CAPE TOWN – Business Unity SA (Busa) slammed the government as Statistics SA announced that the country’s economy had shrunk by 0.6 percent in the third quarter, saying the consequences of the government’s inaction on the economy were once again upon us.
Busa president Sipho Pityana said very little had happened between the end of September and now to change the trajectory of the economy and thus another technical recession was looming for South Africa.
StatsSA said one of the biggest negative contributors to the gross domestic product (GDP) figures in the third quarter was the mining industry, which fell by 6.1 percent.
Pityana said despite some progress, not enough had been done to reduce policy uncertainty and encourage investment in the mining industry, a potential source of jobs and revenue for the country. The country's manufacturing industry – another key source of jobs - decreased by 3.9 percent.
Reza Hendrickse, Portfolio Manager at PPS Investments said although technically not in a recession at the moment, conditions on the ground in South Africa were undoubtedly recessionary.
He said while a pickup in global growth next year might provide the proverbial rising tide that lifts all ships, South Africa remained in need of a credible growth plan, which the Treasury might have provided the starting point for in Finance Minister Tito Mboweni’s recent growth strategy document.
“For now, we expect no material uplift in the fourth quarter, and for current conditions to continue for the remainder of the year. One is always hopeful, however, and the recent tick up in business confidence could be something to keep an eye on.
“Unfortunately, [Tuesday’s] print sets the tone for the February Budget, against which Moody’s will decide on the fate of our Investment Grade rating,” said Hendrickse.
The reality that played out in recent quarters would see 2019 turning out to be worse than 2018 from an economic perspective and would still be the worst year since the recession following the global financial crisis in 2009, according to NKC Research. Only four of the 10 sectors accelerated on a quarterly basis in Q3 while six sectors contracted.
“The GDP release confirms that the economy remains deeply strained and that the near-term outlook is still decisively gloomy. The new government under President Cyril Ramaphosa has made gradual progress in recent months to address corruption at institutions, to improve governance at state-owned enterprises (SOEs), and to address inefficiencies in the economy.
“Unfortunately, progress has been at a snail’s pace. Consequently, all three major rating agencies have started losing patience, each adopting a negative outlook on its respective ratings and signalling that another round of downgrades could soon be upon us,” said NKC Research analysts.
The government – and all South Africans – can no longer put off making tough choices. In the words of the Minister of Finance when delivering his Medium-term Budget Policy Statement: “There is no status quo option: difficult decisions must be taken.”
Pityana said costly and bankrupt SOEs, such as South African Airways, needed to find equity partners as the country could no longer afford prestige pet projects that cannot pay their way anymore.
“Efforts to resolve Eskom’s financial and operational crises must be fast-tracked with the help of all stakeholders – in the state, private sector and unions. Each will have to put their immediate narrow interests aside, to deal with this immediate danger to the economy and the country as a whole. The survival of the economy must trump ideological grandstanding.
“Business has repeatedly put up its hand to be a partner in inclusive economic growth. However, many in government continue to only pay lip service to promises of ‘working together’,” said Pityana.
The organisation called on the government to deliver on its promise to create a sound and stable business environment.
South Africa needs the rapid implementation of the pragmatic policies set out in the National Treasury’s economic growth strategy to build business and consumer confidence needed to avert another recession.