OSAGYEFO MAZWAI: Business buy-in needed to deliver SA growth story
Government has been playing its part lately, it's time for the private sector to take the next big swing
14 January 2025 - 18:30
byOsagyefo Mazwai
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Last week Absa and the Bureau for Economic Research (BER) released their latest manufacturing purchasing managers index (PMI), a measure of manufacturing activity in the SA economy.The December data disappointed, with the index declining 1.9 points to 46.2, remaining in contractionary territory.
The decline has had the market wondering about the extent to which SA is actually in an economic recovery. This speculation is justified given that the country has suffered from structurally low growth for many years.Does the latest PMI reading signal that SA is heading for a recession?
There is plenty of reason to believe the economy may exceed these low expectations. Economic growth may still hold up despite the PMI print,based on a purely country-specific growth narrative. This is best captured in the performance of SA’s 10-year government bond yields, which haveoutperformed most developed country 10-year government bond yields since the US elections.
SA 10-year bond yields have risen five basis points (bps), while US 10-year government bond yields have risen about 50 bps, which is unusual as our bonds typically track US government bonds. The spread between our 10-year government bond yields and those of the US has similarly narrowed by about 200 bps since our own elections in May 2024.
As a departure point, it is worth comparingthe current trend of business confidencewith the trend when President Cyril Ramaphosa first ascended to office in 2018. The current trend is strangely like the one exhibited at the beginning of2018. It is also strangely like the trend shown during the first term of former president Thabo Mbeki. The similarity in trend to Ramaphosa’s first term raises the question: will history repeat itself?
Business confidence at the beginning of his presidency in 2018 was at similar levels to where it is now, before decliningas 2018 progressed to 2019. It dipped to its lowest levels in history during the pandemic, at nearly zero.
Business confidence is a key indicator on the direction of the SA economy. My colleague, our chief investment strategist Chris Holdsworth, has done work that shows business confidence is a key indicator for the direction of economic and employment growth in SA. Therefore, it is vital that business confidence bucks the 2018 trend this year and continues its upward trajectory, for growth outcomes to surprise meaningfully to the upside.
If history is to repeat itself, we hope the trend resembles that shown during Mbeki's first term, in which business confidence increased to levels seen currently and continued to rise, ultimately peaking and stabilising at its highest point on record.
Ramaphosa has done a lot of work to do in dealing with some of the systemic issues that are holding the SA economy hostage. The business community has also hailed his openness to engage with them on issues pertaining to energy security and logistics, among others.
For example, the Logistics Crisis Committee has private sector representation and participation. The business community is thus recognised as an active and important stakeholder in rebuilding the economy. It is the private sector that is important for employment creation in SA.
The crux of the argument is that there must be substance over form in 2025.
To continue the positive momentum, it is critical that real benefits are now derived from the economic interventions that the government has been executing. It is encouraging that finance minister Enoch Godongwana, and trade, industry & competition minister Parks Tau, rightly made this point during an interview with TimesLIVE earlier this month.
The crux of the argument is that there must be substance over form in 2025. The realisation of substance in the reform agenda will be a meaningful achievement and provide a solid base for a distinguishable and powerful legacy for the government of national unity (GNU).
Let’s consider what has changed in the SA economy inthe recent past. First, Eskom is no longer a binding constraint on economic growth. Surprisingly, better energy security found little expression in the Absa PMI data, andthough it is not clear whyour energy dynamics should increasingly find expression in economic data as confidence is built in the interventions being of a permanent nature.
Transnet also appears to be improving, though with much still to be done. In addition, there are various interventions being implemented to strengthen local government and address institutional and systemic inefficiencies.
Despite global growth being expected to remain benign in 2025, and SA’s major trade partners outside the US expected to stay weak, the proposition that SA growth could be better than expected is not an outlandish claim. The key is business confidence. The government has been playing its part lately and should continue on this path, in line with the views of Godongwana and Tau.
The formation of the GNU was arguablythe most decisive action taken by politicians since 1994,affirming SA’s political maturity, willingness and commitment to act in alignment with the national interest.Therefore, it may be advisable forthe private sector totake the next big swing.
Past disappointment (and the associated assessment of risk) may hinder the appetite of the private sector to take said swing, but evidence currently suggests that the GNU is committed to doing what is right and what is in our collective interest.
A solid buy-in by the private sector to this political commitment is required for the positive SA story to play out. If this happens, the growth narrative should also play out, and our assertions could become a self-fulfilling prophecy.
• Mazwai is an investment strategist at Investec Wealth & Investment International.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
OSAGYEFO MAZWAI: Business buy-in needed to deliver SA growth story
Government has been playing its part lately, it's time for the private sector to take the next big swing
Last week Absa and the Bureau for Economic Research (BER) released their latest manufacturing purchasing managers index (PMI), a measure of manufacturing activity in the SA economy. The December data disappointed, with the index declining 1.9 points to 46.2, remaining in contractionary territory.
The decline has had the market wondering about the extent to which SA is actually in an economic recovery. This speculation is justified given that the country has suffered from structurally low growth for many years. Does the latest PMI reading signal that SA is heading for a recession?
There is plenty of reason to believe the economy may exceed these low expectations. Economic growth may still hold up despite the PMI print, based on a purely country-specific growth narrative. This is best captured in the performance of SA’s 10-year government bond yields, which have outperformed most developed country 10-year government bond yields since the US elections.
SA 10-year bond yields have risen five basis points (bps), while US 10-year government bond yields have risen about 50 bps, which is unusual as our bonds typically track US government bonds. The spread between our 10-year government bond yields and those of the US has similarly narrowed by about 200 bps since our own elections in May 2024.
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As a departure point, it is worth comparing the current trend of business confidence with the trend when President Cyril Ramaphosa first ascended to office in 2018. The current trend is strangely like the one exhibited at the beginning of 2018. It is also strangely like the trend shown during the first term of former president Thabo Mbeki. The similarity in trend to Ramaphosa’s first term raises the question: will history repeat itself?
Business confidence at the beginning of his presidency in 2018 was at similar levels to where it is now, before declining as 2018 progressed to 2019. It dipped to its lowest levels in history during the pandemic, at nearly zero.
Business confidence is a key indicator on the direction of the SA economy. My colleague, our chief investment strategist Chris Holdsworth, has done work that shows business confidence is a key indicator for the direction of economic and employment growth in SA. Therefore, it is vital that business confidence bucks the 2018 trend this year and continues its upward trajectory, for growth outcomes to surprise meaningfully to the upside.
If history is to repeat itself, we hope the trend resembles that shown during Mbeki's first term, in which business confidence increased to levels seen currently and continued to rise, ultimately peaking and stabilising at its highest point on record.
Ramaphosa has done a lot of work to do in dealing with some of the systemic issues that are holding the SA economy hostage. The business community has also hailed his openness to engage with them on issues pertaining to energy security and logistics, among others.
For example, the Logistics Crisis Committee has private sector representation and participation. The business community is thus recognised as an active and important stakeholder in rebuilding the economy. It is the private sector that is important for employment creation in SA.
To continue the positive momentum, it is critical that real benefits are now derived from the economic interventions that the government has been executing. It is encouraging that finance minister Enoch Godongwana, and trade, industry & competition minister Parks Tau, rightly made this point during an interview with TimesLIVE earlier this month.
The crux of the argument is that there must be substance over form in 2025. The realisation of substance in the reform agenda will be a meaningful achievement and provide a solid base for a distinguishable and powerful legacy for the government of national unity (GNU).
Let’s consider what has changed in the SA economy in the recent past. First, Eskom is no longer a binding constraint on economic growth. Surprisingly, better energy security found little expression in the Absa PMI data, and though it is not clear why our energy dynamics should increasingly find expression in economic data as confidence is built in the interventions being of a permanent nature.
Transnet also appears to be improving, though with much still to be done. In addition, there are various interventions being implemented to strengthen local government and address institutional and systemic inefficiencies.
Despite global growth being expected to remain benign in 2025, and SA’s major trade partners outside the US expected to stay weak, the proposition that SA growth could be better than expected is not an outlandish claim. The key is business confidence. The government has been playing its part lately and should continue on this path, in line with the views of Godongwana and Tau.
The formation of the GNU was arguably the most decisive action taken by politicians since 1994, affirming SA’s political maturity, willingness and commitment to act in alignment with the national interest. Therefore, it may be advisable for the private sector to take the next big swing.
Past disappointment (and the associated assessment of risk) may hinder the appetite of the private sector to take said swing, but evidence currently suggests that the GNU is committed to doing what is right and what is in our collective interest.
A solid buy-in by the private sector to this political commitment is required for the positive SA story to play out. If this happens, the growth narrative should also play out, and our assertions could become a self-fulfilling prophecy.
• Mazwai is an investment strategist at Investec Wealth & Investment International.
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