In the 1940s economic historian and professor CW de Kiewiet famously said that SA progresses through “economic windfalls and political disasters”. This seems as apt a description of SA’s condition today as it was then.
Over the past year the country has enjoyed the economic windfall of the commodity boom, thanks partly to the Ukraine war. This has buoyed company profits and resulted in a dramatic improvement in our fiscal position, helping reduce government borrowing and stabilise the country’s credit ratings.
This is partly why, despite being battered by floods, strikes, record load-shedding, soaring inflation and interest rates, the economy is still set to grow 2%-2.5% this year. Its resilience — marked by a modest pickup in private sector fixed investment — has surprised many given the tough operating conditions.
As far as political disasters go, the Phala Phala scandal more than fits the bill, certainly from the perspective of business, which craves political and policy certainty above all else. For though business is frustrated by the slow pace of economic reform, at least policy has been moving in the right direction with the president’s support.
The fear is that even though President Cyril Ramaphosa seems to be staying put for now, he may be so politically compromised that he is unable to keep reform on track next year, especially on the energy front and in combating corruption. So, whatever the outcome of the ANC’s leadership battle, the country will end 2022 with high levels of policy uncertainty. This can only be bad for investor confidence and growth.
This means the economy will enter 2023 weighed down on several fronts: externally, the country’s export performance will suffer from a global slowdown and waning commodity boom; domestically, the economy will have to battle persistent load-shedding and elevated political uncertainty.
The November Reuters consensus forecast is for growth to dip to 1.2% in 2023 before recovering to 1.8% in 2024, but that was before the Phala Phala scandal blew up, and when there was still an expectation that a green energy investment push would be a strong growth driver.
Since then, apart from being rocked by uncertainty over Ramaphosa’s future, it has also emerged that bid window 6 of the Renewable Energy Independent Power Producer Procurement Programme has been a complete bust. Private sector bids worth only 860MW have been awarded out of a hoped for 5,200MW because Eskom does not have the grid capacity to connect more than that.
The economic implications are alarming given that SA had been counting on a surge in private sector fixed investment, mostly related to green energy, to drive growth to 2% plus over the medium term.
With that rug partially pulled out from under our feet, and consequently the prospect of load-shedding being as bad next year, if not worse, what else could drive the country’s growth rate? Certainly not exports. Transnet is facing a liquidity crunch and cannot be relied on to get its act together even in the unlikely event that China shrugs off its Covid and property sector woes to put a floor under commodity prices.
Consumer spending, which accounts for about 60% of SA’s economic growth, could be supportive if inflation falls off sharply from February as is widely expected. However, the SA Reserve Bank has said it will not stop hiking rates until there is “clear evidence” that inflation has fallen sustainably to 4.5% and that inflation expectations are re-anchored at this level.
The consensus is that the Bank will stop hiking when the repo rate reaches 7.25%-7.5%, but much will depend on the rand and the US Federal Reserve. Either way, the first rate cut is likely quite far off.
In short, 2023 is going to be horrible. With more than a third of the world expected to enter recession this or next year, and SA battling numerous home-grown crises, it is hard to see where the growth could come from. But hang in there, 2024 should be a better year.
• Bisseker is a Financial Mail assistant editor.
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