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Is 2018 the year of optimism that South Africans were hoping for?

Initially, ‘Ramaphoria’ excited us all, but indicators suggest we still have far to go.

The South African economy has experienced a prolonged period of underperformance reaching as far back as the global economic recession in 2008. Economic data suggests that South Africa has never fully recovered from this period. However, the economy received a renewed wave of confidence when Cyril Ramaphosa was inducted as South Africa’s president. Initially, this wave of ‘Ramaphoria’ was in a large part due to the perception that he could turn around the protracted period of subdued economic performance. But how has the economy really performed since he took office?

It is important to note that many aspects of the economy have deeply rooted systemic natures and as a result cannot be expected to suddenly improve in the short term. While this is understood by those who have knowledge of how economies work, the average consumer is concerned by the everyday challenges they face and is therefore more influenced by the short-term in their decisions. Some of the main indicators that consumers are concerned with are economic performance (GDP), cost of living, employment and their income level. Economic performance is the epicentre of numerous other outcomes within an economy as it directly influences the perceptions of not only local citizens but the international community as well.

Table 1: SA Economic Performance 2012 – Q1 2018

Year

GDP at market price

2012

2.2%

2013

2.5%

2014

1.8%

2015

1.3%

2016

0.6%

2017

1.3%

Average 2012 – 2017

1.6%

Q1 2018

-2.2%

Source: Stats SA

In 2010, Pravin Gordhan announced that if South Africa was to create jobs, the economy needed to grow by 7% per annum. The data in Table 1 has fallen well short of this mark for numerous reasons, including global sentiment towards emerging economies. The most recent economic statistics indicate that the South African economy has in fact contracted by 2.2% in the first quarter of 2018. Currently, the South African Reserve Bank forecasts that the economy will grow at 1.2% in 2018, which is sadly below the subdued average we experienced between 2012 and 2017. In April, president Ramaphosa announced that South Africa would send an envoy of top officials on a ‘road show’ to seek foreign direct investment into the economy. This is a much-needed initiative as investment into the South African economy has typically been via the financial markets, which are far more volatile and often based on short term gains rather than true long-term investment.

The movements in South Africa’s cost of living are officially measured by Stats SA’s consumer price index (CPI). This figure is one of the more contentious figures in economic reporting as most consumers feel that the number is understated and does not represent the true state of inflation in the country. This reality is often reflected in the wage demands of interest groups and unions during South Africa’s annual ‘strike season’. Table 2 reflects the most recent inflation statistics released in Stats SA’s monthly CPI report.

Table 2: SA consumer price inflation statistics

Year

Average  inflation

2014

6.10%

2015

4.60%

2016

6.40%

2017

5.30%

Average 2014 – 2017

5.60%

2018 (year to date)

4.30%

Source: Stats SA

As opposed to the weak economic performance reflected in Table 1, Table 2 contains better news for South African citizens. The South African Reserve Bank has an inflation target of between 3% and 6%, which was only slightly breached in both 2014 and 2016. Currently, inflation in 2018 is at comparatively low levels when compared to the previous years in Table 2. This is positive news for consumers who have felt the effects of rising prices in recent years.

The producer price index (PPI) measures the inflation rate faced by producers of goods and services, and is often thought of as a leading indicator to inflation as producers will pass increased costs on to consumers. Table 3 reflects the inflation rate of final manufactured goods between 2014 and June 2018.

Table 3: SA producer price inflation of final manufactured goods

Year

PPI final manufactured goods

2014

7.50%

2015

3.60%

2016

7%

2017

4.80%

Average 2014 – 2017

5.73%

2018 (Year to Date)

4.65%

Source: Stats SA

Similar to the CPI statistics, the PPI statistics in Table 3 experienced their highest inflation rates in 2014 and 2016, and the year to date is well below the 2014 to 2017 average. This is good news for consumers as it implies that they can expect inflation to remain at lower levels than in the past (at least in the short term). It should be noted however that the PPI for final manufactured goods in June 2018 (latest figure) was recorded as 5.9% which may be cause for concern if it is the start of an increasing trend in this figure.

The cost of living affects all South Africans directly and indirectly and this often forms the basis of salary demands during wage negotiations. Recently, South Africa has experienced a wave of protests regarding salary increases. This is not unusual within the SA economy, but what has been different in 2018 compared to previous years is the implementation of the national minimum wage. Salary increase negotiations are always a tricky landscape as employees seek to increase their salaries while employers seek to manage employment costs. The most recent unemployment statistic released at the end of July 2018 indicated that South Africa’s unemployment rate has deteriorated even further to 27.2% which is extremely high by global standards. Interestingly the industry that experienced the heaviest job losses was manufacturing, which lost 105 000 jobs during the second quarter of the year. Whether or not this has a correlation to the increased PPI inflation of final manufactured goods and the imposition of the minimum wage is not clear but is a subject worth debating.

Based on the data presented above, it is clear that real meaningful change has not yet found its way into the economy in 2018. Although there are positive signs for consumers when analysing inflation data, economic performance experienced a contraction in the first quarter which has resulted in increased unemployment during the second quarter. These statistics don’t appear to have deterred wage demands during the wage negotiation process – numerous ongoing negotiations are requesting increases well in excess of consumer price inflation. One can only hope that all parties involved will negotiate in good faith and provide South Africa with the stability needed to improve economic performance during the second half of 2018.

Bryden Morton is executive director and Chris Blair CEO of 21st Century. 

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What hurt south africa was the Zuma Economic Catastrophe of 2009-2017.

Say what you like. None of this takes into account EWC or the Mabuza factor.

Our biggest single problem is unemployment.

Government cannot create further jobs as they don’t have the money for it. Government expenditure which should have been used to spend on infrastructure (building schools, hospitals, roads, etc creates a huge number of jobs) is now being spent on salary increases for a bloated governmental workforce and interest on our massive public sector debt.

Therefore it is up to the SA private sector to create jobs by expanding businesses and investing in infrastructure. Corporate SA has massive amounts available for spending, but the money is being kept on their balance sheets as corporates have to be convinced that they can earn a larger (risk-adjusted) return by investing in SA than they would be able to earn by just holding onto the money. The reason for the lack of investment by corporate SA is low business confidence in SA, and one just has to look at all the political uncertainty and adverse government policies (EWC, SOE’s, the almost unlimited power of unions, far-reaching government corruption with no consequences, etc) to explain why business confidence is low. As 2019 is an election year, there is ZERO chance that the SA government will institute policies which encourage business as these policies might be at the expense of the electorate. If you include those who have given up looking for jobs, two-thirds of SA’s youth is now unemployed, and this is not something which will easily be reversed.

Therefore, 2018 is not the year of optimism. SA will plod along as before, slowly becoming ever more irrelevant in the global economy, until such time as our leaders gain the political will to do the right things (increase business confidence, fight corruption, properly manage SOE’s, address education, rein in government spending and government debt) in SA.

If you want to know how much political will we have in SA, consider that there are 3,000 schools in SA without proper toilets. Two children have drowned in pit toilets this year, which should not happen in any civilised society anywhere. If our government does not even have the political will to install proper toilets in 3,000 schools (after 24 years of being in power), how likely is it that the government will ever have the political will to make the really hard decisions?

Say you take an unemployable vagrant off the street, and you pay him R100 000 per month, to only do one simple thing every day. It is a part of his job description, and within his power to change the laws that govern him. His job entails the following. He has to choose between taking the property of another person, or losing his job. He has to choose between losing his own house, his car and his furniture, or to take the property of another person.

What do you think this individual will do? What would you do?

This is the position every ANC politician finds himself in. As a collective they are able to change the law in order to allow themselves to take the property of other people in order to bribe voters. The ANC politician ensures his employment opportunity and his property for another 5 years. The ANC politician has the following alternatives. He can either take your stuff, or lose his stuff.

This is how simple and straight-forward politics in South Africa have become. The South African voters are competing in a race to the bottom. Politics in South Africa is all about who can deliver famine first.

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