ELECTION NEWS - The first half of 2019 was always going to be noisy.
There is a lot of political campaigning ahead of an election, but with major problems at Eskom, a deteriorating fiscal situation and Moody’s keeping a watchful eye, it has arguably been far noisier than anticipated.
Yet the second half of 2019 is where the risk sits, says South African economist at Citi, Gina Schoeman. For quite some time, politics have been used as an excuse not to introduce reforms, but with the national and provincial elections scheduled for May 8 and a new cabinet expected to be announced shortly thereafter, the time to take action will finally arrive.
The election is a watershed moment, she says.
At the start of the year, Citi expected economic growth to reach 1.1% in 2019, but it has since downgraded this forecast to 0.9%.
The revision may seem small considering Eskom’s load shedding issues, but Schoeman says the initial forecast already accounted for some rolling blackouts.
Load shedding affects productivity … and confidence
“When you move to stage three and four, it not only has a big impact to production, but my biggest concern about load shedding now is confidence.”
Since the 2014/15 round of load shedding, many large listed entities have moved off the grid. This suggests that small and medium-enterprises and consumers will be the ones who bear the brunt of Eskom’s problems. Consumer as well as business confidence have been low for a long time.
Most political analysts believe more load shedding in the run-up to the election will be bad for the ANC. The question is whether it will be necessary to introduce rolling blackouts.
“In a way the load shedding could have a far more permanent impact to this economy if it starts changing the way people vote.”
If the ruling party loses one or two percentage points in support in the upcoming election simply because of load shedding, it could have quite a big impact on expectations and whether the ANC views President Cyril Ramaphosa as the leader to take the party forward, Schoeman says.
“Load shedding is now having far more of a qualitative impact than a quantitative impact, but qualitative issues always come with a massive amount of forecast risk.”
The road ahead
Ultimately, government’s objective is to create jobs and Ramaphosa is one of the only presidents who has linked his job objectives to investment and growth.
Schoeman says to increase jobs and investment, corporate profitability will need to increase. But if demand is lacking, government can assist by creating efficiencies.
To the president’s credit, measurable accountability targets have been set.
The first is the investment target of $100 billion over five years and the second an announcement in the State of the Nation Address that South Africa wants to get back into the top 50 of the World Bank’s ease of doing business index over the next three years. Over the last 10 years, it has fallen from 32nd position to 82nd.
Schoeman says this is a clever strategy to start an initial phase of reform. If South Africa wants to get back to where it was 10 years ago, it doesn’t need to do anything new but has to embrace some of the capabilities it once enjoyed. With regards to the ease of doing business index, it has become much more difficult to start a business, get credit and deal with construction permits over the last few years.
“All we need is a capable state and I would say that is already underway.”
New watchdogs are in place and Shamila Batohi and Edward Kieswetter have been appointed to head up the National Prosecuting Authority (NPA) and the South African Revenue Service (Sars) respectively.
Another issue is the number of ministries, which has grown from 16 under late president Nelson Mandela to the current 34.
Schoeman says the government and the ANC have publicly announced that this has to be reduced. It is expected to happen after the election.
It is important to have a reduced cabinet, which will help with coordination, but the big question is who the president will appoint and in which positions. The ANC’s candidate list has raised concerns that the ruling party is not serious about rooting out corruption.
Schoeman believes it reflects the split within the ANC.
“I wouldn’t be as concerned about that. What would concern me is of course after the election when the cabinet announcement comes out: who is in charge of economic policy, and what does the economic cluster look like?”