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NDP significance wanes as oil, electricity drive SA’s fortunes

‘Oil remains shaping force of global economy.’ – Standard Bank.

JOHANNESBURG – The National Development Plan (NDP) will “drift from public consciousness” as the ruling party focuses on failing state-owned enterprises (SOE) and “puffing up support in the trenches” in anticipation of local government elections in 2016, says Standard Bank chief economist, Goolam Ballim.

Though it will still “loom large as a policy document,” the NDP’s lofty ideals will not gain traction in government’s plans or the national identity in 2015, Ballim told journalists at Standard Bank’s Rosebank office in Johannesburg on Tuesday.

Factionalism and a lack of policy cohesion are the order of the day, as the strength of the ANC’s leadership wanes. The party’s mid-year National General Council (NGC) meeting will provide an early glimpse of potential leadership scuffles. Among expected “leadership revelations” at the NGC meeting, supporters of Deputy President Cyril Ramaphosa will likely voice his ascendancy to the party’s top leadership position, Ballim said.

Oil price still in the driving seat

While domestic challenges relating to electricity shortages and a lack of policy certainty dominate the South African economy, oil will remain the most profoundly shaping force in the global economy, Ballim maintained.

Low oil prices are primarily a function of the Organisation of Petroleum Exporting Countries’ (OPEC) decision to keep markets “well lubricated”, he said.

Prospective pricing power also lies in the hands of OPEC, since it can extract oil cheaply and has sufficiently low levels of debt and high levels of reserves to keep prices low in order to squeeze out competition. This will translate into an “enduringly low” oil price into 2016, according to Ballim.

Lower oil prices will add 0.6% to global GDP growth, with South Africa enjoying a 0.4% boost to GDP as oil and petroleum products account for 20% of total imports.

The low oil price will also aid a contraction in the current account deficit, which is expected to improve to 4.5% of GDP.

That the current account remains at 6% of GDP is “astonishing” when there has been such a material depreciation in the rand, Ballim commented. “You would imagine the currency’s flexibility serves as a corrective force to facilitate exports and make imports more expensive,” he said. “Electricity constraints have obstructed the potency of the weak rand to be a mediating force.”

Power supply constraints and labour market rigidities are among the “idiosyncratic factors” contributing to South Africa’s underperformance relative to its emerging market peers and the recent commodities boom.

Despite more than 20% depreciation in the rand in roughly four years, South African exports have grown less than 5% and the country has lost about 15% of its share of world exports.

The country’s roughly 2% growth rate over the past three years was less than half the growth rates the country was experiencing prior to 2009.

“We anticipate growth to accelerate from 1.5% to 2.3% in 2015,” Ballim said.

While the US provides a “scaffolding of support” to global economic growth and will enjoy roughly 3% growth in 2015, low business confidence and high indebtedness in Europe will keep growth at a low 1%, while Ballim said he is “wary of China’s slowdown”.

China is forecast to grow 6.9% this year; its lowest level in 24 years.

Standard Bank predicts that Sub-Saharan Africa, which has grown 40% since 2009, even as some European economies struggled to eke out 5% growth, will grow 4.7% in 2015.

This is below the 5.5% average over the last 20 years, indicating the knock-on impact of aggregate demand in the world, particularly from China.

Lower growth out of China has impacted demand for commodities, robbing the rand of any commodities thrust. The rand will continue to depreciate in 2015 as the dollar strengthens, Ballim said.

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