Finance minister Tito Mboweni. Picture: ESA ALEXANDER
Finance minister Tito Mboweni. Picture: ESA ALEXANDER

There are very early signs that SA’s economy is improving and that bank lending is strengthening, finance minister Tito Mboweni said on Friday. But he was quick to add a strong note of caution to his remarks.

“One swallow does not make a spring, but there are some hints that things are gradually getting better ... There are some signs that investment spending is slowly improving,” the minister said at the Banking Association SA (Basa) conference.

After contracting by 3.1% in the first quarter of 2019, growth rebounded by 3.2% in the second quarter with growth on a year-on-year basis being subdued at 0.9%. The Reserve Bank has projected a growth rate of 0.6% this year and the Bank’s governor has warned that the slowdown in global growth poses risks for the domestic economy.

Mboweni noted that growth in real gross fixed investment had been 6.1%, the strongest growth in nearly two years after contracting by a revised 4.1% quarter-on-quarter in the first quarter.

According to Stats SA, by type of asset, investment spending increased markedly in the machinery and equipment, transport equipment, and residential buildings sub-categories. There was a significant jump of 15.2% in private-sector investment.

The minister noted that growth in private-sector credit extension increased to 7.2% year-on-year in July from 6.9% year-on-year in June. The stronger growth in credit was due to an uptick in credit growth extended to the corporate sector while credit extension to households decreased marginally.

“In short, there are some signs that investment spending is slowly improving and that lending to corporates is slightly stronger. This, of course, takes place against the backdrop of a very weak global situation. In the short term, there are trade wars and, of course, the rising risks of Brexit. In the long term, productivity growth has slowed,” Mboweni said.

Government borrowing, which, at the time of the February budget, was running at about R1.2bn per day excluding weekends, had risen even higher over the past few months as revenue growth slowed, and unexpected expenses from Eskom arose.

The government is borrowing more and more from banks. Over the past four years, banks have increased their holdings of SA government securities by more than 40%, with debt holdings rising from about R237bn to about R410bn.”

SA had to some extent benefited by the global hunt for yield, and borrowing costs were lower.

The minister stressed that it made sense for the government to borrow as long as it delivers a greater return to society. “But I don’t have to tell the people in this room that much of that borrowing is going to state-owned enterprises (SOEs).”

Mboweni concluded his speech by saying that success could only be achieved with the right combination of effective political leadership, good policy design, and strong and capable institutions.