Politics will be a big distraction for SA in 2017, but the country’s economic growth should still be better than in 2016, Japanese investment bank Nomura said in an outlook for the coming year released on Thursday
SA’s economic growth will accelerate slightly to about 1% in 2017 from 0.5% in 2016, Nomura head of emerging Europe, Middle East and Africa economics Peter Attard Montalto forecasts.
"The key narrative remains negative per capita income growth," he wrote in a research note.
The good news is that inflation will fall back under government’s 6% ceiling to average 5.6%, and that the Reserve Bank is likely to hold the repo rate flat at 7% over 2017.
The bad news is that SA will get downgraded to junk status, and that the ANC’s "tenderpreneur faction" will place Nkosazana Dlamini-Zuma as presidential candidate for 2019, if Attard Montalto’s predictions are correct.
Some key events to watch are the ANC’s January 8 anniversary celebrations, the monthly national executive committee (NEC) meetings, the state of the nation address at the start of February, and the budget at the end of February. The ANC’s policy conference and one-day ‘consultative’ conference at the start of July will also be key.
"But the real action will be below the surface as campaigning occurs at branch level. Investors need to be cautious on public pronouncements of support and be aware that the winner will be the person with the most branch delegates voting for them," Attard Montalto said.
"As such the restructuring, closure and opening of branches and shifts in membership numbers is a crucial, ‘dirty’, part of the campaign and this is why we ultimately believe the tenderpreneur faction behind President Jacob Zuma can win with its likely candidate in Nkosazana Dlamini-Zuma. She will represent the status quo for the party, though the coalitions she forms may be able to shift policy either to a better or worse place.
"Ultimately, her main rival Deputy President Cyril Ramaphosa does not have the grass roots support or the ability to run a dirty campaign in the same way in our view. Therefore, we think a key event in the second quarter will be the transition of power from Zuma to his successor as president of the country to allow them to campaign to victory in the 2019 national elections.
"We believe a Cabinet reshuffle is likely in the new year as Zuma purges those that stood up to him in the NEC in 2016. He is weakened by that event, but not weak. There is some risk to him from rebel ANC members of Parliament, and we believe he does not have the political capital to remove Financial Minister Pravin Gordhan because of a pro-patronage anti-Zuma key faction in the NEC that is sticking with him for now. Ultimately, we think Zuma’s fate rests in their hands. Politics will be a big distraction from reforms and policy."
Attard Montalto expects SA to be downgraded to junk status by the ratings agencies in the coming year.
"The National Treasury remains hopeful that a recovery in per capita income growth will aid fiscal sustainability, but we do not see this and so we expect fiscal consolidation and debt stabilisation to stall.
"February’s budget will be closely watched for details on higher taxes but we expect a scatter-gun approach. We see the National Treasury having political room to undertake difficult fiscal policy moves and some scope to be involved in parastatals, but not wider control over structural reform policy," he wrote.
"A 2016 rating reprieve shows agencies unable to decide the direction of growth and reforms and so allowing the benefit of the doubt. This should eventually run out – possibly in 2017 – and result in downgrades. Parastatal risk, especially from Eskom and its nuclear ambitions, will likely be a key component."
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