Rex Column 20 March 2017
The SA economy 2017
by Cees Bruggemans words 680
To talk of THE economy today is a complete misnomer. There are in fact three. The daily nuts-and-bolts one, the political one and select exporters. And don't confuse the one with the others.
The SA political economy is a raving disaster. The nuts-and-bolts is struggling, indeed going down on the goods side but carried by services. When it comes to corporate results select counters do well, others are losing growth momentum and yet others are severely struggling.
To simply say we will do better in 2017 than in 2016 is somewhat ingenious if the underlying reasons for such mild optimism are usually not explained. Besides base effects in agriculture, having hit bottom supposedly last year, the next part of the journey can only be up. Except why doesn't it feel like that, with the political economy apparently working overtime to give us as little confidence as possible?
What remains is hope, but that isn't a strategy, I keep on being told.
Iron ore keeps surprising at over $90/ton in March. We should by now have seen a serious clawback which keeps receding. Apparently global supply has been disciplined enough to keep the price bouncing back from its $30-40 lows of early last year. At some point, supply will re-engage, but physically this takes time, besides which all the major miners may be quite conservative by now in expecting price reversals, thereby underwriting the delay.
Even so, these prices are supportive for the producers concerned, and also help our balance of payments where the current account deficit keeps slowly eroding, also assisted by a slow domestic economy and suppressed import demand.
Our political economy appears every month to throw up another disaster. The social grants undoubtedly will get paid every month going forward (at least every thinking South Africa cannot conceive of it not happening and inviting the whirlwind), but opening the Sassa can has again suggested at best incompetence and at worst corruption on an unprecedented scale, at the expense of the poor and the taxpayers.
The retracted Commonwealth Games hosting bid, and what it cost in thrown away money (over R100 million, and this money denied to SA sport) is just the next episode of public wastage.
Observing corporate results announcements, many are being accompanied by asides regarding a lack of certainty, an increase in unease, a lack of political confidence, all of it projected into the future.
While some companies try to dress up their ultimate views with hopeful remarks, the results and body language tell enough. There is a growing unease, which potentially could still last a considerable time.
Meanwhile the nuts-and-bolts economy tells its own story. The motor trade decline of the past three years may be bottoming out in year on year growth data (the replacement cycle stabilising) but households remain negative even if buying more second-hand (still a sign of stress).
Mining should hold up, but not everything is iron ore, and the stats for the past decade is anything but encouraging, as is government policy in this sector. The veneer of hope remains thin.
Retail kicked off 2017 very poorly in January, seemingly continuing the decline of December. There are positives, such as falling inflation this year boosting real income, and oil prices stabilising, but against that we have the tax stripping by the finance minister.
Confidence remains the key in the private sector, and it is stuck deeply in negative territory. RMB/BER business confidence surveys still only report a 40 level in 1Q17, meaning 6-out-10 business managers giving the thumbs down.
It isn't as if the SA economy can't perform better. But with politics and public sector working at variance with the private sector, and the household sector steadily losing its real income edge, the general lack of confidence keeps us back from bigger commitments, and the economy near stagnation level.
We remain in waiting mode for something better to turn up rather than making our own luck.
Bruggemans & Associates, Consulting Economists