Glimmers of hope for next year pump up growth call
Locals stress need for repair work, but Russians are chipper
● South Africa’s growth prospects are forecast to improve in the coming year with the expectation of a more business-friendly environment following the election of Cyril Ramaphosa as ANC president.
Global economic conditions are also expected to improve, leading to an upturn for many of the world’s leading emerging markets.
While South African growth for 2017 is estimated to be only 0.7%, Russian firm Renaissance Capital predicts that it could improve to 2% next year. This comes as policy paralysis in the US, a weaker dollar, a recovering eurozone, supply-side reforms in China and the search for global yield continue to lure investors towards emerging markets.
The prediction is higher than that of the Reserve Bank, which expects growth to come in at 1.2% next year. The IMF sees expansion at only 1.1%.
Charles Robertson, chief economist at Renaissance Capital, said: “We have a positive bias and see potential for reduced political uncertainty post the ANC’s conference, combined with the improved trade position given the weak rand, to support an above-consensus economic rebound.”
Jason Muscat, senior economic analyst at FNB, said agriculture and mining were expected to provide positive growth in the new year despite the potential for policy uncertainty in both sectors. A weak La Niña weather pattern for 2018, bringing above-average rainfall, would aid agriculture.
“We’re not particularly upbeat about the manufacturing sector despite the fact that global growth is picking up,” said Muscat.
“South Africa’s manufacturing sector has seldom been able to take advantage of a weaker rand and better global growth because they are less geared to exports than they could be.
“There are so few manufacturing sectors that are actually geared for export. Some of it will be electrical machinery. Cars is a significant one.”
Muscat predicted a positive period for business services despite real estate being relatively subdued.
“Banking and insurance, which are two big industries, are well capitalised and regulated and there are more people entering into the market. Liability growth has grown significantly in terms of deposits.”
But unemployment was unlikely to budge. “We need to be concerned about quite aggressive fiscal consolidation if the Treasury and government are to stave off a downgrade. That implies higher taxes in the form of increasing wealth taxes, fiscal creep or bracket creep, and that will offset some of the positives that consumers have been feeling over the past couple of months.”
Confidence in South Africa has been shaken over the past two years, mainly as a result of meddling by President Jacob Zuma in the National Treasury’s affairs, starting with his firing of Nhlanhla Nene in December 2015. This was followed by the removal of Pravin Gordhan earlier this year.
Under Finance Minister Malusi Gigaba, there are concerns that the Treasury may have lost its oversight of the budget after Zuma, without reaching agreement with the department, announced a plan for free education last week.
Lumkile Mondi, a senior economics lecturer at the University of the Witwatersrand, predicts that further popular policies will emerge under the Zuma administration ahead of the 2019 elections, leaving the Treasury in the lurch.
“What we do know is that the minister has no power. Treasury is just a technical team.
“The power rests with the president and those outside the cabinet.”
The outcome of the ANC elective conference has left concerns about some positions in the government, among them Gigaba’s.
Political analyst Daniel Silke said that as finance minister, “Gigaba has played his cards quite well” and tried to be “everything to everybody”.
Silke predicts a possible cabinet reshuffle in the new year, but, he said, Gigaba had “a more than reasonable chance of holding on to the position”.
A political analyst who could not be named due to company policy said Gigaba was vulnerable and would have to “do some bowing and scraping”, adding that: “The minister of finance position is too sensitive and he has not escaped the gravity of his past inside there yet, and the economy is going to need a steady pair of hands.”
This would be the motivation for Ramaphosa — if he becomes South Africa’s president — to replace the finance minister.
Magda Wierzycka, CEO of JSE-listed asset management group Sygnia, said she expected Gigaba to lose his job to someone with relevant experience and international credibility.
“We need to get rid of this perception that National Treasury has been captured. We need experienced people back in charge of the budgeting process at National Treasury as opposed to this kind of presidential task force.”
She said financial markets expected several “quick wins” from a refreshed ANC leadership. These included stability at state-owned enterprises, where incompetent board directors could be replaced with fit members.
Moody’s has put South Africa on review for a possible downgrade early next year. This week Zuzana Brixiova, vicepresident and senior analyst at the ratings agency, said Ramaphosa’s victory opened “a tentative prospect of a shift in policy and a rise in business confidence that could reverse the gradual deterioration in South Africa’s credit fundamentals”.
Fitch Ratings expected political uncertainty to persist in 2018. It said: “As long as growth is too weak to significantly reduce inequality, pressure will remain for redistributive policies, even if they weaken South Africa’s growth potential.”
We need to get rid of this perception that National Treasury has been captured. We need experienced people back in charge of the budgeting process Magda Wierzycka CEO of Sygnia Group