6 reasons to be upbeat about SA's economy - economist | Fin24
  • Covid-19 Money Hub

    The hub will help answer your business and money questions during the coronavirus crisis.

  • Cigarette Ban

    British American Tobacco says the ban harms the 'emotional well-being' of smokers.

  • Rand Rigging

    The Competition Commission has revived its case against banks accused of currency manipulation.


6 reasons to be upbeat about SA's economy - economist

May 18 2017 16:07
Lameez Omarjee

Johannesburg – The credit downgrade and persistent political uncertainty have had a bearing on South Africa's prospects, but there are still opportunities for the economy to recover.

This is according to Econometrix chief economist Dr Azar Jammine. who was speaking at a seminar on the downgrade to junk status in Sandton on Thursday.

Jammine said the “sad” thing about the events over the last six weeks following the Cabinet reshuffle is that there had been signs of green shoots in the economy. He highlighted six positive factors that could usher in an economic recovery.

1. End of the drought in some regions

People underestimate the effects of a drought on economic growth, said Jammine. In the past six months there has been heavy rainfall in the north-eastern regions of country. This has seen an “enormous” decline in food commodity prices, prompting an outlook for a food inflation drop, he explained. This will give consumers “breathing space”.

2. Electricity constraints ease

The supply of electricity has improved, with power stations Medupe and Kusile coming online as well as the commissioning of Ingula and renewable energy generation. There is no electricity supply shortage and demand is picking up due to expectations of a possible economic turnaround. 

3. Stable labour market

Industrial relations have improved and there have been positive developments in the sector, said Jammine. An agreement for a national minimum wage was reached earlier this year. Strike action has also been limited, but we should "hold our breath" on this front, he warned. 

4. Rand resilience

The strength of the rand in January 2016 resulted in the subsiding of inflationary pressures. This meant interest rates did not need to increase. The rand’s depreciation since 2011 was mainly driven by the decline in commodity prices and expectations that the US would hike interest rates. This saw an outflow from emerging markets in favour of the US, explained Jammine.

Now there is more optimism as the commodity slump has “bottomed out” and there has been flow back towards emerging markets. Consumer price inflation has been going down. Additionally, electricity tariff hikes have been capped at 2.2%. As for oil, the petrol price, which recently rose 49 cents per litre, is as low as it was in 2013, Jammine pointed out. 

Inflation is expected to fall below 6%, the upper end of the target. “We don’t need an interest rate increase until next year, if at all,” said Jammine. An interest rate hike for 2018/19 would be based on expectations of a US rates increase.

5. Businesses have strong balance sheets

Data from Experian shows that debtors days for businesses have not increased. Given the tough times ahead, this is a positive as businesses have conserved cash resources and built on their balance sheets. “This reduces the probability of them going insolvent,” said Jammine.

On the negative side, it means businesses have not been investing in the economy as they should have. But this still reflects resilience, as the healthy state of balance sheets shows firms are prepared for future challenges.

6. International positives

Commodity prices have been recovering and the rand is cheaper, allowing opportunities for more exports, said Jammine. The South African economy’s fortunes are to a great extent linked to the world economy.

“Half of what happens in the economy is explained by global rather than domestic factors.” However, Jammine warned there are domestic influences that have an important role in reducing the economic growth rate. 

Read Fin24's top stories trending on Twitter:



Company Snapshot

Voting Booth

How has Covid-19 impacted your financial position?

Previous results · Suggest a vote