Mail - Investors Monthly - - Contents - with Claire Bis­seker

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.”

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