JOHANNESBURG - While the past three months have been characterised by heightened optimism, the South African government should address investors’ concerns about security of assets, reliable and cost effective electricity as well as labour productivity, Institute of Race Relations chief economist Ian Cruickshanks said on Friday.
Cyril Ramaphosa’s ascent to the presidency of the ANC and the country has ushered a new sense of optimism in business. But Cruickshanks said the government should still lay the groundwork for long-term growth for the country to keep abreast of the other emerging markets.
“We must think about the long term. There must be clear indication from the government regarding the security of assets. We are not seeing investment in infrastructure and capital projects. Secondly, we are not going to see large-scale investment unless there is a guaranteed, reliable and cost effective electricity supply. Finally, we need to address labour productivity and rewards for workers,” he said.
Momentum Investments economist Sanisha Packirisamy said on Friday that the country had taken steps to restore its institutional credibility, and this had increased South Africa’s attractiveness as an investment destination.
Packirisamy said since the December 2017 ANC national conference, a number of positive changes had transpired, including an attempt to begin to restore good corporate governance at key state-owned enterprises, a fiscal correction through larger expenditure cuts (outside of higher education), the removal of underperforming ministers in the cabinet, and an ongoing investigation into state capture.
Sustainable boost
“Political shifts have lifted South Africa’s investor sentiment, but in order for growth to be maintained at a higher level, there needs to be a sustainable boost in consumer and business sentiment. Strong momentum behind structural economic reform and a resolution of the uncertain outlook on land restitution will be necessary to support higher confidence levels,” she said.
In a recent note, Elize Kruger and Gary van Staden, of NKC African Economics, said changes in the South African political landscape would set the country on an accelerated economic recovery path.
“Expectations of positive change will most likely result in a much-needed recovery in consumer and business confidence levels, which will, in due time, lead to higher spending and renewed investment interest,” Kruger and Van Staden said.
On Friday, following the rand’s significant appreciation on the back of positive political developments in the past few months, Kruger said the average rand exchange rate for 2018 was likely to be R12.08/$, “which represents a 9.3percent appreciation compared to 2017’s average (R13.32/$). The average for 2019 is forecast at R12.44/$.
“Factors that should remain supportive for the rand exchange rate include improved economic growth prospects, reduced political risk, improved foreign investor confidence, global investors’ ongoing appetite for yield, general positive emerging market sentiment, favourable Chinese economic growth prospects and an ongoing global economic recovery.”