South Africa's rebound displays signs of longevity
13 December, 2020
Very good news about its economy is normally rare nowadays, but South Africa’s unexpectedly large bump in growth numbers this week catapulted it out of its longest recession on more than a quarter of a hundred years.
Quarterly gross domestic product figures showed the economy grew 66 % in the third quarter. The upside was motivated mostly by a rebound in developing, trade and mining. A weaker domestic currency as well helped. Crucially, the united states in addition has blown through its longest recession in almost 3 decades.
“We happen to be out of a recession, but getting back again to pre-Covid levels might take five years roughly,” said Makwe Masilela, chief expense officer at Makwe Fund Managers in Johannesburg. When compared to same quarter last year, GDP is likely to be in negative territory, at minus 6 %.
The lifting of stringent lockdowns which were in place through the second quarter played a significant part in the recovery.
“Our economy is 60 per cent driven by household spending, and today that persons are out shopping again, we’ve seen a huge improvement in economic activity,” Mr Masilela added.
Although virtually all analysts expected a sizeable jump in GDP as the united states moved beyond lockdown, none predicted it to improve up to it did.
“There was a general expectation of a significant recovery in GDP growth, but 66 per cent was better than the very best forecasts,” said Azar Jammine, chief economist at Econometrix in Johannesburg.
However, the actual fact that growth was consumer-led as well points to an underlying problem - too little investment spending.
“The economy better on people spending more rather than investing in to the longer-term future,” Mr Jammine said. This is a longstanding problem, the one which contributed to the latest recession and the general lacklustre performance of the economy.
“That is a structural feature of the economy which has contributed to the decline in performance in the last decade. We are not investing in the products and services we need, and are just consuming a whole lot.”
Economists found in South Africa generally concur that the past a decade have eroded investor confidence. Rampant corruption provides expense the country practically 1 trillion rand, relating to figures shown to parliament by the country's president, Cyril Ramaphosa.
Alongside this, the mismanagement of state enterprises such as for example electricity utility Eskom led to intermittent blackouts that forced mines and factories to interrupt operations.
Since taking office two years ago, Mr Ramaphosa has rebuilt anti-corruption investigation and prosecuting units that his predecessor Jacob Zuma had systematically dismantled. Managers of most parastatal companies are also replaced.
“There are some incredibly positive things happening on the ground,” says Maarten Ackerman, chief economist at Citadel Investment Services in Cape Town. “We are sorting out corruption. There’s also some very good progress on a number of the state-owned enterprises, especially Eskom.”
Mr Ackerman notes says that if Mr Ramaphosa's administration continues to push through reforms and investors are convinced that these will be lasting features, money might once again flow in to the economy.
Encouraging developments lately add a slew of arrests of senior members of the ruling African National Congress on corruption expenses. Among they are previously untouchable figures such as for example Ace Magashule, the ANC’s secretary general and the country’s most effective politician after Mr Ramaphosa.
Simultaneously, Mr Ramaphosa appointed a practiced industry technocrat, Andre de Ruyter, to head Eskom. Since acquiring office earlier this year, Mr de Ruyter is finished suspicious supplier contracts and fired or pressured out a huge selection of managers suspected of incompetence, corruption or both.
“There already are reforms in the offing - it's just not enough, and quick enough yet,” says Mr Ackerman. “But if we can at least continue with these sorts of changes, which will at least start to address the negative sentiment and create a host where economic growth can be positive.”
In the meantime, the united states will also benefit from the increase in demand for its key export - minerals. Demand for gold, iron ore and platinum is growing as economies all over the world pick up. Very good rains that ended a decade-long drought likewise brought a bumper wheat crop, which also boosted exports.
Econometrix's Mr Jammine said these actions vindicate optimists who forecast a solid year in 2021 for the South African economy. In particular, treasury officials forecast modest growth next year and an involved increase in tax income flows. Many economists had scoffed at this, but now it seems this optimism was justified.
“Treasury’s forecast of a pickup in 2021 of 3.3 % is very much indeed on the cards,” says Mr Jammine. “It may suggest an excessive amount of pessimism around tax collection this year, and things aren't quite as bad as some pessimists had been suggesting.”
Source: www.thenationalnews.com
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