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Economic Overview: State of the National Economy

Author:The EDGE Team

Published:February 2019

Introduction

There are numerous external and internal factors that have led to South Africa’s slow economic growth. The South African economy, much like global trends, has low growth projections for 2019 and 2020. However, unlike the global economy, expectations for growth are improving.>

                            How has South Africa’s economy fared 

                                    and what are the future projections?

What Does South Africa's Economic Overview Look Like?

President Cyril Ramaphosa has given his task team of handpicked finance and investment specialists a much publicised target of attracting $100 billion (R1,4 trillion) into the South African economy to stimulate economic growth. He has also challenged South African firms to lead the way in investing in the economy. This is expected to stimulate investor confidence. To date, over a third of this target has been pledged; mainly from investors in the Middle East and China.

While trade tensions remain elevated, trade and investment have dampened. This is against the backdrop of emerging markets, and consumers in emerging markets having been under significant financial pressure in 2018. The UK, South Africa’s 5th largest importer, and Durban’s top trade and FDI partner, has been in discussions with the EU about the terms of their relationship post-exit, with suggestions of up to a year-long flexible exit extension on the cards.

It is unclear whether the UK will maintain some privileges of EU membership or break ties completely with the EU once they have left, which would have negative consequences for both the UK and developing economies. China has reported its slowest GDP growth rate in 28 years (6,6%).

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Projected GDP Growth 2019

Source: World Band & Stats SA

In addition, growth in emerging markets and developing economies is expected to remain flat in 2019. Countries relying on commodity exports are expected to slow as well. Growth in many other economies are also anticipated to decelerate.

South Africa’s economy is expected to rebound after last year’s suppressed growth, however the forecast has been revised down, following a slowdown in economies on which South Africa is dependent, including China, the USA and the UK.

Subdued domestic demand, electricity blackouts, rising energy and fuel costs, pressure on consumers due to tax bracket-creep, chronic State-Owned Enterprise debt and rising fiscal spend leave South Africa vulnerable to downgrade.

Moody’s recently did not take any action on its scheduled rating announcement, however, made it clear that this did not constitute a rating, but rather a delay.

National Highlights that Potentially Affect Growth

Slow Increase in Economic Activity

The Standard Bank Purchasing Index (PMI) rose to 49 points in December 2018 from 48.2 points in November 2018. The ABSA Manufacturing PMI for South Africa rose to 50.7 in December of 2018 from 49.5 in the previous month. A PMI over 50 indicates an expansion in the manufacturing sector. Both indicators indicate a slight expansion in the national economy.
- (Trading Economics, January 2019)

Draft Land Expropriation Bill Released for 60-day comment period

The Draft Land Expropriation Bill, 2019 has been released for public comment, as of 21 December 2018. The public will have until 19 February 2019 to submit written comments to the Minister of Public Works Thulas Nxesi. Parliament’s Constitutional Review Committee has recommended that the Constitution be amended to provide for the expropriation of land without compensation.
- (Government Gazette www.gpwonline.co.za, 21 December 2018)

The National Minimum Wage Bill has been Signed into Law

The Wage Bill is officially effective from 1 January 2019. The new minimum wage is R20 per hour, and will be reviewed in 18 months. The purpose is to improve the wages of the lowest paid workers and protect workers from unreasonably low wages. The Act applies to all workers and their employers except volunteer workers, members of the SANDF, the National Intelligence Agency and the South African Secret Service.
- (Government Gazette www.gpwonline.co.za, 1 January 2019)

Intergovernmental FinTech Working Group Publishes Policy Proposals for Crypto Assets

A consultation paper for crypto assets has finally been released by a working group, including National Treasury, SARS, SARB, and the Financial Intelligence Centre. Although crypto currencies, particularly Bitcoin, are currently used for trade by some businesses in South Africa, SARB warns that this is unregulated and highly vulnerable to risk. The paper proposes, among other propos- als, stricter regulation, through a registration process for crypto asset service providers, which will be detailed in a pol- icy to be released in 2019. The public have until 15 February to provide comments.
- https://www.resbank.co.za/ Publications/Detail-Item- View/Pages/Publications. aspx?sarbweb=3b6aa07d- 92ab-441f-b7bf-bb7dfb1bed- b4&sarblist=21b5222e-7125- 4e55-bb65-56fd3333371e &sarbitem=9037, 16 January 2019

Eskom applies for a total of 45% tariff hike in electricity prices over the next 3 years

Amid battling debt, Eskom has applied to Nersa for a tariff increase of 15% per annum between 2019 and 2021.
This follows a Nersa approved average price hike of 5.23% on 1 April 2018 and 7.32% in July 2018 for direct customers and municipalities respectively.
While the 45% hike won’t solve Eskom’s R420 billion debt crisis, payment defaults by Eskom would likely require a government bailout, affecting consumers either way.
The Durban slot of Nersa’s nationwide public hearings on the matter was held on the 17th – 18th January 2019 at the ICC.
- http://www.eskom.co.za/news/Pages/2019Jan18. aspx; 18th January 2019

National Indicators

Inflation Rate/National Employment

The inflation rate increased to 5.2% in November 2018 from 5.1% the previous month in line with market expectations. It was the highest inflation rate since October, mainly driven by an increase in miscellaneous goods and services, as well as food and beverages.
- http://www.statssa.gov. za/publications/P0141/ P0141November2018.pdf
Employment in the 3rd Quarter of 2018 was recorded as 16,4 million up by 0.6% from previous quarter
-http://www.statssa.gov. za/publications/P0211/ P02113rdQuarter2018.pdf

Coastal Petrol Price

93 Octane: R 13.43 (down ˇ8.33%)
95 Octane: R 13.42 (down ˇ8.4%)
0.05% Diesel: R 12.64 (down ˇ11.17%)
- Automobile Association of South Africa https://www. aa.co.za/fuel-pricing): As at 11 January 2019:

Exchange Rates

Rand/Dollar: 13.8401
Rand/Pound: 17.6212
Rand/Euro: 15.9424
- South African Reserve Bank: https://www.resbank.co.za/Research/Rates/Pages/SelectedHistoricalExchangeAndInterestRates.aspx: 11 January 2019

Vehicle Sales

Domestic sales ended 2018 on a weak note with aggregate industry new vehicle sales for December, 2018 at 39 984 units recording a decline of 767 vehicles or a fall of 1.9% compared to the total new vehicle sales of 40 751 units during the corresponding month of December, 2017.
- (National Association of Automobile Manufacturers of South Africa)

Quarterly GDP

The South African economy has officially exited the recession after reporting 2.2% Gross Domestic Product (GDP) growth for the third quarter of the year, according to Statistics South Africa.
- https:// tradingeconomics. com/south-africa/gdp-growth

Business Confidence

Despite a sharp decline in business confidence from February last year, a steady improvement was noted in line with the country’s exit from the technical recession. The improvement steadied out after October, and declined after November amid lower exports, less new vehicle sales and a drop in planned construction. At 95,2 business confidence was slightly lower (1,2) in December 2018 than in the same month the previous year.