Do or die: the stark choice facing SA economy in 2015

THE JSE ended a turbulent 2014 higher by 7.6%, despite massive labour strikes, growing unemployment and a shortage of power.

Analysts have warned, however, that unless real structural changes are implemented, there is not much chance that 2015 will be better — spelling danger for investors’ prospects.

There has been a lot of talk about the National Development Plan, which aims to ensure that 24 million people have jobs by 2030 by establishing infrastructure and regulatory frameworks — but no action has been taken to implement it.

Said economist Iraj Abedian: “Unless substantive changes are made to the broader public policy approach, away from the current statist framework, South Africa can expect not only more power outages and disruption to economic activity, but also more loss of investor and citizen confidence in the ability of the government to deal with the key structural problems facing the country.”

South Africa averaged economic growth of 4.5% from 2002 to 2008, but the government’s inability to deal with structural issues and difficult global economic conditions has seen growth slowing significantly in recent years.

The consensus is that growth for last year will have averaged barely 1.4% — almost half the initial estimate of 2.7%, after platinum and manufacturing strikes put a brake on the economy. High government borrowing, deteriorating infrastructure, high unemployment and crime also soured international sentiment.

In November, ratings agencies Fitch and Standard & Poor’s granted South Africa a stay of execution, keeping its credit rating unchanged. Moody’s, however, downgraded it one notch to Baa2, just two above “junk status.”

Nomura’s Peter Montalto said more downgrades were possible in 2015, but it depended on the sort of budget that Finance Minister Nhlanhla Nene delivered in February.

Abedian warned that if South Africa’s credit rating fell to junk status, it would be devastating for the country.

He said that the coming year could be a landmark year when “self-inflicted policy errors” could change South Africa’s economic fortunes.

A growth fillip is expected this year, with the National Treasury and Moody’s saying that GDP growth would likely swing upwards to about 2.5%.

Montalto agreed that growth could head towards the 2.4% mark, but he said this was based on the assumption that there would be far fewer strikes this year than last.

Still, Montalto warned that employment growth would probably disappoint, averaging at best about 50 000 new jobs per quarter. On the plus side, however, the power situation was likely to improve as part of Medupi came on stream.

Some are more optimistic. Scenario planner Clem Sunter said South Africa could even push growth beyond 3% this year — but only if the ANC government heeded certain resolutions, including cracking down on corruption and curtailing excessive spending.

But Purple Capital chairman Mark Barnes said he believed things would get worse before they get better. “I think this year will be . . . [when] we realise that more of the same is not going to work,” he said.

“We are at a point where, if the decay continues much further, it could become impossible to repair. But there is a lot worth saving and I think we are approaching a turnaround point.”

Montalto said 2015 would most acutely be marked by any progress in dealing with the country’s ailing state-owned enterprises — particularly Eskom, SAA and the Post Office.