SA punching below its weight

290715 SACCI's new CEO Alan Mukoki presenting at his official introduction at their offices in Rosebank North of Johannesburg,he is flanked by Nedbank economist Dennis Dykes.photo by Simphiwe Mbokazi 4

290715 SACCI's new CEO Alan Mukoki presenting at his official introduction at their offices in Rosebank North of Johannesburg,he is flanked by Nedbank economist Dennis Dykes.photo by Simphiwe Mbokazi 4

Published Jul 30, 2015

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Johannesburg - South Africa’s economy is operating below its potential and could grow by a half a percent to a percent faster.

With a bit of common understanding between business, the government and labour, that potential could be achieved, Nedbank chief economist Dennis Dykes said yesterday at the introduction of the SA Chamber of Commerce and Industry’s (Sacci) new chief executive, Alan Mukoki.

Mukoki is a former head of the Land Bank.

Dykes said electricity constraints and a generally depressed economic environment were leading to forecasts of 1.8 percent growth for next year, compared with the 2.1 percent growth forecast for the current year.

Speaking on the sidelines of the Sacci presentation, Dykes said teething problems with Eskom’s key new generation projects, Kusile and Medupi, might still pose problems for energy security and, although the global economic environment might pick up somewhat, it was coming off a very low base. “Bear in mind that we had a very negative environment last year, (with) the labour environment and so forth,” he said.

The big question was what would happen next year, especially with an anticipated decrease in the growth rate to about 1.8 percent, he added.

Dykes warned that South Africa would have to adapt to new structural realities as the commodity cycle would probably be negative in the medium term and cheap global credit would probably come to an end when the US Federal Reserve began normalising interest rates possibly from September.

US rate hike

He said because the US interest rate was considered a risk free rate in the global economy, investors in particular compared the interest rates of other countries with that of the US.

“The MPC’s (monetary policy committee) response, looking at domestic factors, would have been to probably leave things unchanged at this meeting, particularly given the fall in the oil price, but they clearly are concerned about (what will happen) once the lift off in the US starts.”

He said South Africa would not necessarily have to shadow the US, but that over time markets would start to balance out with the rand coming under pressure, local rates going up, markets getting calmer and capital flows coming in again. Domestic factors would start to reaffirm themselves.

He said as with all market uncertainty, the initial phase of US normalisation would have a negative effect on the South African economy.

Dykes said it depended on what happened to the currency, given that commodity prices were weakening.

From a South African perspective, a weak currency was not a bad thing as it helped the economy to adjust and gave relief to mining and manufacturing as it helped adjust cost price considerations.

He said the trick was not to allow currency weakness to spill over in to general inflation. This provoked a response from the SA Reserve Bank because the advantage of a weaker currency was lost if inflation was not under control.

“It could be negative, but on the other hand, it will only be the initial phase. There will be a lot of excitement; interest rates won’t have to go up automatically as much as they did,” he said.

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