Wandile Sihlobo on SA’s Q3 GDP contraction and the unsuccessful land expropriation vote

Ahbiz’s chief economist talks lockdowns, GDP data and expropriation.

FIFI PETERS: We knew that the third wave of the Covid-19 pandemic and the Level 4 lockdowns that followed, as well as the riots in July, would have a negative impact on the economy. We knew this and we also expected this, but we didn’t expect things to be as bad as Statistics South Africa reported today, with our economy contracting by 1.5% quarter on quarter between July and September. This was much worse than economists had expected.

One of the biggest sectors that did show weakness in the third quarter was the agricultural sector, which fell over 13%. This is a big deal because agriculture has been one of the pockets of hope for this economy. It has been one of the sectors – in fact the only sector – to grow throughout the pandemic.

Let’s dig into what is going on right now with the chief economist of Agbiz, Wandile Sihlobo. Wandile, thanks much for your time. The 13.6% – I’m going to be precise, the 13.6% contraction in agriculture quarter on quarter for the third quarter – was this in line with your own expectation?

WANDILE SIHLOBO: I’d say it was worse than we expected. We had expected that there might be a possibility of a somewhat less optimistic performance than we saw in the second quarter. But I think the magnitude of the contraction is the one thing that pretty much surprised us here. I say that, Fifi, because in the second quarter of each year there’s always robust activity, with harvesting happening, a lot of things happening on grains, also within the horticultural space.

The third quarter is usually a period that is somewhat quiet in agriculture compared to what we see in the second quarter. But I think the magnitude here is what was surprising. It’s even worse, if you are looking at it, to say the third quarter of this year compared with the third quarter of last year still comes down to about 7% less than that – which I think is a surprise, because this is generally a fantastic year on the ground from what we observe among our colleagues.

FIFI PETERS: So what do you think the weeds in the sector were in the third quarter that stymied growth?

WANDILE SIHLOBO:

Our view is that this is a blip and we think that, while it’s an important thing to focus on, we still think that come the fourth-quarter numbers you will see a good route down there – and, who knows, this might be even somewhat a revision of these things that usually happen.

So we are cautious not to read much from this third-quarter number because all of the other indicators of agriculture [are] high frequency ones. The grain sector had the largest harvest in the history of this country. We saw record harvests from the horticultural space, and even livestock is not doing badly. So our view is that as the fourth-quarter numbers come up, you will see that rebound to an extent that, even with this number, we are still not really revising down our annual growth figure, which is just over 6% for agriculture for this year.

FIFI PETERS: Okay. That is encouraging. But I just want to dig in a little bit more in terms of understanding the magnitude of the decline. We were just talking to one of the wealth managers at FNB and she was saying that, according to their forecasts, they were quite surprised by the degree that the riots in July disrupted things for agriculture. So can you give us a bit of a sense, based on the numbers, of how impactful the July riots were for your sector?

WANDILE SIHLOBO: The impact obviously was there, but we don’t think with the surveys that we have done it was that significant. I’ll give you a number, for example. In the surveys that we did for the agricultural firms, purely agricultural firms put out [for] the retailers, the cost of that was around R1.2 billion. That was the work we did with the National Agricultural Marketing Council as part of the food security task team. If you were to look at the trade numbers, to say agricultural exports, in the third quarter of the year compared to the third quarter last year, we were actually up 8% on a year-on-year basis.

This is important because it tells you that at the ports, while there were glitches, activity still continued; trade still continued. The disruptions are on that scale of just over R1.2 billion as I was mentioning – which again speaks to the point to say while the impact was there of a disruption in KZN, we are very [careful] not to say that was the bigger drag of what is coming out of these numbers that you are seeing. We think that was less of a fact; it was not that much of a significant one in the agriculture period.

FIFI PETERS: Okay, good to hear that the citrus that was stuck at the ports at one time got out, and got out in time.

Nonetheless, moving away from the past – if we can call the third quarter that – to the present and what happened and went down in parliament today, that vote on land appropriation without compensation, and whether it can go ahead or whether it can’t go ahead. Presently it didn’t get the numbers it needed for changing the Constitution and to go ahead.

Your initial impressions on what this could mean for the sector and investments that may be forthcoming?

WANDILE SIHLOBO: On our side this is a welcome development, because we didn’t really prefer a change in the Constitution. But I think one of the important things that we are all watching out for now is what the next step will be. Will a new motion be tabled in parliament, or will we be moving forward from this particular issue? That’s the official stuff that we are waiting for.

But as for investment in general in the sector, we know from the numbers that there hasn’t been a drastic decline in  investment in agriculture – but it has been on a downward trend. Obviously whenever you speak to people thinking about long-term investment they drop in the land reform story.

So the idea is to move away from expropriation, but rather to have a more pragmatic policy approach to land reform that would be favourable for attracting investment, especially as we think about agriculture as the tech of the sectors that will assist us in driving economic recovery for this particular year.

I think the government is already thinking about some of these things. If you think back on the president’s SONA statement, he talked about the Land Reform Agency. That could be one of the PPP approaches to say, let’s move away from expropriation – but can this agency be one of the instruments to drive land reform? The failures we’ve seen are not the legislative issue only, but the institutional failures within the department – then you do need an instrument that could be useful [towards] driving us forward on land-reform delivery.

FIFI PETERS: All right. So a welcomed outcome in parliament today. You’re watching what the next steps could be, but you are in agreement that land reform needs to happen. You say that government is looking at how to make that happen better, going forward.

WANDILE SIHLOBO: Yes

All right. Wandile, my friend, let’s  leave it there. Thanks so much for your time, as always. Wandile Sihlobo is the chief economist at Agbiz.

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