Bank tips 2.8% growth in 2019

CHALLENGES: ESKOM AND SAA THE BIGGEST PROBLEMS

Prediction is much more optimistic than the views expressed by other economists.

South Africa’s economy may grow almost 3% next year, helped by President Cyril Ramaphosa’s reforms and strong global growth, Goldman Sachs’ sub-Saharan Africa head has said.

Colin Coleman’s prediction is more optimistic than the view held by economists polled by Reuters last month, who saw Africa’s most industrialised economy growing 1.7% in 2019 after sluggish growth of 0.8% this year.

Ramaphosa’s reform drive suffered a setback last month when data showed the economy entered recession in the second quarter, but he has since unveiled a “stimulus and recovery plan” to try to get it back on track.

Coleman said this was a “shot in the arm” which had encouraged investors by giving certainty on mining and visa rules and by emphasising skills development and education, areas where South Africa lags behind other African states.

“Part of the reason why Goldman Sachs is quite bullish on our ability to get back to 2.8% growth next year, and 3.2% in 2020, is that the global backdrop is constructive. The two largest economies, the US and China, are doing well,” added Coleman, who heads the bank’s Johannesburg office.

Since the upbeat mood that accompanied Ramaphosa’s replacement of Jacob Zuma in February, business confidence has fallen as the scale of the challenges facing him have become clear.

Liquidity challenge

One area of particular concern has been struggling state-owned firms, several of which were embroiled in corruption scandals during Zuma’s nine years in power and which have been grappling with severe liquidity challenges.

Coleman said Eskom remained a major headache for the government as it accounts for around three-quarters of its contingent liabilities, an area of concern for ratings agencies like Moody’s, which is due to review South Africa’s last investment-grade credit rating this month.

“You’ve got to get a very significant equity injection [into Eskom] and practically it’s unlikely to come from government.”

And for struggling South African Airways (SAA), Coleman said the list of potential equity investors would not be long.

“Whoever would want to buy it would want a balance sheet that is not broken, a restructuring plan that is credible and control to effect the turnaround,” he said. “You’d need to have terms which are sufficiently attractive.”

Eskom and SAA have been working on turnaround plans to shore up their financial position. – Reuters