The latest sub-Saharan regional outlook from the IMF is a sobering reminder that SA is not in a very happy neighbourhood right now. The region grew by just 1.5% in 2016, its slowest rate in more than two decades. The IMF expects a rebound of sorts, to 2.5% in 2017, driven mainly by once-offs in the region’s three largest economic powers.
Nigeria is seen benefiting from improved oil prices, Angola from a pre-election public spending boost and SA from the fading of the drought. But at this level the region is still growing poorer, on average, with economic growth lagging population growth.
Yet within the region, some countries in East Africa and West Africa are posting much more robust growth rates, of 5% and upwards. So too are some north African countries such as Morocco, which is increasingly being seen as a hub for Francophone Africa, while it displaced SA from its number one ranking in EY’s latest Africa Attractiveness Index.
In surveys and sessions at last week’s World Economic Forum on Africa, Francophone Africa emerged as a new focus for investors. Economies such as the Ivory Coast, Rwanda, Morocco and Senegal are coming up as flavour-of-the-year destinations for foreign direct investment.
SA still has its "hub" status and its place as Africa’s most developed and most powerful economy. But given Africa’s importance to SA’s manufactured exports and to the growth plans of many South African companies, the region’s woes cannot but be bad for SA. Worse, though, is that SA’s own growth outlook is so miserable.
The IMF now sees SA’s economy growth falling below 1% again this year, though at 0.8% (rising to 1.6% next year) it’s among the optimists — some economists have even lower growth forecasts.
The IMF warns of political risks to SA’s growth outlook that "loom large" and no doubt will spell out its views in much greater detail when it concludes its Article IV report on SA later in 2017.
But others are more upfront about what ails SA. Research by BMI, which is an economic unit in the same group as the Fitch ratings agency, sees growth at 0.9% in 2017, but warns of the risks to investment spending in particular from populist rhetoric about radical economic transformation, which could deter investors and weigh on fixed investment growth, as well as policy uncertainty and a poor operating environment.
But if there is a key message from the IMF outlook, it is that Africa’s economies should not just be waiting for external factors (or the weather) to save them
As it is, fixed investment spending fell almost 4% in real terms in 2016. That meant SA’s growth fell to just 0.3% despite a big boost from exports. Most forecasts for 2017 assume investment spending will stabilise, but if it continues to slide, even those sub-1% growth forecasts might be at risk.
SA is still getting generous inflows of portfolio capital, especially from global bond market investors who are just looking for real yield.
And with SA’s domestic government bonds offering yields of more than 8% while inflation is seen falling from 6% to 5% in the next couple of years, the "hot" money could keep flowing in, despite the risk of further, possibly imminent ratings downgrades.
That may help the balance of payments, but it’s not the solid, long-term investment SA desperately needs to lift growth now and expand productive capacity to enable future growth.
The IMF sees the end of the drought and improved export prices as the main factors driving what growth there will be in SA in 2017. But if there is a key message from the IMF outlook, it is that Africa’s economies should not just be waiting for external factors (or the weather) to save them. They need to reform their own domestic economies to improve productivity and restart growth engines.
SA’s policy-makers should take heed.