While president Cyril Ramaphosa has made some progress on reforming South Africa’s struggling economy, big business is growing impatient with his ‘trickle-through’ approach to reform and government’s inertia on critical reforms at state entities, say economists within the macro research team at Momentum Investments.
In its research note – Market and economic outlook: October 2019 – Momentum Investments said that the social cost of postponing crucial reforms is accelerating, “and citizens are demanding a more assertive response to alleviating pressing economic and institutional ills”.
In his inaugural weekly newsletter, president Ramaphosa acknowledged “Much of the confidence that the country had 20 months ago has dissipated as the reality of the problems we face became clearer. This confidence was born out of the hope that we would quickly undo the damage that was done over a number of years. Implementing change does take time.”
And according to Momentum Investments, while government’s capacity for meaningful economic change and a resolution to continuing financial and operational hardship at the country’s state entities appear to be lacking, “the president has been more successful in shoring up support within the ruling party and has made notable progress on confronting corruption and re-establishing institutional credibility”.
It said that the apparent shift in political power is evidenced by the ruling party’s selection of its premier candidates (particularly in deeply contested provinces), the resignations of senior African National Congress (ANC) MPs from parliament since the May 2019 national elections, parliamentary officials chosen as well the selection of a non-trivial majority of cabinet ministers who are backers of Ramaphosa.
Momentum Investments said that while internal opposition within the ruling party seeks to undermine Ramaphosa’s authority, the wheels of justice appear to be turning slowly. “Ramaphosa’s efforts have placed the plundered state on the road to recovery,” it said.
According to Standard Bank Group Securities, the Hawks’ (a Directorate for Priority Crime Investigation) National Clean Audit Task Team have arrested 14 politicians, officials and business people in KwaZulu-Natal and the Free State on corruption-related charges, while 1,800 completed corruption cases were handed to the National Prosecuting Authority (NPA) in May and June 2019 alone.
Under Ramaphosa’s endeavours to rebuild a state that can deliver, the restoration of SA’s Revenue Services is advancing under the new commissioner, Edward Kieswetter, the financial services firm said.
“Moreover, the appointment of National Director of Public Prosecutions, Shamila Batohi, has instilled confidence, although the NPA remains hamstrung by financial constraints and there are strong societal calls for expediting prosecutions for those implicated in state capture,” Momentum Investments said.
It noted that the publication of a revised mining charter, the establishment of a directive on the release of spectrum, some progress made to the country’s visa regime (including lowering the turnaround time for critical work skills visas, expanding visa-free access, piloting e-visas and simplifying visa requirements for key tourism markets like China and India), the formation of an Infrastructure Fund and a One-stop Shop approach for potential investors hold significant promise in rehabilitating a languid economy.
“But corporates are hungry for a stronger focus on economic growth from the ANC government,” the economists warned.
“The president’s vague responses on contentious matters, including land expropriation without compensation, the national health insurance, prescribed assets and the necessary sale of ill- functioning state entities are a function of ideological tensions, which are likely to elicit a polarised response from within the ruling party’s structures.
“Factional debates arising from these widely disputed reforms could feed positional jockeying in the run up to the ANC’s National General Council in June 2020 and could also influence the outcome of the elective conferences for new leadership of the ANC Youth League and ANC Women’s League in 2020.”
Policy certainty and a revival in demand are needed to yank SA out of its low growth quagmire
Momentum Investments pointed out that fixed investment by the private sector has grown by only 0.9% (inflation-adjusted) on average in the past five years, in comparison to growth of 4.4% historically.
Similarly, growth in household spend on discretionary items – proxied by spend on durable and semi-durable goods including cars, furniture and clothing – collapsed to 1.9% on average in the past five years, relative to 4.7% historically.
“The outlook for growth remains tepid, likely rising from 0.6% in 2019 to 1.2% in 2020 and 1.5% by 2021,” Momentum Investments said.
The group said it expects a marginal positive adjustment in confidence into 2020 as incremental reforms and more concrete restructuring plans and managerial capacity for energy utility Eskom surface.
The medium-term budget on 30 October 2019 will likely acknowledge prevailing growth and fiscal challenges, “but it presents an opportunity for government to commit to enhanced policy responses that were outlined in Finance Minister Tito Mboweni’s economic policy paper”.
The financial services firm said that although the October 2019 budget figures will likely ‘disappoint’, the market and rating agencies have already factored in deterioration in the fiscal deficit.
“Moody’s methodology is still likely to produce an investment grade outcome for SA’s sovereign rating on 1 November 2019, but there is a higher-than-even chance, in Momentum Investments’ view, for a lowering of the outlook to negative to flag rising fiscal and debt risks,” it said.