Recent results from SA’s major banks, among the hardest hit shares when the Covid-19 pandemic made its way to SA in 2020, had provided a clue: amid all the gloom, the power cuts and record unemployment, parts of the economy are showing unexpected resilience.
FirstRand, which owns FNB and RMB among the most recognised names in SA's financial services industry, said this week that it expected annual profits to jump at least 35%.
A similar picture had emerged from Absa and Standard Bank, showing an encouraging sign that consumers are not as stressed as we would have imagined this time in 2020, when businesses were either cutting workers or reducing their pay.
The 4.7% growth rate recorded in household expenditure is “above the long-term average and indicates that households are slowly getting back on their feet after the financial repercussions of the pandemic,” Maarten Ackerman, chief economist at Citadel, wrote in a client note on Tuesday, noting increased spending on clothing, footwear, furniture and services. That is good news for so-called SA Inc stocks in areas such as retail, which were also hit in 2020 by the closure of “nonessential” shops.
Towards the end of 2020, SA started to benefit from an unexpected bonanza. As economies started to open elsewhere due to the availability and speedy provisions of vaccines — not in SA, unfortunately — the country’s miners started to benefit from booming demand. Some mining executives and economists have gone as far as to say the commodities boom has given a lifeline to the economy, with many more billions of dollars set to reach state coffers.
So, it should not come as a great surprise that GDP outperformed in the first quarter of 2021, increasing 4.6%, versus the 3.2% forecast by economists.
The outcome was still a slowdown from the fourth quarter. That was not a surprise given how hard the recovery ran towards the end of 2020, while in the early months of 2021 the economy had to cope with new restrictions to mitigate the Covid-19 second wave that saw daily infections in December climb above 20,000.
As we look to the future, SA might be able to do so with some optimism. The global outlook isn’t something that will hold the country back, with key partners from the US and UK to mainland Europe said to be on the cusp of a sustained recovery as mass vaccination programmes allow key sectors of their economies to open.
China, a key consumer of SA commodity exports, was among the few economies to grow in 2020. Just like a decade ago when the world emerged from the global financial crisis, the question for SA is whether it will go along for the ride or be left behind.
On that score, the number to look for was gross capital formation, a key measure of confidence as it shows the ability and willingness of companies to invest in fixed assets. It was down 2.6%, meaning that positive readings seen in the latter part of 2020 were temporary. If the government does start to deliver on its infrastructure programme, that will help. But it will be insufficient for the reforms needed to sustain the economy in the longer term.
The reasons business confidence is weak are well-known. One of the most important symbols of that is the cellphone application that tells citizens, with varying degrees of accuracy, when Eskom will turn their lights off. From ports to telecommunications, President Cyril Ramaphosa needs no more lectures from us on what should be done.
The government has promised to help ease the energy crunch by allowing businesses to generate more of their own power, but the minister who is supposed to deliver seems to be among the biggest obstacles. An acceleration of the administration of vaccines, in addition to saving lives, will provide a big boost to the economy and might even enable SA’s battered tourism industry to welcome visitors. Unfortunately, the health department has been distracted in recent weeks and an acting minister was put in charge on Tuesday.
SA has window of opportunity to get back on track. Will it be squandered again?
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