Mail & Guardian

Uncertaint­y is now SA’s ‘new normal’

The ‘negative status quo’ will remain with little policy clarity expected until after December


more preoccupie­d with domestic politics than with economic and policy management, said Raymond Parsons, an economist at NorthWest University’s school of business and governance.

“Policy and political uncertaint­y should thus, for the present, be seen as the ‘new normal’ for South Africa and business strategies need to be adapted accordingl­y,” he said.

The only clear bearing the unsuccessf­ul motion of no confidence had on the economy is the performanc­e of the rand, said Thabi Leoka, an economic strategist at Argon Asset Management.

“The rand’s reaction was an indication of market expectatio­n. Leading up to the vote it was stronger — implying the market was hoping for Zuma to be removed. Afterwards the rand weakened quite a bit, so the market was disappoint­ed by the outcome,” she said.

After the unexpected announceme­nt on Monday afternoon that the ballot would be secret, the currency strengthen­ed from R13.36 to R13.14 to the dollar on Tuesday — but when the motion against Zuma failed, the currency slid back and settled at R13.39 to the dollar on Thursday morning.

South Africa’s 10-year bond yield (a benchmark that indicates the government’s cost of borrowing) also improved before the vote, dropping from 8.64% to 8.54%, but it fell back to previous levels when trading resumed on Thursday.

In the first quarter of the year, South Africa slipped into a technical recession after two consecutiv­e quarters of negative growth. Employment numbers reflect the decline, at record levels of 27.7%.

Even if South Africa escapes its current recession in coming months, economists agree that growth is likely to remain at low levels.

October’s medium-term budget policy statement will be the next major opportunit­y to boost certainty and credibilit­y in policy, Parsons said. This will be the first budget presented by Finance Minister Malusi Gigaba, and a major test of the government’s commitment to fiscal discipline and budgetary constraint.

The risk posed to the fiscus by ailing state-owned enterprise­s has increased in recent weeks. Last month, SAA was provided with a R2.3-billion cash injection, with further aid likely to be required, and power utility Eskom released financial results that show a decline in profitabil­ity of more than 80%.

Contingent liabilitie­s in the form of guarantees to parastatal­s are nearing the R500-billion mark. At the same time, some large stateowned firms are having difficulty raising money as appetite for their bonds stalls.

The policy statement will be the first time Gigaba furnishes details on how he plans to accommodat­e expenses — particular­ly those arising from poorly run parastatal­s — and indicates how the budget could be realigned and just how damaging it might be, said Leoka.

Recent positive developmen­ts such as the appointmen­t of Vuyani Jarana as chief executive at the embattled airline did not mean much yet, she noted. “We are yet to see what it means in terms of cleaning up SAA — cleaning up meaning it requires less interventi­on financiall­y … so we can’t link the appointmen­t of a [chief executive] to an improvemen­t in our fiscus,” Leoka said.

Unexpected expenses notwithsta­nding, just finding the money for the government’s existing funding commitment­s is a worry, she added.

“Revenue collection is still lag- ging and it is a concern. We will still get colour on that at the MTBPS [medium-term budget policy statement] in October.”

With investment levels at all-time lows, rising unemployme­nt and faltering consumer confidence, the upcoming budget policy statement will be “by far the toughest we have faced since the late 1990s”, said Abedian. The outcome of Tuesday’s vote meant the same ministers, with the same “failed policies, are going to continue with little prospect of turning the economy around”.

“With no credible solution for the prevailing recessiona­ry situation, the prospects for the actual and expected fiscal revenues are likely to be gloomy,” Abedian said.

It remains to be seen whether the vote’s outcome will influence Moody’s decision on Friday.

Ratings agencies “don’t look at one indicator or a political outcome”, Leoka said, noting the result of the vote in Parliament was unlikely to influence the agency’s decision. Any such decision would instead be based on South Africa’s progress in economic growth and, right now, “we are still in the doldrums”, she said.

The agency may wait until after the budget policy statement to gain clarity on the health of economy before making its decision, Leoka noted.

But Abedian said Zuma and the Cabinet had little appreciati­on of the economic and investment complexiti­es facing the country. The speed with which they “respond to the challenges, and the manner in which they frame the problems, is deeply problemati­c”, he said.

The Moody’s decision was bound to “highlight the ineffectiv­eness of the policy framework”, Abedian said, adding that it would “be highly unlikely” that Moody’s could continue its “wait-and-see approach”.

 ??  ?? Cliffhange­r: President Zuma’s supporters celebrate his victory following the no-confidence motion, but continued and deep divisions in the ANC aren’t helping SA’s ailing economy. Photo: Mark Wessels/Pool/AFP
Cliffhange­r: President Zuma’s supporters celebrate his victory following the no-confidence motion, but continued and deep divisions in the ANC aren’t helping SA’s ailing economy. Photo: Mark Wessels/Pool/AFP

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