Shock GDP figure undermines Ramaphosa’s economic reforms

Will need to show unequivocally in his state of the nation address that he has grasped the nettle of this crisis firmly.
Statistician-General Risenga Maluleke seen gritting his teeth on Tuesday as he released the GDP figures for the first quarter of 2019. Picture: Siyabulela Duda/GCIS

If newly-elected President Cyril Ramaphosa needs a reminder that it is time to accelerate a clear reform programme, he needn’t look any further than the withering economy, which shrunk by an astonishing 3.2% in the first quarter of 2019.

Read: Economy nosedives in Q1, hurting rand

This sharp decline, the largest in 10 years, also means that the economy has not moved in size compared to this time last year, registering muted growth year on year.

Double whammy

You know, South Africa was really hit by a double whammy,” says political economy analyst David Silke, adding that the first quarter’s statistics were a reflection of a weak economy that was exacerbated by load shedding in February and March 2019.

The figures published by Statistics South Africa on Tuesday show that the manufacturing and mining sectors were the leading contributors to the economic dip.

Seventy percent of the manufacturing divisions recorded negative growth in the first quarter of the year – dragging the industry’s growth down by 8.8%, with this drop accounting for 1.1% of the decline in GDP growth. Mining and quarrying contributed a decline of 0.8% to the negative growth seen in the quarter as the industry as a whole shrank by 10.8%.

“This is the largest decline since the global financial crisis in 2009 which led to a global economic meltdown,” said Statistician-General and head of Statistics SA Risenga Maluleke.

In the first quarter of 2009, the economy declined by 6.9%.

Maluleke told media on Tuesday that the series of power cuts which, at their worst, saw Eskom remove 4 000 megawatts of power from the grid for consecutive days in March, “definitely” contributed to the declines in these sectors.

Read: How one power utility has maimed SA’s entire economy

Decisive leadership needed

The decline in the economy was not necessarily a surprise, but the quantum of the decline was. The country was already coming off a low base of 0.8% growth in 2018, dipping into a recession in the first half that year. The first quarter of 2019 saw economists and institutions reducing South Africa’s growth forecast to between 1.2% and 1.5%.

One could interpret the decline as being far worse than the contraction seen in 2009 because it is purely as a result of domestic issues, says Silke. “It just shows how inadequate[ly] our own economy has been managed in the last decade or so.”

South Africa’s weak economic state is due to a number of factors but there is general consensus among analysts and rating agencies that the lack of clarity on how government plans to restructure key aspects of the economy has had a significant negative impact.

Steel and Engineering Industries Federation of South Africa (Seifsa) chief executive Kaizer Nyatsumba says the disappointing figures indicate that the optimism widely known as ‘Ramaphoria’ that came with the president’s ascendency to the Union Buildings may have been misplaced. He says Ramaphosa and his government need to show bold and decisive leadership to turn the economy around.

Read: SA’s mountain of debt looms

“Merely talking about a new dawn without having the courage to tackle the country’s myriad challenges will not suffice,” says Nyatsumba.

Accelerate reform and improve confidence

The ownership and sustainability of state-owned enterprises (SOEs), particularly Eskom and South African Airways, remain key economic concerns. The two loss-making entities carry worrying debt levels of close to R500 billion and in the past two weeks have seen their stability further threatened with both of their chief executives resigning. Both cited, among other concerns, a lack of support and political interference in their attempts to turn the institutions around.

Read: Goodbye, SAA

In addition to eliminating the costs of running inefficient SOEs, Silke says the country needs to institute reforms that will encourage foreign investment, such as an attractive tax regime to incentivise investors to commit capital to the country. He says the country needs to ensure more streamlined labour laws and successfully eliminate the red tape and bureaucracy that plagues small-and medium-sized enterprises.

An indicator of the lack of investor confidence can be seen in the gross fixed capital formation, which declined by 4.5% in the first quarter, marking its fifth consecutive decline. “The main contributors to the decline were transport equipment, construction works and non-residential buildings,” said Maluleke.

The only sectors that recorded positive growth were finance, real estate and business services (1.1%), general government services (1.2%) and personal services (1.1%).

“The magnitude of this should be a wake-up call for all those in government and across South African society to find common ground and compromise in order to kick-start new best practice economic policy in SA,” says Silke.

South Africa running on empty

A PwC report gauging the state of the South African economy through a look at key indices and economic indicators found that the country’s “economic momentum is in the red, like a fuel tank running on empty”.

The report’s evaluation of the ‘economic stimulus and recovery plan’ launched by Ramaphosa in September last year revealed that the majority of the outcomes were still stuck in “neutral or first gear”.

“President Ramaphosa will need to consider this economic crisis when he delivers his [state of the nation address] on June 20,” says the report.

“There are enough suggestions – most recently from the International Monetary Fund and South African Reserve Bank – on the structural reforms needed to get the South African economy into a higher gear.

“The president and his new cabinet will need to act soon.”



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We need to start a BACKaBUDDY campaign for the SA Economy!!!

Until corrupt officials are imprisoned not much can improve. If you think corruption has ended… think again.

We will provide 5 million houses for our people.
We will make SAA a leading airline
There will be no more load shedding
We will not give increases to ESKOM staff
We will not pay ESKOM staff bonuses
We will reduce ESKOM staff numbers
We will prosecute those who are guilty of corruption
We will provide jobs to all
We will reduce unemployment by half over the next 5 years
We will never increase the VAT rate
We will manage the price of fuel
We will “pick up the Rand”
Blah, blah, blah, humbug

“An indicator of the lack of investor confidence can be seen in the gross fixed capital formation, which declined by 4.5% in the first quarter, marking its fifth consecutive decline.”

Who will actually be brave / stupid enough to put R1.00 into this country until there is political stability, policy certainty and a real move to tackle rampant crime and incompetence in SOE’s

This is the culmination of ANC policy uncertainty, wrong BEE policy and corruption over all these years.

Yes, and especially during the Zuma-years the decline sped up.

In the meantime Cyril remains shocked.

Aye, shocked and quiet. Imagine the rush out the door to short the ZAR!

That’s exactly why Cyril is so quiet; he’s out shorting the ZAR…

The down-spiralling economy is in the worst depression in history. During the Great Depression, the worst time in recent US history, the unemployment figure in the USA was “only” 25%. We are running around 50% unemployment with 15 million people surviving on social grants.

There is a parking lot at a new shopping centre and parking is free as long as you are willing to lend money to the car guards. They use this money to hire a locksmith to open your car while you are busy shopping. When you return, you find that the car guard stole 30% of the money that was in your handbag. When you complain, you are told that management has this BEE policy. You lend them money so they can steal 30% of your stuff. The purpose of this scheme is to rectify the wrongs of the past because these people do not own cars. The bright side is that they are not allowed to steal more than 30%.

One week after the opening of this large new shopping centre, there we no cars in the parking lot, and no shoppers in the shopping centre. The employees were fired and the shops and the centre filed for bankruptcy. Now the car guards are complaining because the government does not provide them with BEE opportunities.

The manager of this bankrupt shopping centre, who was the first one to benefit from this BEE deal, looks over the empty parking lot and says “Watch this space”. He tells the workers and the car guards that he sent special envoys to the parking lots of the competitors to invite them over to this parking lot. The car guards are not worried because this manager is playing the long game. One of them says “Thuma mina” in a shaky voice.

…you are “metaphorically brilliant” Sensei! (Now that must be a new word 😉

Regarding investing abroad, one hear commentators say “be careful for global equities, US markets are fully priced”, etc.

Really how far down can the US market go if (or when) global equity markets takes a huge correction? Perhaps 10% drop? Maybe 20% to 30%? (The latter would be seen as cataclysmic)

But what do we experience in SA? For most of us SA share investors, we have to stomach anything between 40%-70% decline in share price (i.e. market value) of some very prominent South African companies.

Hi Michael! Regarding the USA market, the fact that “revenue growth surprises to the upside” is one of the characteristics of a bull market. Equities are “fully priced” or even expensive, relative to the previously-published financials. Then, everything changes overnight when the new figures are published. What was expensive yesterday, becomes cheap today.

Currency devaluation is the main driver of the US market. How can anything be expensive in terms of a devaluating currency? One more point….South African companies trade at a certain ratio to US companies. There is a certain ratio of capital appreciation of local companies to international companies as depicted by the JSE All Share Index relative to the MSCI Emerging Markets Index or relative to the S$P 500 for that matter. When the S$P 500 enters a correction of say 10%, the JSE will correct by at least the same amount in Dollar terms.

Cheap or expensive may serve an allocation purpose over a time horizon of vife to ten years but is of no use over shorter time periods. The USA is getting “more expensive” while the JSE keeps on getting cheaper. The reason for this phenomenon is the fact that capitalists do not like to invest in countries where the political elite address each other as Comrade.

And what reforms are these exactly?

These articles all assume that Cyril and “the good ANC” have a plan, when all they have are two words.

I always read Poplak. He is brilliant.

He is also correct that Cyril’s weakness grows the support for Julius Malema, who will be seen as a decisive figure.

The similarities between us and Weimar Germany are chilling. All it needs is a financial crisis, like the one currently engineered by the ANC.

Perhaps that is the plan all along.

So here are the red lines he (Cyril) cannot cross

1 must do EWC
2 cannot cut heads in SOE’s or government
3 must retain mining charter and BEE
4 has picked various Zuma era cabinet ministers and communists who he must retain for now
5 cannot cut social grants
5 can’t cut Eskom and rail tariffs
6 break the power of the unions
7 reverse the new carbon tax
8 get too close to industry, aka, WMC

Here are the things he’s under pressure to do

1 repurpose the reserve bank
2 fire Pravin Gordhan
3 kickstart an infrastructure program with no money in the bank
4 extend free education grants
5 provide assistance to beneficiaries of EWC
6 go and borrow more dollars from the Chinese
7 introduce prescribed investments and / or tap pension funds
8 refloat the PIC to replace stolen/wasted money
9 create millions of new jobs
10 scrap e-tolls and roll the debt and unwind costs into the petrol price
11 go after architects of state capture
12 let state capture back in and turn a blind eye to corruption

Here are the things nobody can change overnight

1 fix the education system
2 fix Eskom and the SOE’s
3 repair business confidence

How’s that for an impossible task. And in charge is the ANC NEC who are split down the middle and who operate as a collective.

What have I left out? Moody’s who for some reason have not yet given us a junk rating.

you left out point 4 under things that can’t be changed overnight….LAWLESSNESS. In my view this CAN’T be changed as this is the African way.

“Lawlessness” I agree. Including the construction mafia, the destruction of infrastructure, the burning of trucks, railway coaches and buses etc, general theft of electricity and cables etc – never mind the murder rate of over 20 000 per year (The highest in the world outside of a war zone!) – IMHO The first thing on Ramaphosa’s list should be the building of more prisons and sorting out our judicial/law enforcement systems to get the culprits out of circulation.

Violence is the cultural way of solving problems, this will never change it will in fact get worse. 1400 trucks burned?? Who the hell burns a truck? Sorry forgot that’s a way to stop it to loot it.
It has now filtered through to schools, if a Grade 8 does not share his sweets, KILL HIM.

If we had an army worth anything martial law could be declared, troops deployed to clean up.

This is all smoke and mirrors. This is what really went on at the meeting.

Squirrel announces that they just made it in, the sun is setting slowly. We have another 5 years to rip the guts out of SA so lets set the scene. Ideas boys? Reserve Bank, YES!! Nuclear YES!! Coal YES!!! Economy, jobs?? what’s that?

Ok meeting over. Ace go spin them a story.

Why is anyone, other than Peter “Blank cheque for the ANC” Bruce and Cyril The-Didn’t-Know “shocked” that after a year of the “New” ANC, complete with BEE, EWC, AA, NDR, REC, denigrating WMC and various othe TLAs [3-letter acronymns] coupled with increased RaceCardism the economy continues to junk?

Economics and business have no moral or agenda: one is either creating the wealth of the nation (including knowledge, environmental and social capital, infrastructure and SOEs), maintaining it or destroying it. The ideology, racism and corruption of the ruling party, first under JZ783, now under his former deputy, leaves no other course but down.

Ironically, the best news since the elections is that the ANC wants to declare a state of emergency over unemployment, Emerging from denial is a slow, uphill route and this — acknowledging the problem — could be the first baby step. While Deng disregarded mice-cats’ colour and even Lenin, after his EWC had to go NEP [New Economic Policy = more markets, less dirigisme]

A country’s economy is like a very large ship, it takes time to turn it around. We are still seeing the ramifications of the Zuma era unfolding. Do not expect an improvement any time soon UNLESS dramatic steps are taken, such as closing SAA and implementing a massive reform process at Eskom. Both would involve job losses which would be intolerable to the unions. So, business as usual is more likely to the case. The ANC is simply not prepared to take the steps needed to stop the bleeding because ultimately they have squandered whatever credit they may once have had.

Agree but your very large ship has a very large hole in it and is taking on a lot of water. IE Sinking.
Has CR got the right people for the steps to be taken, on face value I don’t think so.

A large ship sinks faster than a small ship. I would have expected to have felt a slight sense of urgency to rectify the matter.

Enter the Dragon. China will throw money at SA. The ANC will snort it up like addicts. In a few short years they will find themselves cold turkey, slopping around in their own excrement in a downtown alleyway wondering where it all went wrong. Too late for rehab.

This so a great article in my opinion…and good news too! For the first time the ANC are looking clearly at the problem and talking about it…..never in our new history has this happened. Bad news has always been buried or lied about..or just avoided altogether. . Knowing how high the mountain is helps to prepare for the journey – let’s not let the SA economy die on hot air and lack of oxygen – let’s use this information as a refreshing clean start. Let’s support our new President and his cabinet to keep it clean and clear…only then can we move forward.

In theory Tebogo Tshwane is right. In practice, however, what’s the actual likelihood of Ramaphosa – the smiling celebrity who doesn’t himself need any economic recovery to fill his tank with fuel thanks to being one of SA’s main politically-connected BEE’s and heavily invested in buffalo – acting decisively at all?
Surely if he was the “acting” type as Tebogo belatedly calls for, not half the deputy ministers still littering his cabinet wouldn’t have been there?
Also time the media woke up…

You want foreign investors to commit capital to the country? Then start locking up those corrupt bastards! The world will not invest here until they see that we are serious about rooting out corruption. You need to pull finger Cyril, the NPA is was your first line of defence now use it! Pick someone, anyone! Go for the one individual you have the most evidence against and arrest them, prosecute them and convicted them, and don’t stop until the the rest of the world sees that you mean business! What’s taking you so long?

Lets be realistic…..these people all fought side by side during the struggle, they are cadres. You will not see CR cry while Ace are laughing or vice versa. They all sit side by side everyday in various meetings. ( even Zuma is still pampered ) Anybody disagreeing with them is an enemy. Any effort to better the economy or wrongdoings will be seen as failure in TRYING to govern the land… don’t expect much from CR.

The funny part is that very few actually “fought”. Reality is that the present ANC is more of a loose criminal gang or tribe; hence the disparate waffle vomited out. Next is that very few actually did or learnt anything hard, tough or demanding. They were mostly freebooters, thugs, petty criminals, union clerks etc sponging off foreign donations and local bleeding hearts. Once “demockracy” arrived there was a massive rush to get rich quick; looking at you Cyril.

IMHO Nelson Mandela is the only exception.

All of this is borne out by their performance. No old fashioned guts, morals, discipline or decisiveness. Men and women of inaction.

…with all the comments thus far, I’m happy to observe NO-ONE IS OVERTLY NEGATIVE. In fact, none of MoneyWeb’s commentators are negative!


I am not from an economic background, so maybe one of our fellow bloggers could inform us all of the process they go through to get this figure and where the information is sourced from. I notice that often these figures are sometimes revised on later announcements.

The reason I ask this is that the figures were so bad that possibly all of the “experts” were out by approximately half which I am sure is very unusual. Because of this it makes me suspicious (although under current circumstances it could possibly be correct), so assuming it is not correct it will either be incompetence or someone is benefiting from this.

If you’re a true contrarian investor with deep pockets, today would be good to buy financials and industrials on the JSE.

Very hard to be optimistic at this time though.

I wonder how the ‘quantity easing’ is going to work? I think the best bet is to promote South Africa as world’s largest (political) circus and see the tourists pile in.

Did anyone who has read extensively and watched the developments in post-colonial sub-Saharan Africa actually expect South Africa to survive and prosper after the ANC won the original elections?

A wonderfully naive breath of optimism swept over the country, giving no concern to the fact that they did not possess a management team capable of running a suburban Checkers.

Once white management in all spheres was pushed out via BEE and has for the most part left the country the stark facts emerge that they have no-one capable of international quality … not Pravin, not Cyril, not Tito, not Trevor … no-one.

And now the reality of their incapacity materialises in failed SOE’s, riots, criminality, murder, looting of state finances, mayhem in the taxi industry, flight of capital and talent and a population with a begging bowl on every corner.

With respect, I think most people here do not understand the lag times in economies. Economies are like 5000 meter long ships : you do not turn them around in East London port

Trump did it in 6 months…


He did buggerall! He gave away taxes that leaves the federal deficit in balloon category in terms of debt service. He inherited a well functioning machine and put foot on the accelerator. To his credit, that system of no tax on unrepatriated foreign income for US corporations needed to end.

Now he posts twits about trade wars, wiping trillion off stock markets due to uncertainty. The man is a fool armed with Twitter machine gun.

True but what has since been done to turn the ship around? Cyril glorified EWC. apparently he can do it without causing damage, no corrupt officials went to jail, Eskom/ SAA will continue with its massive personnel numbers, BEE continues. O yes, and he stated on camera that “there is no farm murders”. The ship are not going to turn.

I need some expert advice. Is the Vanguard Diversified Balanced Index ETF (Management Fees 0,27%) a good enough ETF for a pensioner?

The media: Trump is elected as president = total disaster. Ramaphosa= Mr savior of the country/ “businessman”. Well, look at the scoreboard.

Who TF believes the mainstream media anymore?

End of comments.





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