HARARE - Despite an uptick in the value of the rand compared to the US dollar, South Africa’s economic outlook is still uncertain and economic experts say investment will only marginally rise by 1.3 percent, with the inflation outlook expected to worsen by the end of the year amid a muddy economic policy framework that has hindered progress.
Unctad data showed foreign direct investment inflows into South Africa rebounding by 43 percent in 2017 to $3.2 billion (), but this growth trajectory is unlikely to be carried over into 2018, with consensus forecast panellists at FocusEconomics projecting a paltry growth outlook.
“FocusEconomics Consensus Forecast panellists see investment into South Africa expanding 1.3 percent in 2018, which is up 0.5 percentage points from last month’s estimate. For 2019, the panel expects investment to increase 2.1 percent,” Jean-Philippe Pourcelot, an economist at FocusEconomics said this week.
The lower investment activity projection for Africa’s most industrialised economy worsened an already darker outlook for the country in terms of its economic indicators.
Statistics South Africa (StatsSA) released its latest producer price inflation report on Thursday, which showed the producer price inflation (PPI) for December 2017 rising from 5.1 percent to 5.2 percent.
Elize Kruger, an analyst at NKC African Economics, was less optimistic about the economic benefits of the 11 percent appreciation of the rand since December to below R12 versus the rand owing to a “very uncertain economic environment”. She said there would still dark sides to the inflation outlook for South Africa, despite the rand appreciation, highlighting that it was possible for inflation “to trend gradually higher” towards end-2018.
“Average producer inflation is forecast at 5.5percent in 2018 (previously 5.8percent), compared to 4.8percent in 2017.The combination of higher international oil prices, a dire fiscal scenario and the ever-present risk for further rand depreciation still pose too high a risk on the otherwise favourable outlook,” said Kruger.
Other experts said despite the rebound in FDI in 2017, “investment in South Africa remains far below the level achieved” in prior years. South Africa’s FDI inflows peaked at $9.2 billion in 2008, with Jacob Zuma taking over the reins from Thabo Mbeki the following year, and kick-starting years of economic woes epitomised by corruption scandals and investors mostly staying away as evidenced by successive declines in FDI.
Ben Payton, head of Africa research, said that “there is therefore plenty of room for further recovery in FDI”. Zuma is poised to leave as president at the end of this year and could go early if his ruling ANC elects to fasten his exit.
“But despite Zuma’s seemingly imminent removal, a highly uncertain policy environment will continue to discourage investors from putting money into South Africa,” added Paton.
Deputy president and current ANC leader, Cyril Ramaphosa, may have restored some form of optimism into how South Africa is governed, garnering much needed support from a section of the business community in South Africa and having been involved in business himself, expectations are that he has a deeper understanding of what needs to be done to attract capital and re-assure investors.
Analysts said it was apparent that “Ramaphosa actually wants to pursue a classic pro-business agenda” but there are deep rooted concerns that he “will be held back by powerful figures within the ruling ANC who continue to benefit from state intervention” in the economy.
Moreover, said Paton: “A lack of regulatory clarity in the mining sector, historically the engine of the economy, is one of the biggest factors holding back FDI. Similarly, offshore oil and gas exploration is stalled because of uncertainty over the status of the Mineral and Petroleum Resources Development Act.”
There are far more worries for South Africa’s economy and FocusEconomics says in its Consensus Forecast for sub-Saharan Africa report released this week that unemployment estimated at about 25 percent “is keeping growth in private consumption constrained” underscoring the need to “push through reforms to support stronger” economic growth.
Ramaphosa has an idea though to fix this hurdle after he outlined plans to introduce incentives for firms to hire young talent and improve empowerment programs. Yet, economists such as HSBC’S David Faulkner still believe that Ramaphosa’s rise to power has limited effects on placating concerns on South Africa’s growth outlook and opportunities.
“While Ramaphosa’s win has reduced the downside political risk, much remains unresolved and our concern that as the initial optimism subsides, the scale of the structural problems he faces and the limited options he has at his disposal will come ever more clearly into focus,” he said.
An even less rosy outlook is painted by the FocusEconomics’ January projections, which say South Africa’s economy will expand by 1.5 percent this year, with a moderate growth seen in 2019 to 1.7 percent. Panelists for the consensus forecast also expect manufacturing to rise by just one percent this year and by a further paltry 1.2 percent next year.