Cape Town - If South Africa’s economic situation doesn’t improve, attracting the young and unemployed could make the EFF a more potent force, according to Mark Mobius, an emerging markets fund manager at Franklin Templeton Investments.
Mobius, who recently visited South Africa, pointed out that SA’s debt position, however, is not as bad as some other countries’ - including Brazil - although the government debt-to-GDP ratio has risen to the current 46% from 25% to 30% in 2008.
"There is a general consensus among observers that plenty of government waste exists, with unnecessary spending, corruption, public sector inefficiencies and inflated pricing," said Mobius.
"At the same time, the government’s wage bill is rather high - the number of people employed in the public sector increased to 2.69 million at the end of the 2014 from 2.16 million in 2008."
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Mobius said SA has been lacking any real growth drivers over the past year, and estimates for 2017 gross domestic product (GDP) to remain lacklustre, although slightly better than in 2016. The International Monetary Fund (IMF) is projecting growth of 0.8% this year, while National Treasury predicts growth of 1.3%.
"On the fiscal side, the government is trying to manage the deficit as best it can with Finance Minister Pravin Gordhan at the helm, but the slow economy and a small but highly taxed base makes it harder to grow government revenues," said Mobius.
"Revenue is dependent on a healthy tax base, but the percentage of households receiving at least one social grant increased to 45.5% in 2015 from 29.9% in 2003."
Higher food and fuel prices ignited inflation last year, but Mobius believes better rains, more abundant crops and a stronger currency should help prices stabilise, along with interest rate stabilisation or even a rate cut.
"Overall, we are cautiously optimistic, but think the situation will remain tough. The South African consumer will likely continue to remain under pressure from higher utilities, transport costs, low wage growth and constrained credit," said Mobius.
"While South Africa has its challenges, the consumer sector is one where we continue to search for potential opportunities. We think economic improvement and the increased spread and acceptance of technology could prove drivers for companies in this space."
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