Johannesburg - As the Presidential Labour Working Group met yesterday to look at how South Africa could “weather the storms occasioned by the persisting global economic crisis”, the Reserve Bank’s leading business cycle indicator painted a gloomy picture.
The Reserve Bank’s leading business cycle indicator dipped by 0.9 percent, indicating that economic activity in the next several months was unlikely to strengthen materially.
It fell to 90.9 points in April from 91.7 points in March. The indicator collects data including vehicle sales, job advertisements, business confidence and money supply to gauge the outlook for South Africa.
Low growth
“It is clear that (South Africa) has become trapped in a low-growth environment for a variety of reasons, both domestically and internationally,” the chief economist at Stanlib, Kevin Lings, said.
The indicator raises another growth red flag as the country battles to avert junk status. Although ratings agencies had given South Africa a breather by not downgrading the sovereign rating, the shock of Nenegate and the dramatic economic consequences remain very much top of mind as South African companies continue to withhold cash reserves and defer growth decisions.
President Jacob Zuma yesterday acknowledged the difficulties the country was facing, saying: “We meet today when our economy is facing strong headwinds due to a weak global economy and some challenges in the domestic sphere.”
South Africa needed to find ways to deal with the economic and job creation challenges and move forward, he said.
The president said that growth was critical to creating employment, and without this it would be difficult to create the numbers of jobs that were needed to break the back of unemployment.
Zuma expressed his gratitude to “organised labour for working with government and business” in concert to steer the country away from a ratings downgrade recently.
However, rating agencies have warned South Africa that politics and political missteps leading to South Africa’s local elections could lead to a credit downgrading.
Deputy President Cyril Ramaphosa said yesterday that some challenges the country faced included high administrative prices, such as broadband costs and port tariffs; low economic growth; unemployment and job creation; and social instability brought about by the spate of violent protests.
On job creation, he said the informal economy needed to be viable and more needed to be done to reduce wastage and increase support for small, medium and micro enterprises.
Ramaphosa said participants at the meeting, which represented the government, labour and business, agreed that there was a need to “forge partnership with a new strategic posture that helps us re-image the economy of South Africa in a manner that is responsive to the current challenges, while taking forward progressive socio-economic policies”.
However, this week’s protests, which erupted in Tshwane municipality with the burning of tyres that highlight divisions in the ANC, demonstrate that some of the socio-economic problems facing the country are unplanned and could add to the level of business uncertainty when investing in South Africa.
Sean Segar, the head of cash solutions at Nedgroup Investments, said yesterday that the sentiment that emerged from the Nedgroup investments treasurers conference held last week, was that local companies were on a long-term investment strike or expanding abroad, put off by a stagnating economy, low commodity prices and slower growth in export markets China and Europe, our biggest trading partners.
Segar said with R725 billion in cash reserves sitting on the balance sheet of South African non-financial sector companies, it was clear companies were holding back.
“The crisis that unfolded following President Jacob Zuma’s strange decision in December to fire the then Finance Minister (Nhlanhla) Nene shook South African corporates to the core and created a cloud of uncertainty that still lingers on. Decisions are being deferred and cash is being held back as opposed to being deployed (for) growth.”
Segar said practically every speaker at the conference brought up the events of December 9, and local treasurers spoke with a unanimous voice when reflecting that business confidence in South Africa was at an all-time low in the wake of very turbulent economic and political developments.
The reticence comes even though a plummeting rand is making South African exports cheaper, which should encourage creation of new capacity.
The rand has dived 56 percent against the dollar over the past five years, the worst performer of 16 major currencies.
Segar said: “The small boost from the rating agencies has lifted confidence slightly and we hope this continues, but the key issue at the moment is to ensure that while corporates are in this phase of holding back, cash withheld is working as efficiently as possible.”
He said at times like these, when firms had high cash reserves of billions of rands, a difference of 1 percent or 2 percent yield was significant, particularly in times of such low earnings growth.
* With additional reporting by ANA and Reuters
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