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Fiscal risk, SOE panic and the time Ramaphoria died: An analyst's post-mortem on 2018

Dec 26 2018 07:48

One could describe 2018 as a rollercoaster year, says analyst Peter Attard Montalto, head of Capital Markets Research at Intellidex.

Compared to the start of the year, the rand is just over 10% weaker in nominal effective exchange rate (NEER) terms - an indicator of a country's international competitiveness in terms of the forex market.

"Ramaphosa coming to power has taken time to feed into growth and real structure reforms have not yet been seen. The clean-up has taken some time, but progressed successfully, if slowly, and will continue to do so into the new year," said Montalto.

He describes the Nugent Commission into the SA Revenue Service (SARS) as "a fast-paced exposition of the rot". In his view, the Zondo Commission on state capture compares less favourably, and is "turning out to be ponderously slow, with witnesses not probed deeply enough".

'Ramaphoria died'

"Ramaphoria died as expected, though more dramatically and faster than expected, with a turn to the negative that has been quite remarkable in parts of the media," says Montalto.

"A backloaded private sector investment growth recovery has not materialised yet, whilst an original view of consumption slowly but surely gaining momentum through year end into 2019 now is looking to be the reverse, with momentum being lost into 2019."

GDP forecasts for 2019 have fallen from around 2.0% for consensus through mid-year, to 1.5% now – with downside risks.

Inflation risks have gone from an elevated baseline with upside risks to a lower baseline for 2019.

Disappointing fiscal risk outlook

As for fiscal policy, Intellidex thinks "one of the defining investor preoccupations of the year" has been the tension between a deteriorating and disappointing fiscal risk outlook, together with the fact that Moody's has continued to provide an inexplicably large benefit of the doubt.

"Numerous presidential summits this year failed to move the dial convincingly on the fact that either the mindset of policy had changed or that decisive leadership and the deployment of political capital was possible now or even after the elections," says Montalto.

"SA is great at hosting policy talking shops and always has been – implementation is the issue, and the key test for the post elections period after May 2019."

To Montalto, the jobs summit and mining charter are prime examples, where resolutions still kept the existing high barrier to entry models in place.

State-owned enterprises

Regarding state-owned enterprises (SOEs), Montalto says the public was wooed into a false sense of security in the first quarter of the year by new boards and public relations, "as opposed to any fundamental change".

He said for now, Eskom, for example, is about government and business "waking up to the depth of the problem and starting a process of panicking". Montalto cautions, however, that panic is only good if it can drive eventual action.

As for internal ANC factional politics, Montalto comments that, while there has been "no active putsch" against President Cyril Ramaphosa in 2018, he is sufficiently hemmed in that he has been unable to act on issues around Cabinet appointments and policy more broadly.

The view of Intellidex is that the ANC's National Executive Committee (NEC) won't change after the elections.

For Montalto, the most negative thing that happened in SA this year has been the land issue becoming "so politicised and wrapped into the election process" that it opens up long-term risks and unpredictability.

He also forecasts a SARB rate hike in March next year.

anc  |  cyril ramaphosa  |  sarb  |  sa economy
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