Meaningful progress on land reform unlikely before 2019 election - Moody's | Fin24
 
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Meaningful progress on land reform unlikely before 2019 election - Moody's

Jun 26 2018 20:09

It is unlikely that there will be meaningful progress on the issue of land reform before the 2019 election, according to ratings agency Moody's. 

Lucie Villa, a Moody’s vice president and senior credit officer, wrote in a research note on Tuesday that resolution of the issue of land reform, particularly the prospect of land expropriation without compensation, would likely affect investment in South Africa. 

The ratings agency said the note related to the consumer and business confidence figures for the first quarter, and was not a rating action.

Villa said that, while President Cyril Ramaphosa has stated it was his goal to implement expropriation without compensation without harming the economy, uncertainty over how this would be achieved continued to limit near-term investment.

This "could ultimately lead to a more pronounced fall in investment should the final terms of land reform be particularly onerous to businesses," she said. 

Ramaphosa has promised a shift away from corruption and a reversal of the weakening of the country's institutions.

Villa points out that, while consumer and business confidence in SA improved in the first quarter of 2018, investment weakened during that period. Business confidence subsequently weakened in the second quarter.

Tepid business confidence  

For Villa, tepid business confidence and subdued investment highlight the business community's continued caution.

At the same time, a recovery in business confidence and investment remains crucial to unlocking growth in the country. 

The RMB/BER business confidence index fell to 39 in the second quarter from 45 in first quarter of 2018. It remains well below the 50 point-level associated with survey respondents viewing conditions conducive to expanding investment.

In the first quarter of 2018, the SA economy contracted 2.2% quarter-on-quarter, after three quarters of annualised growth rates averaging 2.7%.

Only domestic consumption contributed positively to gross domestic product (GDP) growth during the quarter, while investment and net exports both fell. The mining, manufacturing and trade sectors all contracted.

Moody's projects an acceleration throughout the rest of the year, with GDP growth averaging 1.6% in 2018 and 2.1% in 2019.

Villa bases this forecast on further progress on the government's reform agenda through the year, particularly negotiations over the Mining Charter and further progress in improving state-owned enterprises' governance and overall public finance governance.

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