There is certainly no shortage of tough issues for South Africans to deal with at present. Economic growth has been in its longest declining cycle since 1945 and the question now is whether South Africa is heading for another technical recession.
The consumer continues to reel under the burden of higher administered prices, the VAT increase and rising fuel costs. At the same time, state-owned enterprises (SOEs), including SAA, the SABC and, most importantly, Eskom, which has just been granted a further R59billion bailout over the next two years, are putting the country’s fiscus at severe risk.
Coupled with lingering structural issues, we believe that South Africa will struggle to achieve growth above 1percent this year and we expect this figure to be closer to the 0.7percent level instead. It’s hard to see any light at the end of the tunnel.
And while President Cyril Ramaphosa came to power on the promise of a New Dawn for South Africa, by mid-August he will have been in the position for 18 months and we have still seen little by way of implementation that would lead to a reversal of this situation.
The State of the Nation address (Sona) may have been fairly well-received, but it reinforced the perception that the government is still “dreaming” and it needs to move from talking to doing, as Ramaphosa himself admitted. This will serve to regain trust and confidence in the economy and reignite the much-needed and sought after foreign direct investment (FDI) which will help to kickstart the economy. It is extremely significant and interesting, therefore, that we are seeing a turnaround in FDI with 2018 seeing the highest FDI numbers achieved in the last five years.
Some R300bn was pledged during the October 2018 Investment Summit, of which R250bn is already in implementation and, if this trend continues, it will create the foundation for more sustainable growth in the future.
The Zuma Years were marked by a sustained slump in FDI as elements such as Marikana, policy uncertainty and state capture took their toll on external investors. After bottoming in 2015, FDI struggled to pick up significantly, but 2018 saw the rebound kick in. The importance lies in the magnitude of the rise in FDI. After dipping from 2.3percent of gross domestic product (GDP) in 2013 to 0.5percent of in 2015, FDI reached 2.2percent of GDP in 2018. Accelerating at a faster pace than GDP, FDI is set to give renewed impetus to the South African economy.
Maarten Ackerman is the chief economist and advisory partner, Citadel.