Chief Economist: Alexander Forbes
South Africa’s economic journey has been a tumultuous one. While the rest of the world was recovering well from the Global Financial Crisis (GFC), the South African economy showed glimpses of optimism as the country’s recovery plodded on in fits and starts.
To say that the GFC was a significant blow to an economy which was, at the time, the continents biggest is an understatement, the country was gearing up for the 2010 FIFA World Cup and there were no obvious signs of the corruption that Former President Jacob Zuma was committing behind closed doors. The impact of the crisis was severe. While the rest of the world replaced the jobs lost during the GFC within 4 years, it took South Africa close to six years to replace ours.
Fast forward 10 years and we are now dealing with a significantly bigger beast which will have a more telling impact than the GFC. As we wait to see what Finance Minister Enoch Godongwana tables on Wednesday, Alexander Forbes warns that we should strap ourselves in for a rough ride.
The global picture
The global economic outlook plays an important role in the economic recovery of emerging economies. The old adage of: when the US and the UK sneeze, the rest of the world catches a cold exists for a reason.
“The Delta and Omicron variant of the Pandemic reinforced specific uncertainties in the global market. Developed economies were recovering well from the Covid-19 Pandemic. However, current challenges are throwing a spanner in the works. This will impact emerging economies,” warned Isaah Mhlanga, Chief Economist at Alexander Forbes, during a media briefing.
There are three major challenges impacting economic recovery:
- While the rest of the world, backed by Government financial interventions, have began the process of replacing jobs, the global supply chain crisis has had a massive impact on inflation in these markets, which was now moved from transitory to persistent;
- The current impending conflict between Russia and the Ukraine has placed the world on edge. An invasion seems likely, and when this occurs, Mhlanga pointed out that the oil price will break the $100/b barrier which will significantly increase the cost of petrol, which will hurt consumers; and
- Commodity demand – and prices – have switched from tailwinds to headwinds. This is being impacted by the global supply chain crisis and the fact that governments are shunning fossil fuels over renewables as they begin their journey towards Net Zero economies.
The last point has huge ramifications for South Africa. Indonesia was the worlds largest coal exporter but have cancelled these exports as domestic demand spiked because of the country’s energy crisis. This could be a major shot in the arm for South Africa if South Africa was not facing its own energy crisis, Transnet capacity constraints and the supply chain crisis, simultaneously.
A visible shift: the time for small talk is over
When President Cyril Ramaphosa took over as the country’s First Citizen, there was no doubt that he faced an uphill battle. He had to dismantle the corruption that was institutionalised during the Zuma dispensation and had to do this with massive factions existing within the ruling party. Because of these challenges, the public was empathetic with Ramaphosa.
But this was in 2019. We are dealing with a Pandemic which has all but crippled our economy with many of the same empathetic people now pointing fingers at Ramaphosa and questioning his response to the Pandemic. Why are we still in a State of Disaster when the rest of the world isn’t? was the hard lockdown necessary?
These are not the only questions being asked of the President. Mhlanga pointed out that, while in the past, the public hung on every word that Ramaphosa said and applauded the language that he used in previous State of the Nation Addresses, this goodwill is running out. “The public is now focusing on action. Mr President, what have you promised and what have you delivered?”
This is a sad story. Mhlanga pointed out that, of the 25 action items announced during the 2021 SONA, only three have been achieved. The implementation of emergency procurement of 2 000 MW of energy (which was due in Q2 of 2021) as well as the finalisation of the White Paper on National Rail Policy and the publication of the revised critical skills list (both due in Q3 of 2021) were missed completely. Other critical actions such as completing the spectrum auction, complete migration from analogue to digital signal (both due in Q1 of 2022), as well as improving the efficiency of our ports (due Q2 of 2022) and the implementation of third party access to our freight rail network (due Q3 of 2022) are likely to be missed.
“While not a political analyst, Alexander Forbes can only look at what happened in the past and make assumptions based on those trends. 2022 is a big year for the ANC as the party meets in June for its Policy Framework Conference, and then in December for its National Conference where the party’s new leader will be elected. In the past, these years meant that little implementation was done on national policy,” said Mhlanga.
Pressure from a population growth perspective
There is significant pressure from a population growth perspective.
According to populationpyramid.net, South Africa’s population in 2020 was just over 59 million people. The biggest growth was seen in the 30-34 year old age demographic, the 25-29 years old age demographic, and the five to nine year old age demographic. According to populationpyramid.net predicts that in 2050, South Africa’s population will grow to just over 75,5 million people with an even spread in growth from the age demographic of 0–4-year old and 40-44 year olds.
“This has massive ramifications for us. We cannot afford to take six years to replace the jobs that were lost during Covid” warned Mhalnga. “If we look at economic projections from the year 2000 to 2050, and we assume that our economy will only grow at a rate of 2%/year, unemployment will jump from 40% to close to 50% by 2050. If the economy grows by 3%/year, this stabilises at about 45% by 2050,” said Mhlanga.
He added that, if this growth increases to 4%/year between now and 2050, the unemployment rate will decrease to between 35% and 20%. If the economy grows by 5%/year during this period, unemployment decreases to between 35% and 5%.
This paints a very definite high, middle and low road scenario with 5% growth being the high road, 3% and 4% being the middle road, and 2% being the low road.
The International Monetary Fund predicts that South Africa could achieve 3% growth this year provided that policy actions are implemented.
The fight of our lives
Mhlanga was very outspoken when presenting the challenges that we face.
If Mhlanga’s prediction of this year being a non implementation year by the ANC, we will be lucky if we achieve 3% growth by the end of the year.
Ramaphosa is aware of this and is aware of the visible shift in the publics sentiment towards him. Our rhetoric has visibly changed. But so has the Presidents. In tomorrows editorial, we will focus on what can be done to address these challenges.
