Ina Opperman

By Ina Opperman

Business Journalist

SA’s economic future unclear amid GNU talks – economist

There have been many calls since the outcome of the election was announced for a government that will change SA’s economic direction.

The outcome of coalition talks will determine the country’s economic direction for the next few years. On one hand, if the Government of National Unity (GNU) caters more for the populist parties, policy may change and this will not be a positive change.

Chief economist at Citadel, Maarten Ackerman says on the other hand, if the GNU leans more to the business side, private sector participation could help to tackle some of the important structural issues in the economy and change the country’s economic direction.

“We need a government that can fast-track policy and provide policy certainty, but we are unlikely to see this in the year ahead. We may see slower than usual formulation and implementation of policies, especially economic policies, as the GNU finds its feet over the next year.”

However, he says, the country is unlikely to see any real policy support for the economy in the next year, given that the focus will be on political issues.

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Speaking on the current political landscape, Ackerman emphasises that it remains to be seen if there will be a change in economic policy after the GNU talks are concluded.

“If the GNU is pro-populist we may see a change in policy and economic direction. If it tilts towards pro-business or if it is business-as-usual and we can get private sector participation to address some of the important structural issues in the economy, we can get the economy back to capacity growth. However, that is a big if’.”

GDP in first quarter – not one major sector grew

He also commented on last week’s gross domestic product (GDP) numbers for the first quarter of 2024 which did not bode well for the country’s economic direction. “South Africa is only likely to escape its prevailing ‘per capita recession’, due to population growth continuing to outstrip economic growth, if it succeeded in achieving 1.5% GDP growth over a sustained period.”

Ackerman points out that not one major sector of the economy has grown since the beginning of 2024, apart from agriculture which was boosted by an increase in the supply of horticultural products. “Agriculture also accounted for only 4% of the economy and therefore its contribution was too small to pull the rest of the economy into positive growth.”

The construction, mining and industrial sectors which are all dependent on stable electricity supply, functioning ports and efficient logistics networks, fared the worst in the first quart

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He says the recently announced plan to include private participation in South Africa’s rail network was “very positive news” but was only likely to start bearing fruit in terms of resolving some of the greatest challenges of the state-run era in the next few years.

“Failing state-owned enterprises is one of the biggest issues in our economy and therefore involving the private sector is a factor that improves market sentiment.”

Ackerman says the major challenges that impacted the construction industry included high interest rates, that increased the cost of capital, the poor performance of the residential property market, the consolidation of major players, the havoc wrought by the construction mafia in some provinces and the poor overall performance of listed properties on the Johannesburg Stock Exchange (JSE). 

Warning: fixed investments are starting to slip

He also points out that fixed investment is starting to slip. “Gross fixed capital formation, the indicator of private and public sector investment into the economy, had another negative quarter at the beginning of 2024 after a seven-quarter positive streak, which at its tail end was boosted by the February 2023 solar power tax incentive announcement, which encouraged the private sector to invest in solar power.”

He says that the solar boom seems to be tailing off now. “Most of the private sector investment we are seeing seems to be out of necessity – do it or close shop – rather than being an indicator of investor faith in the South African economy.”

In addition, he points out that household consumption also remains under pressure as South African consumers’ spending on products and services dipped again to -0.3%. The last positive quarter for consumer spending was in the first quarter of 2023 – a year ago, but since then, consumers have come under further economic pressure from high unemployment and rising living costs exacerbated by rising interest rates.

Spending also dipped on the durable goods side, with marked declines in spending on clothing and footwear, but remained stable on essential non-durable goods such as food, water, electricity, communications, health, education and household equipment. South Africans also cut discretionary spending on transport, recreation and alcohol to tighten their belts.

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Managing investments in volatile times

It is important to manage investments in volatile times, he says. “Markets are always volatile. There is a lot of dust and political uncertainty in the current environment. Managed volatility strategies are critical now to preserve investment value. The point is that you cannot invest short-term or based on emotion around current events.”

He says that investors must look through the dust and noise and invest for the long term based on solid long-term strategies that are designed to benefit from market volatility over time.

He notes how the biggest surprise of the first few months of 2024 was that despite earlier expectations, central banks around the world were reluctant to cut interest rates. Analysts expected the United States (US) Federal Reserve to implement six or seven rate cuts in the course of 2024, but none have materialised thus far, due to sticky inflation.

“The US economy is starting to show early signs of a slowdown, while the rest of the world seems to be slowly coming out of an economic winter period.

“The South African Reserve Bank was always in step with the Fed and was unlikely to cut rates before the US did, as it would reduce our yield attractiveness and put the rand under more pressure. Geopolitical volatility was nowhere near subsiding just yet and many countries were still facing elections and coalition talks. The major election to look out for is the US Presidential Elections in November,” he says.