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South Africans urged to remain mindful of the bigger picture amid economic downturn

Efficient Group chief economist Dawie Roodt

Efficient Group chief economist Dawie Roodt

Photo by Creamer Media's Dylan Slater

13th June 2019

By: Simone Liedtke

Creamer Media Social Media Editor & Senior Writer

     

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Even though South Africa is considered “a country of deficits”, Efficient Group chief economist Dawie Roodt on Thursday encouraged South African businesses and private persons to continue monitoring the country’s economic situation.

An economy, he said, was “a gradual process” and would not come to an end, despite the country remaining embattled with a variety of “deficits”.

The only way to move forward, he added, was to “stop the rot” that kept returning to South Africa’s massive capital base, which included the likes of infrastructure, people, businesses and institutions.

Of the country’s deficits, Roodt referred to education as being a “national disaster” on which South Africa spent more than most countries globally.

In terms of income, South Africa continued to fall behind and was now below the average income of its emerging market peers.

Linked to this, he added, was unemployment. With the country’s expanded unemployment rate nearing 40%, which represents about ten-million people, Roodt lamented that 18.5-million South Africans were receiving grants – more than the employed workforce of 14.5-million in the private sector, and two-million employed in the civil service.

Moreover, the country’s lagging growth and waning confidence levels continued to negatively impact on businesses and citizens, especially considering that economic growth was projected to reach only 0.5% this year.

According to Roodt, economic growth should be around 4% in order to have an impact on employment and reduce poverty.

South Africa is further also plagued by a life expectancy and political deficit. Commenting on the latter, Roodt referred to President Cyril Ramaphosa’s recent Cabinet appointments, where the President reduced the number of Ministries from 36 to 28.

This, Roodt added, was not enough to have the desired effect. He cited the newly formed Employment and Labour Department – headed by Thulas Nxesi – and questioned the rationale behind this, as he felt “South Africa is not faced with a job creation issue, but rather an economic growth issue”.

Embattled State-owned entities (SOEs) – Eskom, South African Airways and the South African Broadcasting Corporation – also added to the country’s growing SOE deficit.

Apart from the various deficits, Roodt said on Thursday that, in terms of interest rates, the South African Reserve Bank would more than likely remain on the conservative side and start cutting interest rates before the end of the year.

In the interim, however, he warned that South Africans should not be worried if interest rates increase and become a little higher than what it would have been “under normal circumstances”.

“It won’t be excessively higher, but it will have the possibility of the US cutting their interest rates, which will lead to a very good chance of seeing the same thing happen in South Africa as well,” he said.

In terms of inflation, Roodt remains unconcerned. However, should the economy start growing, the country “may run into some difficulties”. Current inflation targets in South Africa hover at between 3% and 6%.

WHAT’S NEXT?

Moving forward, Roodt believes political “shenanigans and movements” will need to calm down to ensure stability, while more focus will need to be given to South Africa’s fiscal accounts – which he said were in “very deep trouble”.

Eskom, however, must be priority number one, he said.

In this respect, Roodt forecast that the country would see conflict, which “must happen and is inevitable”, between the country’s leadership and organised labour.

“You need to make some adjustments to fix Eskom, but that includes firing a lot of people, which [the unions] will not allow.”

Even though Roodt said he remained “very concerned about South Africa”, he encouraged South African businesses and people to be mindful of the “bigger picture” and that the world economy was rapidly changing.

“Things are becoming more digital and becoming more service oriented. Keeping that in the back of your mind means that you have to be on top of new technology and be properly skilled, which is a continuous process,” he commented.

However, should businesses and people remain mindful of the country’s risks and know how to mitigate these appropriately, Roodt promised that “profit is a given”.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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