NOMPU SIZIBA: The BankservAfrica Economic Transactions Index or BETI, released for September, showed a monthly increase of 2.7%. However, the monthly increase in transactions has slowed quite substantially from the 6.5% increase noted in the month of July. On an annualised basis, however, transactions were up 0.4%, considerably improved on the minus 4.3% level registered in August 2020 when compared to the same month last year.
Well, to take a closer look at the data and other economic issues, I’m joined on the line by Mike Schüssler. He’s chief economist at Economists.co.za. Thanks very much, Mike, for joining us. Upon closer inspection of the numbers, what are they telling you about economic transactional activity and its pace?
MIKE SCHÜSSLER: Everything is very much on the up at the moment, and it says to you that a lot of transactions are taking place in the economy. The third-quarter GDP is likely to be an all-time-record upward movement, seasonally adjusted annualised around the 40% or so mark. It could even be a bit higher.
The fact of the matter is, though, we’ve got to just be a bit careful because this is part of the balance. This quarter has the big bounce back, and it is a little bit misleading because you’re not going to carry on with this sort of improvement – I think we’re going to get a much lower improvement. And, although we are higher than a year ago, you must remember we’re a turnover figure, and not so much a value-added figure. So the GDP on a year-ago basis may not be quite as big or obviously won’t improve. We will agree with the central bank and others that we’re looking at roughly 2023 when we will see GDP equalling 2019 numbers.
NOMPU SIZIBA: Now I see in your report you’re joining a trend of analysis that is speaking of a swoosh-like recovery, as opposed to a V-, U- or a W-shaped recovery. What is this swoosh recovery that you and your fraternity now speak of?
Well, the swoosh sign comes from Mike [Michael Jordan; Nike] and, if you look at their logo, it’s got quite a quick upward trend at first, but then it’s got a long tail. And I think that’s where we are.
If we just think about something very simple, we can see a lot of manufacturing has come back. There are still problems worldwide with car sales. So that’s not coming back as quickly, but petroleum is back to where it was last year at this time, although it wasn’t a great time either last year. But the point is, parts of it are back.
But we also know, for example, that international tourism, which is about 2.7% of our GDP is not going to come back anytime soon. The Covid regulations make it difficult for people to travel, and people have a certain fear – and one doesn’t know when that’s going to go away. So they there will be a part of the GDP that will take a bit longer. And I think that’s what everybody is talking about. It’s unlikely that your other parts are going to substantially surpass the old GDP numbers in the place of, say, things like tourism, nightclubs and that type of stuff.
NOMPU SIZIBA: Very interesting that you note that the support given in the form of the UIF Ters scheme, and the Social Relief of Distress grants and other institutional assistance, contributed some R100 billion to transactions that you’ve recorded since May this year. That’s quite significant.
MIKE SCHÜSSLER: It’s very significant. You know, if you look at the Ters, when last I looked – and that was when they put out a statement, which is about two or three weeks ago – it was R45 billion on Ters alone. And if you look at the actual extra Sassa grant payments, it’s about R9 billion a month that they were aiming for. They didn’t do that in the beginning, but now it’s probably in overdrive. And that means that alone is about R50 billion in this sort of six-month period.
And then we have the injury-on-duty type payouts, where people got sick or died of Covid, which amount to about R6 billion. Then you have the low-interest-rate loans and the guarantees that government is giving to some firms. So that adds up to easily R100 billion that has been pumped into the economy. And that’s kept us afloat a lot longer than many of us realise. It is also coming to an end.
NOMPU SIZIBA: Well, that’s the thing. Before we get onto that topic, let’s touch on the retail sales data that came out for August – coming down by 4.2%, compared to the same time last year. It’s an improvement on the ‑8.6% recorded in July, but no doubt the consumer is going to continue being under strain for quite some time, given the much smaller discretionary spending power.
MIKE SCHÜSSLER: Yes, I think we are going to see that salaries are not going to keep up. A lot of people have had salary decreases.
What we are seeing is exactly the same trend in the retail sales that you’ve seen in the BETI. You’re seeing it in manufacturing – still down on a year ago. Basically the BETI is the only exception. But there’s a reason for that in that last year September numbers were very low or at a base.
The point of the matter is everybody is starting to see very good improvements, but the month-on-month improvements are getting slower for all of them. And that says the closer we get to where we were before the crisis hit us, the longer it will take. It’s that last little bit that’s going to take the longest. That’s where we are right now.
The retail cells in many aspects are quite pleasing, I think, but still 4%, as you said, down on a year ago. Manufacturing is still 10% down on a year ago. We know that the hotel data, when that comes in, is going to be massively down. So all those things add up and we can see it in cost sales as well. I think at one stage we had zero car sales and the other month we came in at ‑60%. We’re now sort of at ‑20%. So it is, you know, a lot better than it was, but it’s still not good.
NOMPU SIZIBA: Just referring back to the assistance that we were talking about and the fact that a lot of these measures are now going to be removed at the end of this month – the end of October – can we expect a significant cut-back in the retail sector come November and December, because obviously these supports will have gone?
MIKE SCHÜSSLER: Nompu, that’s a very good point you make. I think if we look at the ATM data that we’ve been looking at, the cash withdrawals have been quite big and the cash days and debit-card days, our expenditure on days that we see the Sassa brands, are very elevated. And that certainly shows you that at least, I would say, the general retailer, the fruit and veg retailer, have definitely had a significant impact from that source.
And I think the other thing that happened on an aside is that, as people sat at home, a lot of people then went out and bought new appliances to be able to watch Netflix and that sort of new technology at home while they were sitting around.
But yes, the Sassa grants certainly had a very big impact. And obviously so with the Ters, because that meant people could still afford things, even if the employer couldn’t pay.
NOMPU SIZIBA: Yes. So tomorrow is going to be the great reveal, the Economic Reconstruction and Recovery Plan by President Ramaphosa – a draft version of which has already been leaked, focusing on infrastructure investment like energy, roads and rail, as well as freeing up spectrum and the like to start boosting the economy. But whatever is put out there ultimately does need urgent implementation, doesn’t it?
MIKE SCHÜSSLER: Yes. The problem in South Africa seems to be that our politicians don’t want to spend political capital either. They’re very quick to say, we’re going to spend money. Now that there isn’t money. they have to spend a bit of political capital. So the spectrum, and that sort of stuff, which we expected to come along – it’s quite disappointing so far as I can see. I mean, I’ve been in talks and discussions on the freeing up of rail, the freeing up of electricity, markets, harbours – all that type of stuff is still years away.
That’s where we really can make a big difference without spending much money. So if you allow other role players to invest and put their money down for electricity, for whatever, then it will make a big difference to this economy. And it would really free up a competition. It would allow consumers to benefit, and also for new players to reap the rewards. I think that’s really lacking.
And then the other thing is that labour-market legislation is never talked about. We’re not talking necessarily of the big firms here, but about allowing the smaller micro and small enterprises to have a little bit more lax rules would also help. And I think the further question is there’s not much talk about how are we going to change civil service, because that’s also political capital.
So the disappointment here is that the political capital’s not being used, and we need to use it because we don’t have physical capital anymore. I think at least it is a step in the right direction, but it doesn’t say much, either, on the really big issues that we’d like to see addressed.
The other thing is, I’ve just been thinking – it’s been coming up today quite a bit – but a lot of people are asking which SOEs are going to be helped, and which not. And that’s another question, because obviously we would have to help the Prasa Agency, as otherwise the poor can’t get to work. And, at the other end, are you going to help SAA? Now, they said they’re going to help SAA, but the money isn’t there, because we’d rather put the money into trains to get people to work, and allow anybody to come in and have an airline going here . So those are the sort of legislation things I’d like to see and all the problems sort of addressed, if we are going to spend money on SOEs – and not the wasteful sort of thing on SAA.
NOMPU SIZIBA: The President’s economic advisors have come out to say that national treasury’s planned cuts of some R230 billion over three years will likely be too excessive, and be counteractive, given that one needs to spend on investment to get some sort of economic return. It’s quite a tricky place to be I, isn’t it?
MIKE SCHÜSSLER: It’s very tricky, and I think that Mr Mboweni is asking for another week’s extension, because they now have to redo their modelling. They have to redo their planning, and then obviously rewrite the whole thing. I think treasury is under a tremendous amount of pressure because they also realise that the taxes can’t increase that quickly. And, although the other guys say, well, let the deficit run – and the IMF says let the deficit run a bit, the implication is that if you’ve already let go, at some stage you are going to have to bring the party back down to earth. And our road is running out faster than most because, if you look at The Economist magazine, they say we’re going to have the second-biggest deficit in the world in this year, of all the economies covered at the back of The Economist magazine. That’s quite a mean feat.
So I think we have to realise that we’re coming from a very deep hole and it’s going to remain relatively deep for some time.
But then, three, four years down the line, we will see the negative impact of all that debt, I think, on the South African economy as well. Because unfortunately, unlike America, we aren’t really able to print our own currency and buy other stuff from other people with it.
NOMPU SIZIBA: That was Mike Schüssler, chief economist at Economists.co.za.