Sobering data day for ‘wait and see’ cabinetComment on this story
Johannesburg - Growth figures to be released today by Statistics SA are likely to be a sobering reminder to President Jacob Zuma’s new cabinet of the enormity of the task ahead.
With sluggish economic activity exacerbated by an ongoing platinum strike that has eaten into production throughout the quarter, there are expectations that gross domestic product (GDP) figures will show a contraction in the economy in the first quarter.
Reserve Bank governor Gill Marcus alluded to this last week in her monetary policy committee statement when she warned that the quarterly growth rate was anticipated to be the lowest since the recession in 2009.
Kamilla Kaplan, an economist at Investec, said the trade deficit was also likely to widen on the miners’ wage strike.
“South Africa is likely to have registered real GDP growth of minus 0.1 percent on a quarter-on-quarter, seasonally adjusted annualised basis in the first quarter of 2014. Economic data and survey indicators suggest that economic activity stagnated in the first quarter,” she said.
There have been questions about whether the new cabinet has the pedigree for its tasks, the most prominent being the implementation of business-friendly policies.
The consensus among analysts is that the cabinet fails to inspire confidence in an economy battered by labour unrest and slowing GDP growth.
Zuma replaced Pravin Gordhan after a single term as finance minister with his deputy, Nhlanhla Nene. He also appointed new energy and mineral resources ministers with no experience in those industries in an expanded cabinet that took office yesterday.
The rand snapped three days of gains yesterday, softening 0.5 percent to be bid at R10.3528 to the dollar at 5pm – the worst performer of 25 emerging market units tracked by Bloomberg – possibly in reaction to the cabinet announced on Sunday.
Gina Schoeman, an economist at Citi Research, said the market would “wait and see” what the new cabinet did.
“Unfortunately, the new cabinet’s policy direction isn’t very clear and so government communication and/or action will be very critical to investor sentiment. Reaction by the rating agencies will be important to watch, as will any indication as to whether [Reserve Bank] governor Marcus [whose term expires in November] will be reappointed. And, even if so, whether she will accept. We expect an announcement within the next few months,” she said.
Anne Fruhauf, an Africa analyst at New York-based risk adviser Teneo Intelligence, told clients that the cabinet appointments suggested that political logic prevailed over economic reform priorities and a good governance agenda.
“Gordhan’s removal may raise concerns over the Treasury’s ability to stick to its course of fiscal consolidation and its clampdown on corruption,” she said.
Dennis Dykes, the chief economist at Nedbank Group, said investors would generally have preferred continuity in the form of Gordhan staying on as finance minister rather than the government expanding its role through a bigger cabinet.
“Investors would like to see more private sector participation in the economy,” he said.
Business Unity SA (Busa) was also disappointed by the removal of Gordhan, though it welcomed the appointment of Nene to the post.
Busa acting chief executive Cas Coovadia said the body was more concerned about co-ordination in economic policy.
“We remain convinced the separation of economic development from trade and industry is inappropriate. The retention of both ministries will lead to further lack of co-ordination,” Coovadia said.
The creation of a small business development ministry, to be headed by Lindiwe Zulu, could focus attention on the critical sector.
“But we need to focus on getting rid of the problems we all know are plaguing this area. These include red tape, managerial and administrative knowledge of running a business and finance,” Coovadia said.
Zuma began his final term with the ANC having won elections by the lowest margin since it came to power in 1994.
Ngoako Ramatlhodi, a former deputy prisons minister, replaced Susan Shabangu as mineral resources minister. – Additional reporting by Sapa and Bloomberg page 18