‘Lost year’ looms for SA’s ailing economy
ECONOMISTS are ringing alarm bells about South Africa’s near-disastrous growth prospects, but the warnings appear to be falling on deaf ears.
Next year will be a “lost year” for South Africa — the continent’s most advanced economy — according to Citi economist Gina Schoeman, who said this week that “something has to give”.
Her bleak view is based on the fact that since 2011, GDP growth has fallen from 3% to 1.3%.
She predicts that in 2016 the economy will grow by a measly 1.2% — not good enough to have an impact on South Africa’s high levels of unemployment.
Her comments are supported by Busi Radebe, a Nedbank economist, who said “the outlook for 2016 remains poor”. Radebe said the “discouraging” policy environment was unlikely to improve.
Schoeman said most of the headwinds facing South Africa could be blamed on global issues such as the meltdown facing China, which affects South Africa as an export-based economy. However, South Africa “sorely lacks structural reform” and this was resulting in “huge inefficiencies internally which deduct from GDP growth”.
The required structural reforms include the availability of adequate electricity and the unjamming of logistical bottlenecks — specifically for railways and ports.
Other areas requiring improvement include government maintenance of basic services such as water supply infrastructure.
For instance, Eskom’s electricity crisis in the 2014 fiscal year wiped out 1% of GDP and labour unrest shaved off 0.4%, according to the Treasury.
Schoeman said the electricity crisis should have been addressed long ago, and steps should have been taken to implement the National Development Plan.
The failure to do so was part of the reason that Citi and the IMF had lowered their GDP growth forecasts more than other institutions had.
Schoeman noted that since 2011 the central bank and the Treasury had consistently suggested the economy would accelerate, only to reduce their forecasts at a later stage.
“At the same time the headwinds we face globally have increased. All in all, you cannot expect this economy to grow [faster], Schoeman said.
She is perturbed by the continuous job losses. The unemployment rate increased by 0.5 percentage points to 25.5% in the third quarter of this year, according to Statistics SA.
Schoeman believed companies were increasingly in favour of mechanising rather than hiring due to uncertainty over government policies and economic growth.
Some of the issues hamstringing job creation were high employment costs, skills mismatches and labour regulation.
“The longer this goes on, the more difficult the employment backdrop will be,” she said.
Radebe said: “The vicious circle of low growth, and so low levels of employment, will continue. Business confidence is also likely to remain depressed in this environment.”
Schoeman expected further shrinkage in consumer income and saw no improvement in business confidence, which has been in a slump for seven years.
She said Citi had noticed that businesses were reluctant to make significant investments until they saw conditions begin to improve.
Radebe said a clear regulatory environment would also go a long way to boosting investor confidence.
“Government needs to create an enabling environment for the private sector to do business” and encourage more co-operation with the private sector in the supply of electricity and logistics, Radebe said.
All in all, you cannot expect this economy to grow [faster]