If you want intelligent, objective and insightful comment, the Free Market Foundation is always a reliable place to visit. And if you want depression and disillusionment with SA’s economic prospects, the foundation again is your port of call. And when the speaker is straight-talking, no-nonsense chief economist of Efficient Group Dawie Roodt you certainly get your fill.
In an unbiased honest update on the economy, Roodt calls the ANC the most destructive force SA has seen, and he cannot think of one single thing that works well and can be credited to the party. Coming in for special criticism are state-owned enterprises (SOEs) and a grossly overpaid civil servant workforce.
Roodt notes that one of the first things Cyril Ramaphosa did on taking office was to replace the boards of the dysfunctional SOEs, and especially that of Eskom. The new guard at the national electricity corporation saw sense and refused wage increase demands for already overpaid staff. This sanity was short-lived and SOE minister Pravin Gordhan simply overruled the board and authorised nice increases plus bonuses. With that type of override, Roodt believes Ramaphosa will be unable to succeed in reining in the rampant civil servant payroll.
On the minister of finance, Roodt says Tito Mboweni, although not the best man for the job, is the best the ANC can offer at this time. We cannot read much into his medium-term budget policy statement, as he had been in the position only two weeks. This event is also not really a budget, but rather a report-back on state finances and the economy, with policy changes rather to come in February 2019.
Economic growth should not just match population growth. It needs to be at least a percentage point higher.
— Dawie Roodt,
One announcement that Roodt picks up on is the meagre handful of products to be zero-rated for VAT purposes. This change will not benefit the intended poor, as sellers of those goods simply put up the prices and pocket the extra profit.
With SA’s numbers looking particularly horrid, Roodt says people in KwaZulu-Natal and Western Cape are seriously considering seceding from the country. The Treasury puts 2018 GDP growth at 0.5%, and 2019 is forecast at 1.7%. SA is falling behind in its GDP per capita growth rate and Roodt observes that after 15 years, there will be no economic incentive for Sub-Saharan people to come here.
While we seem to be stuck at around 1% economic growth, Roodt points to SA’s population expansion at a higher 2%. “Economic growth should not just match population growth,” says Roodt. “It needs to be at least a percentage point higher.” This will accommodate efficiency gains, as a growing economy can shrink parts of the workforce as things get done more effectively.
Despite the poor economic growth outlook, Roodt expects the Reserve Bank to increase interest rates, because as a small economy we must fall in line with international trends. He is adamant that the well-managed and independent Bank must not be nationalised. His argument is that we have more than enough US dollars in reserve, at about $50bn, for foreign debt repayments. Should the Bank fall into the hands of politicians, these dollars will be sold, making available a huge pot of rand that the government could effectively use as a “printing press” for social grants and other such current expenditure, triggering a highly inflationary environment.
The average fixed investment rate for emerging economies is about 23% and Roodt puts SA at just above 18%, as we indulge in consumption and fail to increase savings for capital creation. He estimates SA needs an additional R190bn per annum fixed spend to get to global averages.
Roodt implores the government to, “Just grow the economy — then everything else will happen!” As at current levels, the rand is undervalued he says, conventional wisdom is to bring investment money back to SA. But with such a poor outlook he recommends investors leave what they have offshore, and actually take out more.
• Gilmour is an investment analyst .
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