As the data available for the first quarter of the year already points to negative growth in the economy, the performance of the agricultural sector could determine how deep the contraction is.
Weak performances in the mining, manufacturing and retail sectors, which were hard hit by the worst bout of power cuts the country has seen, indicate that SA’s economy contracted by 2%-2.5% in the first quarter, according to early estimates from economists.
If the overall contraction in the first quarter is as steep as 2% this could be a blow to growth forecasts for the year, adding to President Cyril Ramaphosa’s woes as he struggles to resuscitate the economy.
The data already available, however, doesn’t paint a full picture of the economy. The wild card, as always, is the agricultural sector, which could either strengthen the blow or offset it slightly.
The sector has swayed the direction of the economy in recent years despite SA being one of sub-Saharan Africa’s least agriculturally dependent economies. Farming remains vital to the economy with 1.28-million people formally employed and about 8.5-million people directly or indirectly dependent on the sector. But the sector makes up only 2% of GDP.
“One source of uncertainty is agriculture. While the sector makes up a fairly small proportion of GDP, its high degree of volatility can have noticeable effects on GDP growth,” Absa economist Peter Worthington said.
The sector gave SA a much-needed boost in 2017 with growth increasing more than expected to 1.3% but weighed heavily on growth in the first half of 2018.
The country recovered from the drought but faced headwinds from delayed harvests and large double-digit contractions in the sector that dragged down growth and saw SA enter a recession for the first time since the global financial crisis.
At the time statistician-general Risenga Maluleke said the decrease “was mainly due to a drop in the production of field crops and horticultural products” predominantly in the Western Cape, which contributes 20% to the sector.
However, it is difficult to fully estimate how the sector performed this early — particularly given how susceptible it is to shocks such as policy uncertainty, weather conditions and devastating disease outbreaks.
According to Wandile Sihlobo, chief economist at Agbiz, available data suggests the sector likely grew 5%-6% on a quarter-on-quarter seasonally adjusted annualised basis on the back of improved horticultural production conditions in the Western Cape, KwaZulu-Natal and the Eastern Cape.
Senior agricultural economist at FNB Agriculture Paul Makube said the first-quarter figure will be somewhat subdued due to the 4% year-on-year contraction in planted area and reduced export earnings due to the foot-and-mouth disease ban on SA exports.
Despite positive growth expected in the first quarter of the year, Sihlobo said the outlook for the rest of the year isn’t as promising
“The expected poor summer grains and oilseed harvest will largely weigh on the third- and fourth-quarter numbers, which could ultimately overshadow the expected positive reading in the first and second quarters and lead to a contraction in the sector this year,” Sihlobo said.
This is because SA’s 2018/2019 summer grains and oilseeds production could amount to 12.8-million tons, down by 15% from the previous season on the back of a reduction in area planted and expectations of relatively poor yields in some areas, all underpinned by unfavourable weather conditions earlier in the season, he said.
This would be a further blow to the economic outlook for the year.
Makube, however, said there is an expected rebound on the back of a recovery in exports of cloven-hoofed products such as meat and treated wool.
What’s clear is that while agriculture will likely be a positive contributor to growth in the first quarter, this is unlikely to do enough to provide a big swing for the economy.
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