More than two thirds of economists are upbeat

More than two thirds of South Africa’s economists are upbeat about prospects for South Africa’s future, answering in the affirmative to the question of whether or not they see hope for the economy over the short-term. This was the introductory remark offered by Dr Roelof Botha, Research Economist at GIBS Business School, during his keynote presentation to the 2022 Consult Conference, held in Cape Town recently. “There were between 60 and 70 economists participating in the annual Economist of the Year webinar, and when asked ‘do you think there is hope for the economy in the immediate future?’ the poll came in at 70%,” he said, adding that economists tended to err on the side of caution.

Skewed towards optimism

Botha’s presentation, which was by his admission skewed towards optimism, was titled ‘The upside is in take-off mode’. He challenged the audience to find a balance between the negative and positive news flows and to consider the statistics he was about to present before answering whether there was enough collective will to address the country’s myriad problems. But before diving into the bright and sunshiny numbers, he had some tough words for trade unions. “Striking for jobs, of course, is an oxymoron that is right up there with military intelligence or marital bliss,” chastised Botha, before noting that “the economic cost of the 24 August strike was a slap in the face of South Africa’s unemployed”. A national shutdown that ‘cost’ 10% of the country’s GDP, as the unions threatened, would amount to ZAR1.7 billion, the equivalent of 400000 so-called COVID grants for a year. 

At the outset, the presentation focused on the need for sensible economic and political policy to deliver economic success. To avoid becoming a failed state like Venezuela or Zimbabwe, South Africa will have to continue to dodge nonsensical policies such as expropriation without compensation and nationalisation. “My key theme, and it ties into the upside outlook, is that we never embarked on nationalisation which is just another word for stealing,” said Botha, adding that the aforementioned countries became failed states due to implementing flawed policies. Unfortunately, South Africa Inc was deeply scarred by a decade of “pathetic government” with loyal political cadres deployed to senior positions in government departments and throughout critical state-owned enterprises (SOEs). The problem said Botha: “many of them did not remotely have the qualifications or the experience to do those jobs”. 

The two-point-something trillion-rand crime

Botha sited research by a close associate and fellow economist, Keith Lockwood, that put a ZAR2.5 trillion price tag on the so-called Zuma years, which spanned from 2007 to 2018-19. If, instead of Zuma et al, South Africa had been blessed with leadership that ran a clean ‘ship’ and understood the role of the private sector (and the balance between private and public sector participation in an economy) these funds would have been invested to the benefit of all citizens. “Economic policy can make or break a country,” Botha said. “Think of the old East and West Germany; think of Zimbabwe; think of the differences between Venezuela and Brazil; or North and South Korea. Policy is everything, and [thankfully] we now have a president that probably agrees with every word I have said”. 

There are plenty of things that need to happen to expedite our economic success, starting with the fast-tracking of work visas for experts from overseas. “There are not enough skills in this country; we face the typical developing country paradox where we have a huge pool of people without the requisite skills, and serious shortages for specific skills,” Botha said. In other words, a functional Department of Home Affairs that restores control of the country’s porous borders and implements fast and efficient formal work permit application processes is non-negotiable. Another key requirement for success is for the private sector to step in to assist SOEs that have “lost their fiscal and functional ability to invest in new infrastructure”.

Managing inflation for dummies

“The good news is that the private sector is not waiting, they have faith in government’s new policies and capital formation in the private sector is going again quite nicely,” said Botha. He warned, however, that the South African Reserve Bank’s insistence on hiking interest rates to thwart supply side inflation would have dire consequences. South Africa already has the highest real interest rate in the world, so it makes no sense to push our interest rate higher, especially if it will have no effect. Today’s near record high global inflation can be blamed on two factors: firstly, the impact of the Russia-Ukraine war on oil prices; and secondly, the 800% and higher ‘spike’ in global shipping prices over the past two years. Fortunately, shipping costs are showing signs of cooling off midway through 2022. 

A room full of independent financial advisers (IFAs) is always keen on the latest views on the domestic currency versus the US dollar, and the economist did not disappoint. He noted that recent dips in the rand versus the dollar were due to dollar strength rather than rand weakness, adding that the rand was the strongest performing currency globally in the first quarter of 2022. “The rand is still 12% stronger than it was in April 2020, and it always recovers over time; [and of course] a weak currency is good for exports,” said Botha. At current levels, the country’s GDP should see significant support from surging agriculture and commodity exports. Investors’ concerns over equity performances were also dismissed, and IFAs were encouraged to keep their clients calm during periods of stock market volatility: equity markets always bounce back after a shocking quarter! 

Some ‘feel good’ statistics

We close today’s newsletter with some ‘feel good’ statistics shared by Botha during his presentation, starting with the latest on South Africa’s Business Confidence Index (BCI), which needs to remain high to ensure economic, investment and jobs growth. According to Botha, the BCI has stabilised in recent months; the AFRIMAT Construction Index has bounced back; the Agriculture Confidence Index has remained above 50 points for eight consecutive quarter; and the value of wholesale construction materials sales reached a new record high in Q2 2022. Finally, “our leading business cycle indicator, reached an all-time high in the first quarter of this year,” he said. And there are plenty of other reasons for a positive outlook. 

The economic recovery remains on track; manufacturing production is trending “unbelievably well”; and South Africa’s latest tourism figures are reaching around 60% of pre-COVID numbers, making us among the fastest-recovering tourism destinations in the world. Botha also estimated that the 400000-odd new formal sector jobs created in the first half of 2022 could bring another ZAR5.4 billion into the tax net each month, delivering another tax revenue windfall for 2022-23 following on from the ZAR180 billion windfall in the current year. Another observation worth sharing, is that South Africa’s COVID-19 grant made a real and positive dent in the country’s inequality and poverty statistics, proving that a small and sensibly administered basic income grant could make a world of difference. “At this stage in our history, where we are today, there is just so little downside; and that is why I chose the theme of the upside is in take-off mode for today’s presentation,” concluded Botha. 

Writer’s thoughts:
One of the interesting comments made during Dr Roelof Botha’s presentation was that a sensibly structured, conditional basic income grant of as little as ZAR650 per month could make a world of difference in addressing the country’s inequality and poverty challenges. Are you for against a basic universal income grant in South Africa? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].

Comment on this Post

Name*

Email Address*

Comment*

 

Submit Comment