President Cyril Ramaphosa together with his newly elected cabinet is expected to move ahead ambitiously with reforms that drive growth. Photo: Siyabulela Duda/GCIS

CAPE TOWN – Solidarity on Tuesday expressed utter shock at the lates gross domestic product (GDP) growth figures saying the market doesn’t buy President Cyril Ramaphosa’s new dawn.

Statistics SA’s latest GDP report, showed that the economy had contracted by 3.2 percent quarter on quarter at a seasonally adjusted, annualised rate in the first quarter of 2019, much worse than market expectations.

In a statement Solidarity said although analysts and experts agreed that there would indeed be a contraction for the first quarter of 2019, Solidarity was appalled when the quarterly decline of 3.2 percent was announced, even worse than the pessimistic forecasts.. 

Morné Malan, senior researcher at the Solidarity Research Institute (SRI), said the most frightening aspect of the figures released by StatsSA, was that gross fixed capital formation has decreased for the fifth consecutive quarter. 

“In other words, since President Ramaphosa’s election as ANC president at the end of 2017, we have only seen a steady decline in the market’s willingness to invest in the South African economy over the long term,” Malan added. 

Solidarity also expressed concern about the state of the mining industry, which shrank by 10.8 percent in the first quarter 2019, after also contracting by 8.9 percent and 3.8 percent respectively in the previous two quarters. 

“It is no coincidence that the contraction in other sectors goes hand in hand with growth in general government services. This sector has grown the most, and it remains our main cause for concern that this growth comes at the expense of the productive sectors. The state is becoming more inflated by taking more money out of the economy, which is put to poor use by creating even more barriers for the private sector,” Malan said.

Elize Kruger, an analyst at NKC Research, said economic growth forecasts for 2019 and 2020 to 0.3 percent and 1.4 percent, respectively, compared with earlier projections of 0.8 percent and 1.6 percent. 

Kruger said the growth rates were woefully inadequate to address South Africa’s challenges of unemployment, poverty and inequality. “We are cautiously optimistic, though, that the new government under the leadership of President Ramaphosa will start to address the urgent need for structural reforms, which could lift the economic growth potential in the medium term.”

Investec economist Lara Hodes said the effects of perceived domestic political and policy uncertainty weighed on sentiment and were a contributing factor to South Africa’s lacklustre economic performance. 

“However, the President, following a favourable election outcome, together with his newly elected cabinet are expected to move ahead ambitiously with reforms that drive growth, reduce unemployment and foster an environment conducive to fixed investment. Improving the ease of doing business remains key in this regard, together with the constant revision and successful, transparent implementation of key policies,” she said.

Analysts at the Institute of Race Relations (IRR) said the weak growth performance was ultimately a function of hostile government policy. 

IRR said the policy of expropriation without compensation (EWC), among others, was a major obstacle to the country’s economic recovery, job creation and raising the living standards of poor people. “The threat of EWC extends far beyond land and no asset classes are safe from seizures. Unless the policy is taken off the table in its entirety, South Africa will not stage an economic recovery.”

IRR said the latest figures suggested that South Africa was headed for a recession in 2019.