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Could an economic turnaround happen as soon as next year?

Independent economist says SA has already bottomed out.

HERMANUS – When the South African Reserve Bank (Sarb) revised its growth expectation for the country’s economy for 2016 to 0% last month, nobody seemed surprised. The consensus is that South Africa is in a very tight economic spot.

Most analysts don’t expect this to change very soon either. Growth forecasts for next year are generally anaemic.

However, independent economist Dr Roelof Botha believes that the picture may not be as bad as most believe it to be. Speaking at the Momentum Mindshift conference on Thursday, Botha argued that there are a number of economic indicators that suggest that there is reason for optimism

“This economy is not going into recession,” said Botha. “I can guarantee that.”

He argued that the negative growth experienced in the first quarter of 2016 was in fact a low point from which the economy has already started to improve.

“I firmly believe this economy has bottomed out,” he said. “Next year could be a bumper year, and we could grow at more than 2%, even 3%, coming off a low base.”

He said that the poor economic performance of the last few years was mainly caused by the slump in commodity prices, which remain a vital part of this country’s exports. However, he believes that market has turned.

“After six bad years it seems we are in the early stages of the next commodity boom,” Botha said. “And as long as this stabilises and follows a marginally upward trend we are guaranteed growth. Even though mining is less than 10% of the country’s GDP it has a pervasive supply chain.”

What is particularly noteworthy is that the first three months of 2016 saw the largest quarterly demand for gold in history. This has resulted in a noticeable recovery in the price of the yellow metal.

Gold touched a seven-year low of $1 060 per ounce in early January, but has since risen to current levels of around $1 350 per ounce. Botha believes that many analysts are missing the significance of what this means for the local economy.

“For 60 years there has been an amazing correlation between the gold price in dollar terms and the rand-dollar exchange rate,” he said. “This explains to a very large extent why the rand has strengthened.”

Botha believes that although the currency has reacted negatively to the news around the Hawks and Pravin Gordhan, it is currently in a strengthening phase and it will recover. This is clearly positive for inflation.

“Whenever the rand is weak, our imports are expensive,” he said. “Whether we like it or not, we have to buy oil, and we have to import many other things that we don’t make here, so inflation goes up. But then the rand recovers, imports become cheaper, and inflation goes down again. Think that in 2003 and 2004 inflation was negative!”

Botha acknowledged that there was an anomaly after the 2008 recession when the rand initially strengthened, but inflation didn’t come down. The reason for that, however, was a number of years in which the price of electricity was hiked by 25%.

“That’s behind us now,” he said. “The court has now sent out a clear message that electricity increases in this country will be linked to consumer price inflation (CPI) in future, and that is important for inflation. The rand is grossly undervalued and it will come back, CPI will fall from the end of this year and into next year, and by this year it could be between 2% and 3%.”

He pointed out that South Africa currently has the highest nominal money market rates in the world, which means that debt, and therefore the cost of capital is extremely expensive. However, he said that be believes this has peaked.

“Another clue is that bond yields declined by 120 basis points in nine months before the Hawks came into the picture this week,” Botha said. “The Sarb should be lowering interest rates at the moment, and I believe that next year they will.”

He said that while there is still concern about a potential downgrade from ratings agencies in December, there are fundamental reasons why this shouldn’t happen.

“In real terms our tax revenues are now growing after taking five years to recover from the recession,” Botha argued. “We also have the most diversified tax base on the continent.”

Government’s borrowing requirement as a percentage of gross public debt has dropped from 19% to 5%, and compared to its trading partners, South Africa’s debt-to-GDP ratio of under 50% is actually very favourable.

“We do not have fundamental fiscal instability,” said Botha. “In macro-economic terms we are magnificently better off than we ever were.”

In addition, government is still spending on infrastructure, tourist arrivals have increased significantly this year, manufacturing volumes are improving, mineral sales are up and retail sales continue to be positive. All of this gives him a lot of confidence.

“I cannot tell you what Mr Zuma or the Hawks are going to do next, and there will be some political instability,” said Botha. “But I’m convinced that the economy is strong and vibrant enough to lessen the pain of whatever happens in the political arena.”

This journalist is attending the conference as a guest of Momentum Consult.

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Economic turnaround will only happen after the next general elections and once the corrupt few who are clinging on by their finger nails have been eliminated in the polls. A new guard needs to be installed, and the justice system must be seen to be prosecuting those who have been caught with their hands in the cookie jar and prosecuted and jailed. The population first needs to gain confidence in any new guard, and honey ministers installed to hold the fort.

We need more people like Dr. Roelof Botha. With his positive outlook.
I agree that we have hit a low, but that game goes: how low can you go…
Reality on ground is the fundamental issues is still there. Education, labour, infrastructure, corruption, people on social grants and unemployment, policy uncertainty, property rights.
A good indicator of reality is the amount companies closing down or retrenching employees.
I’ll relook this article on 26Aug2017.
I really hope that I will be wrong and we are all dancing hand-in-hand around a pot of gold.

2-3% growth is a bumper year? Add to this the 1% population growth and the per capita growth is only 1-2%. At this rate it will take 100+ years to achieve the per capita GDP level of the poorer ex-communist EU countries and 300 years to reach the German level. What happened to the notion that the country requires at least 6% growth to create new jobs?

I want some of those socks that the perennial optimist (but also perennially wrong) Dr Botha is smoking. In what kind of ivory tower is he living?
He must really go out and meet some people. They will tell him just how bad it is.

We are about to be junked, no doubt about that No.1 has set that up for us, but the economic turn around is next year? This guy on this planet????????

I usually agree with you, but as the tax ombud has warned that people could withhold taxes, Ramaphosa says he is backing Gordhan, and Pravin himself says “stop the bloody nonsense” the end for Zuma has to be very close. I will gladly escort him to jail after his trial, which should last about 10 minutes as long as they don’t lose the docket. Difficult to lose, being about 1000 Kg in weight. 🙂

This guy was being paid to speak at a mindshift conference, but that’s way to much of a mindshift for me!!!

when you get paid huge amounts of money to speak, every year is a good year!!!

Gee whizz – Thanks Dr Botha.
The cheque is in the mail.
Jacob

I wouldn’t completely discard what the good Dr is saying.
This time last year an economic Armageddon of some sort was said to be heading our way, 2016 was set to be a year of devastation, doom, gloom and darkness never seen before and yet, we continue to live and breath in relative economic stability, my pap is still white not yellow and the Rand had strengthened significantly pre-Tuesday. Sure, things aren’t perfect, but then again, they are nowhere near what we were told was coming….

The rosy picture being painted here is probably over-done, but Dr Botha does make a few good points, though, with Zewmer still at the helm, expect anything, or rather, expect the worst, which is the frame of mind many of us have adopted.
Be cautiously optimistic.

It is an Armageddon. Watch this space this coming week

Your take on the positives is valid, however we cannot make good on those positives to the extent that we would like with the baggage of the Zuma clique dragging behind.

So be hopeful, but by next year? I don’t think so ….

All smoke and mirror stuff. This is Africa. Corruption and the Tribe trumps all. ANC doing it the African way like Zim,Swaziland,Angola,Mozambique, Zambia, DRC etc etc. What persons in their right mind would make first Mugabe and then Mswati chair of the SADC.

ja well no fine. just like the old days when PW used to wag his finger at the tv audience saying there will NEVER be African rule. well we all know what happened to PW and his ilk. dr botha shares the same surname of that ilk. I didn’t believe them, and I don’t believe him

For once I agree with you. I said I would boycott your posts but now you are starting to be intelligent I’ve changed my mind, 🙂

well what can I say – I do talk sense like “there is value in American biotechs but need to be very choosy and selective”. the cancer dna research co I bought a month ago is up 25%. had a south African bought it when us$ was 13.28 (now 14.5) that would be an 42% INCREASE IN ONE MONTH

“This economy is not going into recession,” said Botha. “I can guarantee that.”

There it is!! He’s guaranteed it . . . . so it must happen!!!

So simple.

“Journalism is printing what someone else does not want printed: everything else is public relations.” – George Orwell

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