An employee counts mixed denomination rand notes at the Forex department inside a First National Bank in Johannesburg. Photo: Nadine Hutton/Bloomberg
An employee counts mixed denomination rand notes at the Forex department inside a First National Bank in Johannesburg. Photo: Nadine Hutton/Bloomberg
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A man counts the Nigerian naira at a currency exchange market in Ikeja district in Lagos.
A man counts the Nigerian naira at a currency exchange market in Ikeja district in Lagos.
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JOHANNESBURG - The Rand firmed against the US dollar after data released on Tuesday showed that Africa’s two biggest economies, Nigeria and South Africa lifted out of recession in the second quarter of the year, with South Africa’s growth supported by a resurgent agricultural sector.  

However, economists and Finance Minister Malusi Gigaba quickly pointed out that the country was not yet out of the woods. The rand was bid at R12.87 against the greenback at 5pm, from R12.98 it was bid at prior to Statistics South Africa (Stats SA) official gross domestic product (GDP)  announcement.

Stats SA said the country’s economy grew 2.5% in the second quarter of the year from first quarter’s 0.7% contraction. This marked an end of two-quarters of contraction and beating market expectations of a 2.1% rise in GDP.

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Mamello Matikinca, a senior economist at FNB,  said while further policy easing could provide a mild boost to GDP, structural difficulties were likely prevent any meaningful lift in economic growth. 

“We are hesitant to read too much into this and expect the recovery to be short-lived given persistently weak consumer confidence and real wage growth. Gross fixed capital formation plunged 2.6% quarter on quarter, reflective of weak business confidence,” Matikinca said.

Also read: DA responds to 2.5% GDP growth

Meanwhile, Nigeria’s economy shrugged off five painful quarters in the red zone, after its GDP expanded 0.55% in the second quarter of the year. Statistician-general Pali Lehohla said said the second quarter growth was driven by a rise in the production of field crops, in particular, maize and wheat, as well as increased production of horticulture products such as vegetables. 

Lehohla said production in the agricultural sector soared during the quarter, expanding 33.6 percent compared to the similar period last year. “The bumper crop has already provided some relief for cash-strapped South African households. Higher stocks of maize and wheat have begun to dampen prices, with bread and cereal prices falling month-on-month for six consecutive months,” Lehohla said.

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Recent figures from the Crop Estimates Committee (CEC) expects the country to produce 16.4 million tonnes of commercial maize this year, more than double than last year’s harvest, and higher than the current record of 14.7 million tonnes produced in 1981. 

John Ashbourne, an Africa economist at Capital Economics, said on Tuesday that the rebound in the second quarter supports its view that the economy will perform stronger than most expect in over the coming quarters.

“We believe that a combination of a strong agricultural recovery and better performances from consumer-facing sectors will take headline growth to 1.5 percent over 2017 as a whole.” 

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“Indeed, recent figures suggest that things will be even better in the third quarter. While survey data have remained weak, we expect that lower inflation and interest rates will support consumer,” Ashbourne said.  

The country’s mining industry also expanded by 3,9%, supported by an increased production of coal, gold and ‘other’ metal ores such as iron ore and manganese ore. 

This was the second consecutive quarter of growth for mining.  The finance industry grew 2.5% on the back of higher activity in financial intermediation and auxiliary activities recorded in the period.

Last month, the Reserve Bank’s governor Lesetja Kganyago told legislators that the country’s economic slump could deepen if the government did not address political turbulence and policy uncertainty in the mining and agriculture sectors. The central bank has halved its economic growth forecast for this year to 0.5 percent and trimmed its growth outlook for 2018 to 1.2% from 1.5%.

Gigaba said any improvement in economic growth was encouraging but said it was not yet the time to celebrate. “We need to remain honest about the major challenges that still face the local economy. Poverty, unemployment, and inequality which are being underpinned by persistent low growth remain the challenge,” Gigaba said.

Malusi Gigaba

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- BUSINESS REPORT