On the cusp of something great

Kevin Lings, Chief Economist, Stanlib

When anyone is asked about their opinion on the South African economy, the overall consensus will be that the economic outlook is very weak and that there are very few visible redeeming qualities at the moment which will drive the economy forward. While many of these thoughts are completely vindicated, there are a few economists who feel that there is a light at the end of the tunnel. Their view is that there are actually quite a few economic levers that we can take advantage of, if there is a political will to do so.

Mining power

It is undeniable that we are in a technical recession and that we are struggling to kick start economic growth. Traditionally, mining has been the backbone of our economy and South Africa was a major supplier of commodities to a number of markets who were embarking on infrastructure improvement programmes.

However, the mining sector seems to have been underperforming at the moment. Speaking at a recent Stanlib media roundtable, Stanlib Chief Economist Kevin Lings says that mining production is slowly picking up and that there is significant investment in the sector.

“In 2009, the mining industry was in a boom period characterised by high demand. In order to cater for this demand, mining companies spent significant capital in improving their infrastructure. Since then, these companies have been maintaining these investments. They would never do this if they didn’t see that the country is on the cusp of a bright horizon,” said Lings.

World demand

While South African economic growth is lagging, economic growth in the rest of the world is accelerating. In countries like China and India, consumer spending is increasing significantly.

“This is good news for South Africa because exports are now increasing once again. The fact that South African consumer spending is low is an advantage in this sense because exports are outstripping imports at the moment, which means that we are currently running a trade surplus,” said Lings.

Past experience tells us that this is actually a good thing. For many years, former Finance Minister Pravin Gordhan worked tirelessly to get a trade surplus. It is ironic in a way that this has finally been achieved so soon after his axing.

The double edged sword

This is unfortunately where the good news for the South African story stops. A major source of government revenue has traditionally been tax revenue; and government levies significant taxes on imports.

So if we are importing less, there is a smaller piece of the pie when it comes to government revenue. And as we know, that pie is already at the crumbs in some places.

The real news

When looking at how we got to this situation, Lings pointed out that South Africa cannot blame a single event. We cannot point to an economic crisis that destroyed our economy; and we cannot even blame the drought to a major extent because the recovery from it has been good. Lings also pointed out that our current maize crop is the best that it has been in almost ten years.

What is letting us down is politics. There are a few examples in the world of how economies have significantly picked up because of smart political decisions.

Despite the recent troubles in the European Union (EU), it is in a very strong position. This is being driven by strong political will in Germany where the rest of the EU block is standing in solidarity with its strongest economy in making Brexit a very tough event for the UK.

France is also one of the EUs strongest economies, and the election of Emmanuel Macron as the country’s most recent president has settled fears that France would also fall prey to political radicalism.

Moving across to China, the world’s second largest economy is once again gaining momentum off the back of very strong performances from its state owned entities. The same situation is playing out in India which has been one of the world’s fastest growing economies for a number of years now.

“We can see how a few wise political decisions can drive an economy forward. What does this mean for South Africa? All eyes will be on the ANC December elective conference and who gets chosen to lead the party. Then all eyes will be on the 2019 Presidential election to see how much ground the ANC makes up or loses. The public, and business, wants to see the political will to grow this economy. We need to save ourselves and it will take strong leadership,” said Lings.

Editor’s Thoughts:
So we have a blue print. However, is achieving this going to be easy? No it is not. If it was easily achievable, our economy would be growing with the rest of the world. South Africa needs to become a global player once again, we need political will to drive this economy forward. The next two years may determine the immediate future of South Africa in more ways than one. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.