Why SA shouldn't be overly pessimistic

Cape Town - There are seven reasons why South Africans should guard against being overly pessimistic, according to Rian le Roux, chief economist of Old Mutual Investment Group.

The first reason for him is that SA is still a constitutional democracy with powerful oversight mechanisms, like the courts, a free media and vigorous public debate.

"Ratings agencies call this institutional strength," Le Roux said at an investment conference on Monday.

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A second reason for him is what he sees as an intensified focus on "fixing what is wrong" in SA. He used the search for funding for tertiary education as an example.

The fact that the SA economy has actually "weathered the storm" so far as compared to what happened during the financial crisis of 2008/2009 is the third reason for Le Roux not to be overly pessimistic.

A fourth reason for him is what he calls "fading shocks": load shedding has ended, commodity prices seem to be improving, the labour environment is more stable and the inflation rate and interest rates have likely peaked. In fact, Le Roux foresees interest rates coming down later in 2017.

Other good aspects under this reason he highlighted include the tourism industry performing well and the rains that have fallen so far after the drought.

"SA's agriculture and mining sectors will do better this year," said Le Roux.

Underlying improvements

A fifth reason not to be overly pessimistic, in his view, is what he calls underlying improvements "quietly continuing" in the country.

Examples for him are that employment is still growing and that income is spreading wider and wider through the economy.

As for the sixth reason, Le Roux said SA has a history of "can do" and in his view there are numerous success stories as examples in the country. These include private education and tourism.

"Given the right circumstances South Africans can 'do it'," said Le Roux.

His seventh reason is that SA still has a lot of potential which is recognised in the world.

Three dangers

At the same time Le Roux cautioned about three important dangers to look out for.

The first is fiscal mismanagement - for instance if state capture should take place. A second risk for him would be populist tendencies, which must be guarded against. Thirdly, he cautioned against the risk of anti-business rhetoric.

"Government and business should not be enemies and government should create the circumstances for business to flourish," said Le Roux.

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"To tackle unemployment, poverty and inequality will improve if confidence is increased. That is why it is important to increase business confidence in SA."

He pointed out that over the past few years SA businesses have invested about the equivalent of 6% of the gross domestic product (GDP) outside of SA and foreigners have sold SA assets worth billions of rand.

"So, if we look through the noise there are still positive things happening in SA. I think the economy will do better this year and probably the next, but government must make it possible," said Le Roux.

"There is, for instance, only one way to pull SA out of poverty and inequality and that is through education. We, therefore, need transformation and education. I am surprised that education is not part of the 12 points of radical reform proposed."