Where’s the Ramaphoria? New Stanlib ranking measures SA’s economic turnaround
SA has a new president and some renewed optimism in the economy, but is anything actually changing?
As South Africa tries to engineer an economic revival, improving the country’s growth rate is increasingly critical – and it hinges on revitalising key components of the economy.
Stanlib has compiled a list of 12 key indicators to which it is paying close attention, scoring them monthly to assess if South Africa is making meaningful progress towards an economic turnaround.
The ranking began in January following the election of Cyril Ramaphosa as ANC and South African president, and the ensuing “Ramaphoria”. Its 12 indicators focus on a range of variables, including political stability, policy clarity, business confidence, employment, capital expenditure, housing activity and consumer income.
Every month, each indicator is scored on a scale of 1 to 10, with 10 indicating an extremely high level of vibrancy and 1 suggesting extreme underperformance. The scores are then averaged across all 12 variables to derive the overall progress level (reflected as a percentage).
South Africa’s economic turnaround score for May 2018 was a disappointing 4.4 out of 10, or 44%. This compares with a score of 46% in April. The score started at 33% in January 2018 and has been improving through the months, with 40% in February and 43% in March.
- Policy certainty
- Housing activity
- Fixed investment activity
- Institutional strength/SOE reform
- Consumer income
- Purchasing managers' index (PMI)
- Interest rate spread
- Political stability
- Leading economic indicator
- Confidence (business and consumer)
Unfortunately, despite renewed optimism that the political changes in December 2017 would quickly lead to signs of an economic revival, South Africa’s gross domestic product (GDP) declined by a shock 2.2% quarter on quarter in the first quarter of 2018.
The decline in activity was fairly broad-based, including sharp declines in agricultural output, mining, manufacturing, trade and construction. Equally concerning is that while some sectors of the economy recorded positive growth, the extent of this performance was extremely disappointing, with the government sectors recording the strongest growth of 1.8% quarter on quarter.
The sharp improvement in consumer confidence recorded in the first quarter of the year has not been accompanied by a meaningful increase in employment, suggesting the boost in confidence might not be sustained.
Instead, in recent months, the consumer has experienced an increase in taxes (including the rise of one percentage point in the value-added tax rate) and significantly higher fuel prices. This would argue that while real household income growth and the associated consumer spending are still expected to grow in 2018, they could struggle to gain meaningful traction.
More positively, recent political changes have had a broadly positive impact on sentiment, helped by a good State of the Nation address in February and a reasonably disciplined national budget. There has also been a material change in the government’s approach to managing key state-owned enterprises such as Eskom and Denel.
Such positive developments – including the decision by Moody’s in March 2018 to keep South Africa’s credit rating on “investment grade”, and Ramaphosa’s “new dawn” and pledge to turn the tide of corruption – have created greater optimism.
However, it will take time for these developments to boost economic growth and household income levels more sustainably. A number of key policy issues remain unresolved and continue to weigh negatively on investor sentiment, including land redistribution.
In recent years, the South African economy has been struggling with a fundamental lack of private sector capital expenditure, including maintenance capital expenditure. Hopefully the disappointing GDP performance will focus attention on understanding what is required to change for South Africa to achieve meaningfully higher economic growth and employment.
Kevin Lings is chief economist at Stanlib.
This article was paid for by Stanlib.