South Africa’s economy may be nearing the end of its slump: economist

After years of slow grow South Africa may be over the worst, and could start seeing growth by 2021/22 according to leading economist Mike Schüssler.

Schüssler, owner of economic consultancy economists.co.za, said the first quarter will likely be a disaster with corruption and SOEs taking some time longer to sort out.

In industries such as mining, Schüssler expected a continuing drop in employment figures for the next two years– partly due to automation, but mainly due to the fact that commodities markets had changed and Eskom was not performing well at all.

Reports suggested that South Africa’s economy may have contracted in the first quarter of the year, however, Bloomberg reported that it is unlikely to be enough to sway the Reserve Bank into reversing its November rate increase because inflation forecasts still hover close to 5%.

Recession? 

There is a probability that South Africa will enter another recession given the weak performance in the first quarter of 2019,

Old Mutual Group chief economist Johann Els said at roundtable event on Tuesday that South Africa could enter another technical recession, having done so in 2018.

“I’d say there’s a 50-50 chance SA will see another technical recession this year,” Els said, as reported by BusinessDay.

Els said that he expects the first-quarter GDP to contract 1.5%-2%, however, he added that the next five years will be better than the last five.

In January the World Bank lowered South Africa’s GDP growth rate to 1.3% from 1.8%., while last month the International Monetary Fund slashed its estimate from 1.4% to 1.2%.

Schüssler said he was cautiously optimistic about South Africa’s growth prospects: “I think we can expect to start seeing growth after a few quarters. We’re probably over the worst, and by 2021/22 we could be back at 3% GDP growth,” he said.

To help spur this growth, the country needed to be tougher on crime and labour protests, and ease tax and legislation that hampered small business growth.

“A profit motive is what enables businesses to grow – if a business doesn’t make a profit it simply can’t create jobs. So the government needs to reduce the risks of business investment and reduce the red tape in the way of small business growth,”he said.

Fourth Industrial Revolution 

For industry, the hope of a return to growth means this is the time to start thinking ahead to Fourth Industrial Automation technologies and the broader ecosystem, he said. Schüssler was speaking ahead Africa Automation Fair 2019 exhibition.

Schüssler said the Fourth Industrial Revolution era extended far beyond technologies, and signalled a shift from commodities-based economies and manual labour, to services-driven economies.

“The Fourth Industrial revolution is also mainly a services revolution,” he said. “It’s not just about industry, but also how you sell things, transport things and more – it’s a services thing”

Changes wrought by this revolution included a significant increase in the number of people working in services and a drop in the number of people working in manual labour intensive industries.

“In the past 27 years alone, the number of people employed in agriculture has dropped from 44% to 28% globally, yet agricultural output has increased. Meanwhile, the number of service workers has increased from 31% to 49%.”

“The Fourth Industrial Revolution is personalised, serviced-driven and even recycled, so the economic focus is no longer only on commodities,” he said.

Eskom

Finance Minister Tito Mboweni has meanwhile called for Eskom to prioritize collecting the money it is owed by municipalities as a first step toward becoming financially sustainable.

Eskom reported that municipalities owed it R17 billion in arrears for power purchases by the end of September, a 25% increase from six months earlier. The National Treasury allocated Eskom R69 billion over the next three years in the February budget to help it stay afloat.

Mboweni described as “madness” that the government gives municipalities taxpayer money through grants, and then has to assist the power utility because some of those councils don’t pay it for electricity, Bloomberg reported.

“It is not rocket science and it is quite simple,” Mboweni said in an interview in Cape Town on Monday. The arrears “must be collected,” he said.

The company’s debt has increased to almost R500 billion, according to data compiled by Bloomberg from public records, including bonds and issued loans.

Mboweni said he has no knowledge of a proposal to set up a special-purpose vehicle that would take over a large part of Eskom’s debt and raise concessional financing on the back of accelerated climate-change commitments. Johannesburg’s Business Day newspaper reported earlier Monday that the option was being considered as part of the plans to restructure the utility.

“I have not received any information about that,” Mboweni said. “The first issue that has to be sorted out with Eskom is operational. It’s not about its finances.”

Eskom bonds have outperformed peers this year on expectations the government will continue to support the utility. The yield on the 2021 bond has dropped 2.96 percentage points this year to 5.89%.


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South Africa’s economy may be nearing the end of its slump: economist