The brakes are off, the clutch is out, now let’s accelerate
Top economists optimistic about the road ahead
With South Africa ploughing through huge upheaval last week, it was insightful to listen to the outlooks of two of the country’s foremost market commentators. Both Colin Coleman of Goldman Sachs and Kevin Lings of Stanlib are optimistic that the new political dispensation, following the removal of Jacob Zuma, will result in improved confidence that in turn should help boost economic growth. Goldman Sachs is forecasting 2.3% growth for 2018, while Stanlib is a little more cautious and looking at 1.9% to 2%.
Delivering the keynote address at an S&P/DJI conference, Coleman set the scene: “For South Africa to grow at anything less than population growth is a disaster.” He followed this with a hard-hitting rebuke of Zuma’s ruinous policies over the past decade, then changed the mood with a much more expectant view of the future under President Cyril Ramaphosa.
A fortnight of momentous events will be replaced by relative calm under the new political leadership, albeit one that faces immense challenges. Likening the dismantling of the Zuma regime to unscrambling an egg, the head of Goldman Sachs Sub-Saharan Africa believes that achieving growth is paramount if we are to succeed as a nation. He takes heart from the ANC’s January 8 speech as well as Ramaphosa’s so-called “New Deal”.Coleman believes the Reserve Bank will cut interest rates three times this year, at 25 basis points each time. And although Goldman’s forecast of 2.3% growth is at the upper end of estimates, Coleman reckons that, even if we can just stop “scoring own goals”, that forecast could be modest in retrospect.
Lings, chief economist at Stanlib, cautions that beyond the current “honeymoon” period of Cyril Ramaphosa’s appointment, it will be difficult to achieve the 4% to 5% economic growth that is so desperately needed.Lings gives credit to certain unsung parts of the economy that have performed reasonably well. Although some observers think the global economic upswing passed South Africa by, this is not the case. For example, South Africa has enjoyed a substantial and sustained trade surplus for many months and in January, it was an impressive R15-billion.
Consumer disposable income has been surprisingly buoyant as real income growth of around 2% has become apparent in recent times. But Lings points out that in most other economies any excess income growth tends to get saved, whereas in South Africa it is regrettably spent on consumer items as “South Africa is a nation of resilient shoppers”.
The real damage to the South African economy has arisen because of a huge loss of confidence. Businesses have been on an investment “strike” for the past three years, even neglecting to spend money on essential maintenance.Lings believes Ramaphosa’s most pressing item on his “to do” list will be to restore this confidence and kick-start corporate operational reinvestment. Beyond confidence-building, Lings reckons that Ramaphosa needs to restore fiscal discipline, reform state-owned enterprises, ensure clear and consistent transformation policies, and dramatically reduce corruption.
Lings showcased nightmare statistics on parastatals. Despite their infrastructure spending having stagnated for seven years, their debt has rocketed by 16% per annum in the past decade. Money has been frittered away on exorbitant salaries, wages and generally having a good time with a flagrant disregard for governance.
On transformation, it is especially imperative to clarify sensitive subjects such as land expropriation with focus on the compensation aspect and ensuring that food security is not compromised. Getting to the general 2% growth ballpark that Lings and Coleman expect should be straightforward. Beyond that, into the realms of 4% and above, it will take huge and sustained commitment from the new government.
Chris Gilmour is an investment analyst.