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State of economy hinges on ANC succession outcome - economist

Oct 11 2017 19:53
Lameez Omarjee

Johannesburg – The future of the South African economy hinges largely on the outcome of the ANC elective conference in December, according to economist Johann Els of Old Mutual.

Speaking at the Old Mutual Investment Group’s quarterly investment briefing on Wednesday, Els, the group's head of economic research, said that South Africa was missing out on the opportunities that come with a global economic recovery because of political and policy uncertainty.

“We are all waiting for the elective outcome. I do not know what the outcome will be, but a positive outcome can substantially change sentiment,” he said.

The ANC's 54th National Conference, which will chose a successor to ANC President Jacob Zuma, is set to take place between December 16 and 20 in Gauteng. 

“There is lots of pessimism around, highlighted in business and consumer confidence,” said Els. 

He noted that, during SA's apartheid-era debt crisis of the 1980s, private sector fixed investment dropped 34%. 

Since 2014, meanwhile, private fixed investment has dropped some 10%. He warned that if South Africa does not work to build political and policy certainty, it would drop further.

According to the latest confidence index by the Bureau of Economic Research, SA consumers are “hugely negative” about the country's economic position.

The depressed business sentiment is also reflected in South Africa’s drop in the rankings of the World Economic Forum’s Competitive Index.

Overall, SA's ranking has dropped from 47 to 61 out of 137 countries. Over the past year South Africa has lost its top position in terms of auditing standards, financing through the local equity market and minority shareholding protection. This shows that sentiment can change quickly, said Els.

On Tuesday, meanwhile, the International Monetary Fund cut South Africa’s growth forecast for 2017 from 1% to 0.7%, citing heightened “political uncertainty”. 

Building confidence 

A study by the SA Reserve Bank has shown that growth could be improved if confidence levels were the same as the during the years from 1996 to 2013. According to the study, growth in 2014 - which was recorded at 1.7% - could have increased to 2.1% if confidence levels had been higher.

In 2015, growth of 2.3% could have been achieved, compared to just 1.3%. In 2016 SA could have achieved growth of 1.4%, compared to the 0.3% recorded.

Els warned that South Africa needed economic growth of at least 2% per year to avoid slipping into a debt trap. However, Old Mutual expects growth for 2017 to only 0.8%.

“Confidence plays a huge role in terms of economic growth,” said Els, adding it was one of the first factors that needed to be addressed following the outcome of the ANC elective conference. 

Els said it was important that the conference should not be delayed. Whoever takes over the ANC's leadership will have to take tough decisions to get the economy back on track, ensure economic transformation and provide investors and consumers with certainty.

Lessons from Brazil

Siboniso Nxumalo, joint boutique head of global emerging markets, warned that South Africa was being left behind by investors because it is not providing them with clarity about their investments and the country's route forward.    

He said that South African could learn from the example of Brazil, which introduced structural changes which investors understood following the impeachment of its former president Dilma Rousseff. 

Nxumalo said the scale of citizen's Brazilian protests were big enough to get a reaction from politicians, after a period where the country's GDP contracted and unemployment soared. 

“Politicians looked at this and said the number was too big to ignore.”

He said that, in South Africa, the impact of a moribund economy has not yet hit the pockets of citizens and made them feel the pinch.

He said that if something significant like the doubling of fuel prices happened, there could be a bigger reaction by South Africans. “In South Africa, things have been so good for so long, we take for granted that it won’t get bad.” 

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