JOHANNESBURG - The World Bank has warned that low business confidence that is partly driven by the slow pace of structural reforms would hold up investment growth in South Africa as the lender slashed its growth forecast for sub-Saharan Africa this year to 2.8 percent from an initial 3.3 percent.
The World Bank said in its Africa Pulse Report yesterday that it predicted that South Africa’s economy would grow at the 1.3 percent it forecast last October. It said the country would grow 1.7 percent in 2020 and 1.8 percent in 2021, again unchanged from its October forecast. The Washington-based lender said its gradual pick-up on the country’s growth prospects was a reflection of an expected rise in consumer spending that would be spurred by low inflation, and long-delayed structural reforms would help revive investment and business confidence.
The World Bank said the lower growth projections for the sub-Saharan Africa region were as a result of slower growth in Nigeria and Angola, general challenges in the oil sector and subdued investment growth in South Africa, due to low business confidence. “In South Africa, manufacturing production was flat in the first quarter, while mining output contracted amid power cuts imposed by Eskom – the utility company – following shutdowns at several key generators,” the World Bank said.
“Against the backdrop of broadbased weakness in economic activity, business confidence in South Africa fell further in the first quarter of 2019.” Last month, the Rand Merchant Bank unit and the University of Stellenbosch’s Bureau said that South African business confidence fell to its lowest level in almost two years in the first quarter. North West University Business School economist Raymond Parsons said South Africa’s growth outlook had deteriorated in the recent past due to the impact of load-shedding and a slowing world economy.
“The nature of the political mandates emerging from the elections will to a large extent determine whether policy uncertainty will substantially decline and the necessary reforms will materialise to put the South African economy on a higher growth path,” Parsons said. The South Africa Reserve Bank in its Quarterly Bulletin said foreign direct investment more than doubled in 2018 to reach its highest in five years, giving a boost to President Cyril Ramaphosa’s pledge to woo investors to help revive a struggling economy. Moody’s last week said that political uncertainty would diminish post the national elections next month, causing confidence to rise in the economy, with this sentiment improvement leading to faster economic growth, but warned that insufficient electricity supply poses a risk to growth.
Tomorrow, the South African Chamber of Commerce and Industry is due to release its business confidence index for March and Statistics South Africa will on Thursday release Manufacturing Production data for February. Mamello Matikinca-Ngwenya, FNB’s chief economist, said the re-emergence of load shedding in February would weigh on manufacturing output volumes.
“This interrupted power supply and weak domestic demand were among the main factors that could have kept growth in the manufacturing sector constrained in the first quarter of the year,” Matikinca-Ngwenya said.