SIMON BROWN: I’m chatting with Dr Christie Viljoen – he of course is from PwC. The latest report out from them from April focuses on inflation. Christie, I appreciate the time. I want to touch on inflation but, before we do, there were the KZN floods and we’re at the point now of mopping up and the like. It’s going to have an impact. It’s eThekwini, which is more than half of KZN’s sort of economic output. Of course, it’s the port of Durban, [and] it’s going to hurt us.
Dr CHRISTIE VILJOEN: Most definitely. For us as a country as a whole it is a very important conduit for exporting and importing goods. Gauteng, which is our economic heartland – most of [its] goods get shipped down to Durban for export. We import so many goods from China; [and there are] food products, commodities from the rest of Asia and Europe coming in there. So certainly even a week where the port is not operating efficiently or as efficiently as it was before the floods has a negative impact. We know there are some exporters of food products that are looking at exporting from other harbours in South Africa, or even adjoining countries. So it’s certainly a big thing to be concerned about, especially for a country where economic growth is already slowing down from last year’s levels.
SIMON BROWN: That’s the key point. We are already in a tough place and I mentioned inflation. Your report was titled or subtitled: ‘The next inflation challenge: salary and wage increases’. Inflation – we are at the top end of the range, we’ve had the MPC [SA Reserve Bank’s Monetary Policy Committee] doing quarter-percent increases from late last year. But the key point is that this higher inflation has now got higher expectations [which seem] to be working [their] way into the system.
Dr CHRISTIE VILJOEN: That’s exactly it. It’s lifting expectations. Even six months ago, when inflation was not a really a matter of concern, expectations for salary and wage increases were around maybe 4% for the year. Now it’s more than 6% and it’s directly linked to this environment where regular South Africans are having to pay more for fuel and for food and a bunch of other things, so now they look at their employer to actually compensate them for this increased cost of living.
In roughly the week since we published this report we’ve seen so many news articles about new wage demands or increased wage demands. We’ve had labour issues and labour protests on Monday with the public holiday as well. So it’s certainly a point of concern because companies that are stretched this way, that way, every way when it comes to their finances are now sitting with this challenge as well, which I think for many might have crept up on them because inflation has for probably the past two months been very serious, but at the beginning of this year wasn’t really an issue yet.
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SIMON BROWN: Obviously for companies which are finding it a tough environment already – not even mentioning load shedding to add to their challenges – this has potential implications for our GDP. In 2021 that number looked great, but of course that’s base effect, and we are back to the sort of roundabout, maybe 2%.
Dr CHRISTIE VILJOEN: That’s correct. So our baseline forecast is for growth of 1.8% this year. I think quite a few economists have lowered their forecast over the past two months, especially since the Russian invasion of Ukraine, because it’s been such a big factor on the global economic outlook and the global inflation outlook.
Now, last year we had economic growth of 4.9%. Definitely it’s a bounce-back from the previous year’s recession, it’s certainly not a normal growth rate. But if you get down to something like 1.8%, then we are sort of moving back to where we were before Covid-19 and we have to keep in mind also that our population is probably growing at 1.4%, 1.5%.
So we’re getting close to that level again where the economy might not be keeping well enough up with population growth. We had that for about five years before Covid-19. So this decline is a big concern for us in terms of job creation, in terms of inequality.
It shows us that our problems that we had before Covid are right back with us. Covid has passed. Lockdown has gone.
We’re back to the big problems that we had that keep our economy from growing quickly enough to solve our employment and our inequality problems.
SIMON BROWN: Yeah. You mentioned unemployment there. Of course, that’s one of our big problems and one of the points made in the document is that you’re saying that sort of 4% real GDP growth is needed to really bring unemployment sub-30% and we are just not going to get the 4%, which means unemployment’s stuck around the mid-30%.
Dr CHRISTIE VILJOEN: Yes. So we are looking far ahead to see where the country is going – let’s say towards the end of the decade – and we are looking at economic growth rate of about 1.5%. That’ll be our potential growth rate given our challenges like load shedding and a bunch of other things.
If we grow at 1.5% a year, our unemployment rate is going to continue rising. The only way that we’re going to get that unemployment rate back to below 30%, which is where we were before Covid-19, is if we can grow this economy sustainably at 4% per year.
To get that done we need to somehow get rid of load shedding, we need to improve the skills base in the economy, we need to improve private investment. So it’s a big task. We as South Africans are resilient and we want to believe we can do these things, but at the moment the outlook is that, with where economic growth is going over the next few years, the unemployment rate is probably going to continue rising and that carries with it all the other socioeconomic challenges. Almost immediately you think back to July last year – the unrest there – it shows us that we are in for a tough few years ahead.
SIMON BROWN: A tough few years ahead. We haven’t done 4% since the early 2000s, with [President Thabo] Mbeki, [Trevor] Manuel as finance minister, and of course [Tito] Mboweni as head of the Reserve Bank.
We’ll leave it there. Dr Christie Viljoen of PwC, I always appreciate the time.