SA’s precarious economic position
As the operating environment becomes more challenging, business confidence in SA is unlikely to improve in the short term. Factor in the fact that the country’s share of the global economy is declining year on year, and it’s a pretty bleak outlook.
Discussing the relationship between confidence and economic performance, Stanlib chief economist Kevin Lings said SA is in the precarious position of experiencing weaker economic growth at a time when the global economy is strengthening. Lings was speaking at the recent Business Day/Financial Mail Investment Summit, this year sponsored by Old Mutual Wealth.
“SA currently has a 0.4% share of the global economy but this share is growing smaller each year,” Lings said, adding that without growing the manufacturing and export sector, the country has little hope of improving its economic outlook.
Lings attributed this decline to a loss of business, investor and consumer confidence in the country. “The single biggest initiator of economic confidence is job creation,” he explained. “However, in SA, the politics of the country have destroyed our confidence and when consumer confidence is low it feeds into weak business confidence.”
The single biggest initiator of economic confidence is job creation, he said, adding that SA’s problems would inevitably decrease if job creation could be significantly accelerated.
According to Lings, the country’s economic woes come at a time when the global economy – and global consumer confidence – is looking positive, despite of the fact that the global balance of power is shifting.
The US, which at its peak was responsible for 31% of the global economy, is systematically losing influence. Similarly, Japan’s share of the global economy has decreased from 17% at its peak to 6%. Europe, which accounts for 15% of the global economy, will only retain its influence if it sticks together in the EU, said Lings.
China, which accounts for close to 7% of the global economy and is experiencing positive economic growth, will inevitably become the largest economy in the world, he said. “Authorities responded to the slowdown in economic growth by restructuring their economies in favour of consumption and services, which effectively restimulated the Chinese economy. That economy is currently growing at 6.9% and the country is creating about 1m new jobs each month.”
However, despite the shift in the power balance, Lings said Europe and the US are experiencing positive economic sentiment. Similarly, Chinese economic confidence is high.
SA needs to provide policy certainty and grow business confidence, he said, advising that the country needs to leverage off the business sector’s balance sheet to grow the economy.
The big take-out: Unless SA can create jobs and grow its manufacturing and export capacity, its share of the global economy will continue to shrink.