The South African economy is in desperate need of a boost, but before business can commit to any significant investment, there needs to be policy changes.
This is according to Nedbank CEO, Mike Brown, who said that South Africa’s economy is in ‘need of a doctor’.
“While we have made progress in the right direction, it is not as fast as we would like it to be and in many ways we are running out of time in terms of delivery,” Brown said at a Nedbank event on Wednesday (13 June).
“Unemployment is increasing and the underlying reasons for this are structural – not cyclical. It is a ticking timebomb.
“This is one of the reasons why we have chosen to reinvest 1.5% of profits in the youth employment scheme to try and change this trajectory – and we need more corporates to do the same.”
Sean Segar, co-head of Nedgroup Investments Cash Solutions echoed Brown’s sentiment.
“Corporate cash reserves are at one of the highest levels we have seen in recent years – not necessarily because companies are doing well, but because they do not have the confidence to deploy it,” he said.
“We were hoping to be able to talk about a ‘new dawn’ when we started planning the theme for this year’s conference – but it seems we are not quite there yet.
“Clearly, we are still dealing with the hangover of the highly destructive Zuma years and in hindsight, the realisation is that we probably still have to go further backwards before we go forwards,” said Segar.
‘Total mess up’
The South African economy suffered a blow in June, as poor GDP data and mixed messages from the ANC at Luthuli House and in government put investors in a state of unease.
Speaking to Rapport, Efficient Group chief economist, Dawie Roodt described it as nightmare situation, as South Africa posted its worst GDP figures in a decade, and had to deal with ANC infighting around the Reserve Bank’s mandate.
He added that while he was unsure of what Ace Magashule meant by ‘quantity easing’, he was well aware of the dangers of ‘quantitative easing’ which led to panic in the market.
“Ramaphosa did clarify that the government will nationalise the Reserve Bank, but it would not be changing the mandate for now – but the president’s words were not even cold when Ace (Magashule) said the Reserve Bank’s mandate will, in fact, be changed.
“As a result the rand saw its backside, the capital market collapses, and traders, journalists and investors all called each other to try and make heads or tails of the total mess up,” Roodt said.
the economist said that it will take years for economic growth in South Africa to recover, and a recession in 2019 is possible. Government income will be under pressure, and we are likely to see even more populist plans being proposed.
However, he said that investors shouldn’t panic, suggesting that they take note of what’s happening, and position themselves so that they feel the minimum impact.
This means playing it safe, he said – not taking on unnecessary services and knowing that investing in South Africa is risky.
“And if you make money – take it offshore,” Roodt said.