South Africa’s economy needs to return to mid-2000s performance

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Economic sentiment in South Africa has already improved in the months since Cyril Ramaphosa was elected president. The country’’s economic growth has already been revised upwards and is expected to grow at 1.9% in 2018.

In the next few months, it will become apparent whether this improvement in economic mood is sustained, and whether it translates into better readings for consumer and business confidence indicators, and ultimately economic performance, says Mercantile Bank in a new report.

This is against a positive global context, with the World Bank expecting emerging and developing economies to grow at high rates on the back of rising commodity prices.

Locally, since 2007, most industries have been flat, except for service and retail industries. Primary sectors have been staging a healthy recovery. Agriculture has bounced back from the 2016 drought, to reach output levels last seen in 2014.

Mining has weathered years of weak growth, with a mostly positive showing in 2017. “But it has not returned to performance recorded before 2007,” Mercantile Bank said.

Manufacturing and transport, communication and storage equipment industry have also performed well in recent quarters. “However, construction remains flat and the utilities are quite inconsistent,” it said.

“The service sector has kept the economy afloat during this difficult period and should continue to perform well as confidence and activity picks up.”

National Treasury’s Budget Review justifiably points out that the risks to the outlook for the country’s finances and economic growth remain, the bank said. “These include the pressures that may emerge from upcoming public sector negotiations and outstanding governance reforms at state-owned corporations.”

The policy reforms presented by the new administration still must be implemented. It is also too early to pronounce on the durability of improvements to the political climate, the bank said.

The economy needs to return to the performance of the mid-2000s and then exceed it, said Mercantile Bank. The African Development Bank describes a ‘growth acceleration’ as growth of 3.5% per capita for a period of 8 years. South Africa needs a growth acceleration to make a dent in unemployment and raise living standards.

In the mid-2000s, the growth story was driven by services, retail, construction, manufacturing, transport and communications. But mining and agriculture were in the doldrums.

“With commodity prices recovering and with targeted efforts to promote agriculture, the next growth acceleration could be more balanced, with the primary industries also included in the party,” Mercantile Bank said.

“These are hopeful times for entrepreneurs. The economy could be at the cusp of a virtuous cycle. With renewed confidence powering entrepreneurs, it will make it easier to attract investment and customers.

“This will lead growth, which in turn motivates initiative.”

“Much depends on rhetoric turning into reality, the bank cautioned. Reversing the damage of private and public sector corruption is a task that should not be under-estimated. It is also important to supplant corrosive rhetoric with constructive debates that take the country forward,” the bank said.

It added that the ongoing land reform debate could unlock one of the fundamental inequities in South African society if managed properly, with clear communication from policymakers and legislators.

Citing the Organization for Economic Cooperation and Development, Bloomberg meanwhile reported that gross domestic product in the Group of 20 countries grew 1% in the three months through December, unchanged from the previous two quarters.

India grew the most, expanding 1.8%, while South Korea was the only nation to see its economy contract.

Source :

businesstech

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