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Expect growth, but don’t be over ambitious

15 January 2014 Jonathan Faurie
Jonathan Faurie, FAnews Journalist

Jonathan Faurie, FAnews Journalist

After a well-deserved break for the festive season, the FAnews would like to take this opportunity to welcome back its readers. We wish you all of the best in 2014 and may it be a prosperous year in which the financial services sector sees nothing but strong growth. By all accounts, 2013 was a significantly challenging year for South Africa. The country was just gaining momentum following the 2009 financial crisis when a series of service delivery protests, wage strikes and other political events put the brakes on what might have been a year of significant growth for the country.

This theme will carry over into 2014 where growth is once again expected after visible signs of Government’s intention to take its first visible steps towards the implementation of the National Development Plan (NDP).

Don’t expect miracles from the Rand

One of the unfortunate themes of 2014 will be that the Rand will probably continue its poor performance and could come in at levels close to R12.50 to the US Dollar. But while many see this as a challenge, Econometrix Director Dr Azar Jammine feels that this presents South Africa with a unique opportunity.

"While the Rand is set to depreciate, exports will increase. This can only benefit the country as it has quite a substantial current account deficit which has been caused by imports exceeding exports,” says Jammine.

This is an indication that economic growth is not where Government would like it to be. Economic growth progressed at a snail pace rate during 2013, and the outlook is the same for 2014. Most economists expect economic growth of between 2.5% to just below 3% compared to the 2% in 2013. This is being driven by slow economic growth in the third quarter of last year which slowed to 0,7%.

The International Monetary Fund (IMF) points out that the country’s gross domestic product will grow by around 2,9% in 2014. The IMF, in line with local economists, reduced their outlook for economic growth for 2014 significantly a few months ago when wide-ranging strikes affected mining production in the earlier part of the year and manufacturing output during the second half of 2013.

Jammine adds that mining has always been the backbone of the South African economy, and after the poor state that the industry found itself in during 2012, the country spent the majority of 2013 recovering from prolonged wage strikes which turned violent and cast the industry in a very bad light.

In fact, the events of the Marikana Mine strikes in 2012 set the tone for the industry in 2013 whereby there was a pensive wait and see approach given to strike action, where the public and mine bosses expected the worst. This had a significant impact on production.

This should improve during 2014 after 2013 passed by without the violence which epitomised the industry in 2012.

Are we on the right path?

While South Africa has never been renowned as a country which has a culture of savings, the country does not house the world’s biggest spenders. This was further affirmed in 2013 where consumer spending came under significant pressure following the continuation of high interest rates and increased fuel prices. Consumer confidence also declined, while personal debt reached such high levels that debt-fuelled consumption has reached a peak.

This will be another unfortunate trend in 2014 as we have seen with the petrol price increase that greeted all South Africans on New Year’s day. Depending on the performance of the Rand, South Africans could be in for a tough year in terms of petrol prices. Demand for oil and oil prices are set to rise as global economies recover with an ever-increasing demand for energy. Therefore, a petrol price of R15 per litre in 2014 is not a far-fetched estimation. Perhaps this will be the year that the culture of savings is adopted in full force.

Election impact

The outlook for 2014 is largely being underpinned by the South African political climate. While the political climate won’t have the drastic impacts that it has on Zimbabwean economic growth, a major political shift will have an impact.

We saw the first signs last year that there are fractures within the African National Congress (ANC) and this fracture may come to a head in 2014, which is an election year. In the run up to the launching of the ANC manifesto on 11 January in Limpopo, there were vocal signs of frustration with the ANC where once strong supporters urged the ruling party to give them jobs and houses.

While there is no doubt in my mind that the ANC will retain its hold on power, the biggest question is by how much. Forecasts of the outcome at the polls suggest that the ruling party might get anywhere from 55% to 62% of the votes. The Democratic Alliance would probably hold on to the Cape Province and might make some inroads into Gauteng, but their stated aim to win Gauteng Province may be wishful thinking.

Legacy projects

When FIFA announced that the 2010 World Cup would be held in South Africa, a major part of their plans was to establish a legacy project which would benefit the country long after the tournament finished.

There is always a positive outlook to the country’s economic outlook in an election year. However, in much the same way, there are a number of projects which will prove to be legacy projects for the ANC. If the ruling party wants to win the hearts of the people beyond the 2018 elections. The Medupi Power Station needs to be finished this year without any further delays. Expecting the country to have patience when the project has already been delayed by two years is already taking liberties.

The implementation of the NDP is another project which the ANC needs to implement. Even if the ruling party is forced to sit down and rethink its ambitious figure of 6% growth, jobs and houses need to be given to the people. This however cannot occur off the back of ailing infrastructure which is dependent on a stable electrical supply grid.

Editor’s Thoughts:
There is no doubt that 2014 looks like it will be a year of growth. However, the extent of this growth will be dependent on overcoming significant challenges and the ability to overcome these challenges while political parties are looking to establish their power base. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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