CLAIRE BISSEKER: Six more months of uncertainty before a growth revival
Ramaphosa will have to overcome three major hurdles: load-shedding; land reform and the general election to improve confidence and investment
The big question after the surge in the third-quarter growth rate is whether sufficient spadework has been done to generate an economic revival in the new year.
The evidence remains tentative — and there are major obstacles President Cyril Ramaphosa must overcome — but should he do so successfully South Africans could have more to smile about in 2019.
The economic data is beginning to firm up. For instance, the Absa manufacturing PMI rose to 49.5 in November from 42.4 in October, with four out of the five main subcomponents rising. This was the first increase in the index after three months of declines.
Granted, business confidence deteriorated marginally in the fourth quarter but if it wasn’t for the unusually large drop in car dealers’ confidence, the index would have risen for the first time in almost a year, since confidence improved in three out of the five sectors surveyed.
SA’s currency and assets are also looking cheap and certainly more attractive than many other emerging markets. The sense is that investors, who dumped SA assets in the first half of the year when growth turned negative, would be willing to take a second look should the country sustain the healthy clip of 2.2% real GDP growth achieved in the third quarter.
That said, investors need to see continuous progress on the president’s recovery plan if confidence, investment and job creation are to revive significantly. Ramaphosa will also have to overcome three major hurdles next year: load-shedding; land reform and the general election.
Even though load-shedding has been limited to stages one and two so far, the timing couldn’t have been worse with business confidence at rock-bottom. CitiBank expects stage two load-shedding to deduct 0.2 of a percentage point from 2019 whole-year growth if it persists into the first quarter of next year as Eskom has indicated.
And if the government were to agree to Eskom’s suggestion that it absorb R100bn of its debt — a move that could add two percentage points to SA’s total debt-to-GDP ratio of 70% — it might well break the back of SA’s investment credit rating.
The government is scrambling to get on top of Eskom’s financial situation but since the only sustainable solution is to upend the utility’s business model — implying mass retrenchments and industry deregulation — progress is unlikely before the elections. Even after that, the trade unions will remain a major stumbling block.
In the run-up to the election a great deal of investor-unfriendly rhetoric is likely to be generated by grandstanding politicians, much of it centred on the land expropriation debate.
The land issue has weighed on business confidence in 2018, revealing as it has the ANC’s ambivalence to the sanctity of property rights. How this issue will affect the economy in 2019 will depend on the precise wording of the constitutional amendment decided on in parliament. Until then, the uncertainty alone will continue to act as a drag on growth.
The consensus is that Ramaphosa will need to achieve a 58% to 60% victory for the ANC in the national vote, followed by sweeping changes to his cabinet and accelerated policy reform, before investors will believe SA is a once again a bankable proposition.
In short, the economy is likely to remain on the cusp of a revival as investors continue with their wait-and-see attitude pending the election and resolution of the land issue. This means economic growth is likely to remain muted for at least the next six months.
Should the situation at Eskom deteriorate or Ramaphosa fail to keep a tight rein on the land expropriation issue, or Moody’s should junk the sovereign rating, the economy would take another knock. A rising interest rate cycle and a tricky February national budget are other icebergs that lie in wait.
All in all, the odds that SA will sail through the choppy waters of the next six months not only unscathed, but buoyed by better growth, cannot be much better than 50:50.
• Bisseker is Financial Mail assistant editor.