Despite South Africa having experienced subpar economic growth in the last decade, financial services firm Citibank economist Gina Schoeman believes this year has marked a new turning point for the country.
While the country's gross domestic product (GDP) growth is expected to be only 0.8% this year, she pointed out that slightly-above 1% growth is on the cards for 2019, with GDP growth expected to reach levels of just below 2% in 2020.
“It does improve, but it depends on whether this is real sufficient growth to make people feel better, because otherwise you’re going to see that start to weigh on policy decisions,” she warned on Monday.
With “the man on the street” not having felt wealthier or more prosperous about his/her economic wellbeing over the last decade, as these numbers suggest, Schoeman stated that this has spilled over into a more frustrated sociopolitical climate in South Africa.
“South Africa has found its voice – people are protesting and speaking out more over some of government’s policy decisions, such as the 1% value-added tax hike, or fuel levy increases. Whether that’s correct or not correct, it still gets you down to the fact that people have not experienced sufficient growth for almost a decade,” she elaborated.
Looking forward, she questioned the ease with which South Africa would be able to make up for the loss of growth over the last ten years.
The country is in a tough position at the moment, with an extremely weak outlook, she told Engineering News Online, explaining that the change to a more positive trend in the economy stems from monetary policy, the political cycle, as well as how it will be approached going forward.
The turning point reached will have an impact on the socioeconomic environment in South Africa, which has seen an “internal economic demise” between 2012 and 2017 owing to low GDP growth.
“ . . . global cycles matter a lot to us, but 2012 was the first real internal shift in South Africa when the labour problems started. That’s also when the downgrade cycle started,” she said.
Despite ratings agency Moody’s having said in September that there was little chance of South Africa’s investment grade credit rating being downgraded this year, should the country keep finances in check, Schoeman pointed out that other “worrying” trends are affecting the country’s GDP in the interim.
Among these, she cited the primary sector, which mainly comprises the mining and agriculture sectors, as South Africa’s Achilles’ heel, adding that a slowing profitability is impacting on companies’ investment in the country.
Additionally, Schoeman lamented that consumers’ gross savings were “at an all-time low”, and that wage bills were increasingly becoming difficult to expand on when companies were not performing well in the current economic climate.
She stressed that South Africa has become dependent on consumers to drive the economy, while consumers' income is limited, more so than ever before.
“This is because [South Africa] hasn’t had sufficient growth for a whole decade. This has led to a loss of confidence; from both businesses and consumers."
“We need to have a real hard think about how we address the consumer, because the consumer confidence survey is representative of South Africa in terms of its demographics and its income,” she elaborated.
In the first quarter of this year, when all of the euphoria hit, confidence levels hit record highs, but then decreased in the second quarter as the cost of fuel and oil and inflation started to increase.
The land reform debate started to bubble over in this period, Schoeman added, and this had a welcome effect on consumer sentiment.
“Some consumers may be feeling more confident because they are more relived that South Africa is serious about land redistribution”.
Using land reform as an example, Schoeman said that people believe that the governing party – the African National Congress – is going to be sensible, and that President Cyril Ramaphosa is going to manage this in a sensible manner.
“The South African government has never before, as much as this year, approached the topic of land redistribution, and that could be spilling over into a higher consumer confidence than what we’re giving it credit for,” she averred.
Considering that it is not acceptable to allow consumers to fall below the poverty line, Schoeman believes the government will present mitigating measures during Wednesday’s Medium-Term Budget Policy Statement (MTBPS), or mini-budget, to prevent any additional negative impacts.
Schoeman suggested that compensation packages for low-income groups could be a possible solution, as she believes it “is better to pay more than to risk social instability”.
She predicts that the MTBPS is unlikely to create a market volatile backdrop and be a “massively negative event”, especially in the lead-up to Ramaphosa’s investment summit, scheduled for Friday.
“In fact, [government] will try as hard as possible to continue what they have started in February – keeping in mind that the February National Budget did not yet have our current President, as President,” she said.