On 31 May 2018, the Redmeat Producers Organisation (RPO) held their annual congress in Klerksdorp, North West. The congress is held annually to give an update on where the organisation is and what its plans for the future are. One of the day’s speakers, Nicole Weimar, senior economist at Nedbank, shared an update on the state of the South African economy.
Nicole kicked off her presentation by recapping some of the recent political developments in South Africa and the impact it has had on the economy. The election of President Cyril Ramaphosa as the African National Congress party president and stepping down of former president, Jacob Zuma saw the Johannesburg Stock Exchange Top 40 index soaring, up over 4%, while the Rand reached near three-year highs against the US Dollar. “One of the first things the president did was a cabinet reshuffle which granted some positions to competent people to help overcome some of the issues that government was dealing with.” Although this was good news, Nicole believes that the South African government has become too big for the size of the economy.
Nicole also shared thoughts on the challenges that the president would face in his position. “He would have to focus on corruption, which is a major issue in the public institutions. He also needs to look at restoring fiscal discipline and reduce budget deficit to 3,5%. Having Cryil Ramaphosa as president also saw business confidence grow which is a positive because “confidence fuels drive for the economy to grow,” she said.
What is likely to happen to SA’s economy?
Looking towards the future, especially the second quarter of 2018, Nicole shared assumptions on what is likely to happen to the country’s economy. She mentioned that global oil prices are to increase, the Rand will mostly be affected by global market appetite and inflation is also expected to rise.
She also spoke about the growth prospects for key sources of growth in South Africa which include government spending, household consumption, fixed investments and net exports.
There is limited scope for growth in government because of the budget constraints the public purse has. The best thing government should do at this point is to stick to expenditure target and not accumulate more debt.
Household spending, which is the biggest source of growth, is likely to grow because of marginally lower interest rates, a stronger Rand and if inflation is contained. The constraints to this will be if there is still limited job creation and higher taxes, which increases the price of food, transport and household necessities. Higher inflation will also limit the growth of the economy.
With improved confidence, exports are also likely to stimulate growth. The only deterrents would be geopolitical tensions, limited export capacity and rising domestic costs.
Growth prospects in fixed investment might go either way because this sector is mostly driven by business confidence and improved domestic growth prospects. So, if investment does not grow, the reasons will include policy uncertainty, a dysfunctional labour market and unreliable economic infrastructure. According to Nicole the president knows how important fixed investment is. “That is why he has set himself an objective of investments of R1.2 trillion. Whether he achieves this, will remain to be seen.”
Nicole Weimar has been Nedbank’s Senior Economist since 2000. She received her masters degree in Economics from the University of Stellenbosch in 1994 and soon advised government on economic procedures and policies in her capacity as an economist in the Central Economic Advisory Service, since integrated into the President’s Office. – Ntswaki Motaung, AgriOrbit