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The mountain Ramaphosa must climb is -2.2% higher

Unpopular policy decisions may trigger a quick economic recovery.

The economic mountain Cyril Ramaphosa’s government must climb suddenly feels a lot higher.

The 2.2% GDP decline in the first quarter (nearly four times worse than the consensus forecast) was a punch in the stomach. The immediate investor confidence spike that followed Ramaphosa’s election as ANC president hasn’t translated into an economic resurgence.

Several economists still believe that a resurgence will become more visible in the second half of the year and that an annual growth rate of 1.5% remains achievable. This seems optimistic in light of the first quarter performance. Some commentators remarked that the -2.2% is proof of a fading Ramaphoria. The number, however, must be seen as a Zuma legacy.

The damage done to the economy by the Zuma administration will be with us for many years and will take more than a few months to fix. It will also take unpopular decisions to address the serious structural problems that hamper economic growth.

It is naïve to think that Ramaphosa will take such decisions in the near term, as the ANC is currently such a fragile party that any unpopular decision may force a split, something that would be political suicide.

Despite this, Ramaphosa has achieved a lot since February. He immediately addressed leadership issues in his cabinet, law enforcement agencies, Sars and state-owned enterprises.

But the -2.2% number should be the wake-up call that says tougher action is needed. It will further dent confidence levels in the private sector, which is probably the most important hurdle for accelerated economic growth.

A good place to start is to address the policy uncertainties in the mining sector and the land expropriation without compensation proposal. It is unfathomable that South Africa hasn’t been able to finalise policies for land reform and empowerment in 24 years, while it took less than three years to pen the best constitution in the world.

If we are to see a swift bounce in economic growth, these policies need to be depoliticised and redesigned to boost inclusive growth and invite investment. But while the uncertainty drags on, the economy will continue to stutter. It will also hollow out Ramaphosa’s message that investors are welcome in South Africa and that we are open for business.

Standard Bank’s Goolam Ballim provided an excellent perspective during an interview on the Moneyweb@Midday show regarding the impact of such policy uncertainty. 

He said that investment in the economy weakened in 2016 and was practically flat in 2017; the level of investment in the economy relative to sales by corporate entities has been declining, reflecting a hesitant and cautious investment approach.

On a positive note, he added that the economy can rebound swiftly if addressed appropriately.

“I think there is pent-up investment demand given the extent to which investment underperformed relative to retail sales. This means that the output gap in the economy has shrunk. It is a rubber band that has been stretched into the abyss and is waiting for some level of release,” he said. 

I agree with Ballim that if some sober thinking prevails, and there is a release via the removal of policy uncertainty, we will see an accelerated economic recovery.

Ballim believes that we should see some recovery in the second half of the year and that 2% growth in 2019 may be on the cards.

Although this growth is still not enough to remotely solve the social problems in the country, it is a start.

Hopefully Tuesday’s -2.2% number will ignite the urgency necessary to address the structural constraints to investment and growth. The expropriation without compensation policy might be a good place to start.

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Thank you for the balanced & informative article.

I think people should not be too over optimistic about what Ramaphosa can achieve. He may be anti-corruption but his ideas are rooted in socialism.

In any event as we do not educate our population there will be no longterm growth.

Has the NPA investigated the TAX PAYER assets in DUBAI?

The depth of the corruption and mismanagement rot left by the ANC is just too much for the Cyril honeymoon to begin just yet. Sometimes downward trajectories gain momentum that takes years to turn around, and this is one of them. Almost nine years of Zuma, 8 years of Thabo and 24 years of ANC rule is just too calamitous to think Cyril can turn this in 100 days.

President Ramaphosa has let the electorate down. Not one government minister From the Zuma era has been indicted with corruption

Removal SARS chairman Tom Moyane is all very well and other low lying corrupt civil servants but proscecution of actual ministers of corruption would go a long way in improving the image of governance to investors and the people as a whole

So paragraph 6 is not a true statement on the president

I agree with all the comments here. Blaming CR for the Zuma legacy is like congratulating Donald Trump for the Obama legacy that is currently so positive – low unemployment, a reasonably stable economy and bullish markets! So let’s hold back on criticising until CR really has the bit between his teeth and can persue a healthy economic and political agenda! Good article Moneyweb, thanks.

He has got the bit between his teeth in a very big way.

EWC = naked theft. Only the willfully blind cannot see that this is negating any improvement elsewhere.

The sheet starts at the top and CR has still not got rid of the many millstones around SA neck in his cabinet. He HAS to be bold. The usual excuse about not being able to go too fast is BS.

He can easily make statements around pulling his people out of their agrarian 2000 year old mentality into the 21st century. But NO: easier to continually harp on EWC = naked theft. This is all CR doing.

Catch a wake-up SA.

Ok, then we should assume George Bush was responsible for obama’s “success”? Trump is doing well, its extremely hard for the left to admit it.

“Policy uncertainty” or is it a move toward the wrong policy? Remember there can also be policy certainty , certainty of an anti-investor mining charter or certainty on land expropriation. The media and economists always talk about policy uncertainty when there’s a shift toward disastrous policy.

Ramaphoria soon turned to Ramaphobia with the ridiculous noise about land expropriation and changing the constitution so what is the surprise?
We need Ramaruthless or the country is Ramaphorked.

I don’t think he has enough Ramasupport in his own party, hence all the investor unfriendly noise about threats to sanctity of property.

I think it’s a bit too early to write CR’s legacy, he has shown some positive moves (especially in dealing with the rot within SOE’s). To expect him to have already dealt with the rot within the ANC and Cabinet is just been too ambitious, if one looks carefully at the makeup of the cabinet members is still 50/50 split between the corrupt cadres and those who want to advance a good cause, same applies to the top six

Will take sometime to turn this tanker but one can take comfort on the positives we have come to see so far – its not all doom and gloom

Agree; Ramaphosa’s Justice minister in his cabinet just today said he has “full confidence” in Shaun Abrahams…

Ambitious is what SA needs, not a plodder taking such a long game that he will be dead before any green shoots in evidence.

The SOE positives amount to no more than moving from minus to ZERO…big deal.

Need to rebuild a social contract between business and Government for there to be growth – all the strongest economies have this trust contract. CR has started this post Zuma’s selfish Gov. However, there are still serious issues of trust because of the mining charter and land expropriation. South Africans are destroying the pillar that built the economy, namely mining with these 2 new agendas, instead of building the industry and South African-owned mining entities.

Recommendations for a social contract:

Govmunt provide infrastructure and enabling environment then shove off.

Private sector do everything else.

There done.

Start next Monday.

What is infrastructure? It is put in place by public and private sector through PPP collaboration and contracting, including skills and payment. This isn’t happening and is what is sorely lacking for everyone’s benefit. See example Sweden metal industry or China manufacturing for real wealth creation. All built on basis of the social contract. Do this for decades and you have wealth. Do the opposite for popular votes…

The solution lies in the elections in 2019. Vote the ANC out and the D A in.Ramaphosa will then not have a problem of making the correct but unpopular decisions. Does a leopard change its spots?

A lot of hope in this article. If one wants hope then go to church otherwise look at the facts. We all know what needs to be done, but the ANC is a socialist/communist party, always was. Do not expect policies that will encourage private sector investment. These guys have absolutely no idea about value creation.

This is the crux that needs to be addressed….not window dressing around boards of SOE’s which should not even exist.

“Come invest in South Africa, but first you have to give me 30% of your business and employ my uncle and cousins on your board. The rest of your employees must meet our employment guidelines and we’ll tell you how much you can and cannot pay workers. Sounds attractive doesn’t it?”

” -2.2% is proof of a fading Ramaphoria. The number, however, must be seen as a Zuma legacy”. Not so Mr van Niekerk. Zuma, for all his faults, at least did not push through a land confiscation policy. Next to full blown communism (aka EWC), no degree of optimism, good governance, new leadership or ‘new dawns’ will matter. On the other hand, protection of private property can be pretty resilient and even thrive under the right circumstances, despite onslaughts of corruption and incompetence.

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