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A new dawn awaits SA – Goldman Sachs

‘Economy could grow by 2.3% this year if the right steps are taken.’

The South African economy could grow 2.3% in 2018 amid political change, a slowdown in inflation and higher commodity prices, the managing director of Goldman Sachs Sub-Sahara Africa said on Tuesday morning.

Speaking at an event hosted by S&P Dow Jones Indices at the JSE, Colin Coleman said its economic forecast was the “most bullish on the street”. The International Monetary Fund recently lowered its GDP growth expectation for South Africa to 0.9% from an earlier 1.1%, while the South African Reserve Bank adjusted its projection upwards from 1.2% to 1.4%. National Treasury is expecting growth of 1.1%.

Coleman said the fact that South Africa has grown by roughly 1% in recent years while the population was expanding at twice the rate was “a disaster”. Without doing anything right or wrong in particular, the country should be growing at 3%.

“If we perform well we should be at a 5% growth rate and it is only by shooting ourselves in the foot – as we’ve done for the last arguably five years – that you’ve seen a three-year growth rate of [roughly] 1%,” he said.

This situation has effectively developed due to the “shadow state” that has emerged under President Jacob Zuma’s administration, Coleman argued.

“State capture hasn’t been an ideology. It has been a practice and that practice has effectively evolved into a kitchen cabinet and a shadow state that has been effectively running a parallel process to the ANC organisation.”

In some cases, the ruling ANC party agreed with the decisions of the shadow state, but it was also often at loggerheads, he added.

“In effect, President Zuma has in a way been his own captive of that shadow state organisation and its deals that it has made with various parties.”

Many people were wondering if Zuma didn’t resign because he didn’t want to or because he effectively couldn’t as he was captive to the directives and obligations of the state capture project, Coleman added.

“I would effectively think the latter.”

The ANC NEC on Tuesday afternoon announced that it was recalling Zuma as president. Although no deadline had been set, it expected Zuma to respond to the decision on Wednesday. It indicated that it wanted ANC president Cyril Ramaphosa to deliver the State of the Nation Address, which was previously postponed.

Coleman said whether Zuma resigned under pressure or not, he expected that a new cabinet would be appointed soon. It would be easier for Ramaphosa to start with a clean slate when appointing a cabinet.

Although the budget – scheduled for February 21 – would probably be delayed by around a week, South Africa would likely have a new president and cabinet in place by the end of February, he said.

Accelerating economic growth

Coleman said if the whole economic programme was designed to redirect state resources to a small elite and to party constituents in the municipalities and provinces, the economy would underperform “and that is what we saw”.

The legacy of these developments in state-owned enterprises was massive. To reverse it, new boards would have to be appointed (as was the case with Eskom). Balance sheets, management and governance also had to be restored at state-owned entities in order for them to function operationally with the objectives set out for them, he added. 

Fiscal consolidation, the re-equitisation of Eskom, the funding of free tertiary education and the underperformance of the South African Revenue Service (Sars) would also have to be dealt with.

What transpires in the budget is extremely important because if Moody’s decides to downgrade the country’s local currency rating to junk, confidence would suffer and South Africa would be evicted from the Citi World Government Bond Index. The country could see outflows of up to $10 billion from bond tracker funds as a result. Goldman Sachs estimates that the rand could weaken by roughly 50 cents in such a scenario.

“I think if we do the basics right in terms of fiscal consolidation, structural reform, getting the economic team in place, by then we should be ok. I think we can stay the execution of Moody’s in respect of the rating.”

Yet, this would not be sufficient to get growth going. The impasse in the mining sector has to be resolved as a matter of urgency. The implementation of the national minimum wage and youth employment initiatives are also important.

“I am pretty sure that we are going to have a new dawn in South Africa from March onwards. We are going to have a new team running the country and we are going to have a much stronger environment for economic growth and for asset price recovery,” Coleman argued.

But Ian Cruickshanks, economist at the Institute of Race Relations, warned that it would be difficult to reach 2.3% growth this year without the push provided by the agricultural sector in 2017.

A departing CEO of an American company in the manufacturing sector recently said the firm would not invest in South Africa until it was assured of the safety of its assets, a reliable and cost-effective electricity supply and an understanding that the national minimum wage had to be linked to productivity gains, he said.

Cruickshanks said until South Africa addressed the poor quality of its education system, it would be difficult to get economic growth to these levels in such a short time-frame.

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didn’t the mederm – Helen Zilee – once promise an 8% growth rate if the DA ran the country. now we find they can’t even a city!!! anyway the key line is this -“the fact that South Africa has grown by roughly 1% in recent years while the population was expanding at twice the rate was “a disaster”.

my recent trip to sa and Uganda highlighted that exact point – population growth always outstrips gdp growth in African countries. while that continues – the army of unemployed will just grow bigger and bigger

Hey Rob, not the first time you throw numbers out there without providing a credible source(HZ-8%) – not quite sure how you apparently do so well when numbers are not quite your thing? Not expecting you to, since that would not suit your narrative. Try harder Rob, being an octogenarian you need to rehydrate during warm weather, it will affect your neural functions.

Just ignore him. He wants South Africa to fail to justify his move to the land of the fly. Quite sad, actually.

92,000 new jobs in the W Cape last quarter, rest of the country still going backwards ……HZ has nothing to do with the running of CT.

Get over yourself

RIS….your first paragragh is somewhat superfluous and your second is self-aggrandizing

Population growth is making it hard to get the financial growth rate we desire and are able to achieve. The main reason for the population growth is the dumb idea of parental grants (we take the tax payers money to pay you for getting children). Real smart move, and I don’t understand the logic behind it. But this needs to be changed by the ruling party, not the party of CT. So I hope that everyone learns out of the mistakes of the A.N.C. and their dumb choices.

Get rid of this parental grant, a woman is not suppose to make a profit from her womb (with all respect), a child is a gift not a business. This grant makes children a business, to obtain these grants.

These grants leads to over population, that leads to under education, under employment, etc.All at the expense of the tax payers and the country.

These grants are no better than child trafficking.

Those that can’t see it needs to wake up, open their eyes, and go for “intelligence upgrade” classes (at their own expense).

Quite Correct: Black Population 1960 – approx. 11 mill, 2015 – approx 45mill.
White population 1960 – approx. 3mill, 2015 – approx. 4,5 mill.

Yes-you are unfortunately correct. The reason for the Western Cape drought(other than low rainfall), low growth per capita, crime etc is simply gross over-population. The more poor and uneducated people are -the more they breed. The timebomb in SA is a massive youth unemployment created through uncontrolled breeding. Had population grown at a respectable pace we would not have such high inflation, less crime, less unemployment and more growth per capita.

Unfortunately the damage has been done and South Africa fails on one criteria-the numbers cannot work. too many poor people and this in an era of AI. I see the USDZAR at 25 in 5 year stime

Bobby in Sydney – when I saw the headline, I knew you would find something negative to say – and you did.

You really should bury your guilt about running away from sa and now living in near-poverty. We all make choices and then live with it.

Not to add to your level of regret, you would have done well in sa, given your ability to spin….the ruling party needed your special talent. As for investment advisor I doubt you would have made it.

But hey, hope you find peace soon.

SA will grow…..dont believe me, take it frommthe experts……and quality of life will continue to rise.

Inge, Patrick – on a really slow news day, how about doing a profile piece on robertinsydney?

It would both be seriously entertaining, and a damn sight less bloody obnoxious than Colin Coleman.

Those of us who are still here for the long term don’t need the opinion of short sellers like Goldman Sacks or those that have jumped ship!

Nice pic of Colin – doesn’t that look like a man salivating at the thought of a whole new set of customers?

I strongly believe that the child grants are creating an industry of its own and should be revisited. Perhaps there should be a threshold of payment for maximum two kids so if you only have one you have more money to spare? The goose that up until now has been laying the golden egg is dying…taxpayers are being squeezed beyond endurance.

Model of the story, is to not get children if you can’t take care of them. Why can some people work to take care of their children and others see it as a profit to ride on the taxpayers back.

Some of these people gets children while in high school to obtain that grant.

Wish they could stop the parental grants for ever. Force it out over time. Current grants are still paid till the children are 18, but no new grant applications after 9 months of today. So if you are currently pregnant or currently receive grant, you still will, until the child’s 18.

By doing so, the country will be parental grant-less in 18 years and 9 months from now, and it will get less and less every year. This can save our economy.

According to new articles, over R 50 Billion was paid out on parental grants in 2016.

That’s just wrong, that money does nothing to boost this country, in fact, it only causes more trouble and damage.

You are 100% right and there is a 0% chance that the ANC will follow your advice.

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