South African positives to reflect on and look out for in late 2021

Alexander Forbes executive chief economist Isaah Mhlanga considers recent constructive changes in the SA economy, US interest rates, local government elections and the medium-term budget policy statement.

MATETE THULARE: Joining me now is Isaah Mhlanga, the chief economist at Alexander Forbes. Isaah, always a pleasure to speak to you, and welcome to the Moneyweb guest takeover show. Isaah, we know that South Africa prior to Covid had its series of issues with things like poverty, inequality, unemployment, electricity supply shortages – the list goes on and on. But from your point of view, what do you see as some of the silver linings in the South African economy that can obviously offset some of this doom and gloom?

ISAAH MHLANGA: Thanks for having me, and good morning to your listeners. I think we have seen the global environment performing much better, to the benefit of South Africa’s economy over the past 18 months. We’ve seen the economy performing better than expected, largely driven by a very conducive global environment. Commodity prices have been well supportive of South Africa’s terms of trade, and as a result, tax-revenue collections have been much better than expected, which helped to actually cushion some of the unforeseen expenditure of late to the response to Covid. That has been quite a significant positive. 

The other one that is quite important, especially if we are looking over the medium term, has been on the side of economic reforms. We have seen huge reforms in the energy sector as far as the 100 megawatts now going to be allowed for private-sector companies to generate without the need for licensing. That has been gazetted. Expectations are it will attract something like R20 billion from the mining sector alone over the next two years. So if we look economy-wide, that is going to come with significant investments that will help to uplift the economy from 2022 onwards. 

The other one that is also quite important that has been quite a big issue is with regard to our transport and port networks. Transnet’s now out looking [for] R100 billion from the private sector, essentially allowing the private sector to be third-party players in the port space. We know with a big berth it’s already part of that as far as the port of Durban is concerned, but we also know that it’s allowing the private sector to have their own wagons on our railway lines. That is going to be quite important because it will come with significant investment and it’s going to shift most of our goods from roads to rail. That is going to be quite important. 

So those are two big economic reforms that are now going to yield results as early as next year, and that will help to build confidence going forward.

MATETE THULARE: You are right, Isaah. Some of the reforms have started taking place and I think the most important one, as you mentioned, is obviously the private and public sector partnership. Hopefully, some of these reforms can start coming to light sooner rather than later. But on that note, Isaah, I think if you can just give us a quick overview of what we can expect in the local and offshore market for the last three months of the year, as we wrap up 2021, and also what we need to look forward to?

ISAAH MHLANGA: Globally the big one is the US Fed and its move to reduce or scale back quantitative easing. It indicates that as early as November it is likely to begin scaling back quantitative easing. That will come with a significant change in financial conditions globally, but also it indicates it might actually start hiking interest rates as early as the end of 2022. That is a move from sometime in 2023, as was expected in the last FOMC (Federal Open Market Committee) minutes. So that will also rattle markets. The November FOMC meeting is going to be a big one.

Locally we have local government elections on November 1; that is going to be quite a big one, given we have seen electoral voter turnout change quite significantly over the past couple of years, and we may end up with coalition local governments – which may actually be disruptive, as we have seen in the last local government elections. 

And then on November 4, we have the Medium Term Budget Policy Statement, which is going to be the first from the new finance minister, Enoch Godongwana, where we have quite a lot of expenditure pressures, but at the same time expectations for growth as we move into the medium term, it’s also going to moderate. So significant pressures. 

But we expect him to hold the fort in terms of fiscal consolidation, but also in terms of pushing out some of the expenditures that are being requested, such as the basic income grant which we believe he’s going to push back against. He had indicated that fiscal sustainability is, first and foremost, the most important thing that we need to achieve as a country.

MATETE THULARE: Quite interesting, Isaah, that you also mentioned the political side of things. I just saw a headline this morning that Cosatu will be holding their central committee meeting which will be addressed by President Cyril Ramaphosa. That said, I think it is going to be interesting from a political perspective.

Isaah, always a pleasure engaging with you. Thank you so much for gracing us so early in the morning – but I know you don’t sleep much, so it’s fine. (Chuckling) 

That was Isaah Mhlanga, chief economist at Alexander Forbes, giving us his insights on some of the positive things that we need to be looking out for on the South African economy, despite all the doom and gloom that we always see in the headlands – and what we can look forward to in the last three months of the year.

Listen to Wednesday’s full MoneywebNOW podcast here.



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  CPIThe Consumer Price Index (CPI) measures monthly changes in prices for a range of consumer products Sep 2021 4.90%
  CPI ex OERThe Consumer Price Index excluding Owners’ Equivalent Rent (CPI ex OER) measures monthly changes in prices for a range of consumer products excluding Owners’ equivalent rent that measures changes in the cost of owner-occupied housing Sep 2021 5.50%
  RepoThe rate at which the Reserve Bank lends money to the country’s commercial banks and set by the Reserve Bank’s Monetary Policy Committee. Oct 2021 3.50%
  Prime lendingThe Prime Lending Rate is the rate of interest that commercial banks will charge their clients when issuing a loan (home loan or vehicle finance) Oct 2021 7.00%

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