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SA’s economy not all doom and gloom

WHILE 2016 might turn out to be the most difficult year for South African consumers in two decades, next year may bring “moderate improvement” to the economy – although nowhere near the elusive 6% growth target.

Despite South Africans’ tendency to focus on the negative, the local economy still has some positive aspects, economist Prof André Roux, director of the Institute for Futures Research at the University of Stellenbosch Business School (USB), said today (Weds, 20 July 2016).

He shared his views on “The South African Economy – Trials, Tribulations and Triumphs” at a business breakfast hosted by the Eastern Cape chapter of USB Alumni in Port Elizabeth.

The positives in post-1994 South Africa, said Roux, included more stable and higher average levels of growth, overall lower levels of inflation, and significant inflows of capital versus the outflows of the pre-democratic, sanctions era. GDP per capita had risen since 1994, although it was still below the levels of other emerging market economies.

The number of people in the lower Living Standards Measurement (LSM) categories was declining, and increasing in the higher categories, he said. Roux, however, emphasised that unemployment remained “chronically high” while South Africa still had one of the most unequal distributions of income in the world and both consumer and business confidence were in decline.

Pointing to the reasons for the gloomy situation, Roux said external factors beyond the country’s control played an important role. These included sluggish performance in Western Europe, still the country’s main export partner, while developments in China and North Korea, terrorist attacks in Europe, Brexit, and the American presidential race were making the world “a nervous place right now – and remember that investors are risk-averse”.

After the worst recession in living memory, Roux said the global economy was “drifting, treading water and going nowhere fast”. Although there might be a slight improvement this year, it was “hardly worth mentioning,” he said.

“The slow-down is worst for countries with an emphasis on exports of natural resources, and those are the backbone of African economies. A slow-down in big markets like China sees commodity prices slumping, and affects African exporters,” he said.

Added to global economic woes, the drought has also taken its toll, with South Africa soon to become a nett importer of food which will impact on food prices and add to the inflationary pressures that are building up.

“A few mistakes” in the steering of the economy had led to the situation of South Africa being “on the brink of junk bond status” and government having little room to use fiscal policy to stimulate the economy, he said.

From healthy levels in the early 2000s, government debt levels had climbed in the past few years and credit agencies were “getting concerned” about South Africa’s budget deficit, with debt levels now higher than in other emerging markets.

Particularly worrying, he said, was that South Africa was not borrowing to improve infrastructure but to pay civil servants’ wages and social grants, and that at both individual and government level “we have become a nation of debtors”.

“South Africa has become a capital-hungry nation, reliant on foreign investment, but the trouble is that the rest of the world is not so keen anymore,” he said, pointing to government debt, sliding credit ratings, and labour market and productivity concerns.

On the short-term outlook, Roux said he expected continued tight fiscal and monetary policy, rising interest rates, and no growth in job creation or consumer expenditure with consumers focusing instead on servicing their debt.

“Technically, we might avoid a recession, but it feels like it anyway. However, if we can weather this year’s storm we could look forward to moderate improvement next year,” he said.

Looking longer-term, Roux said South Africa’s latest ranking of 49 out of 144 countries on the Global Competitiveness Index was “not great, but it has actually been improving over the last five years” and this signalled a positive direction.

However, while the country rates well for the strength of its financial infrastructure and progressive legal framework, he said education remained the greatest stumbling block to South Africa’s advancement.

Improving education and developing the technological skills for the country to participate in the “4th industrial revolution” were the key to South Africa achieving positive growth, he said, along with removal of barriers hampering the development of the country’s entrepreneurial spirit.

Welcoming guests, chapter chairman Bram Davies said the USB Alumni in the Eastern Cape was focused on offering networking opportunities and access to current knowledge and trends to support their professional growth. Further speakers and events are lined up for later in the