Coronation warns of Ramaphoria repeat

While much has changed in South Africa since the national elections at the end of May, much remains the same, and it is not clear that the new government can create a growth-enabling environment. 

Such an environment is vital to ensuring that the positive momentum in the country’s financial markets is sustained and that South Africa’s economy can meaningfully grow. 

Economist at Coronation, Marie Antelme, explained that many constraints on South Africa’s economic activity are deeply rooted and will take more than a few months to fix. 

“A significant part of the growth challenge is that few of South Africa’s economic headwinds are cyclical,” she said. 

The country’s economic growth peaked in 2006 and has been slowing ever since. Simultaneously, the government has run consistent budget deficits, surging its debt to over R5.2 trillion. 

South Africa’s major economic constraints are listed below –

• a deterioration in the business climate alongside rising political and social risks;
• the impact of negative supply shocks, including the sectoral deterioration in electricity, transport, and water;
• labour market inefficiencies;
• the effects of State Capture on productivity;
• wasteful spending, misgovernment, and corruption in the allocation of resources
• the impact of the weakening fiscal position on borrowing costs and the crowding out of private investment, amongst others.

Antelme explained that these issues took time to impact the economy and would take much longer to resolve. Political goodwill is not enough to resolve deep-rooted economic issues. 

“As such, the near-term drivers of growth can only really come from an improvement in current headwinds and better sentiment, but these improvements are likely to be marginal.”

GDP growth began 2024 on the back foot, contracting by 0.1% quarter-on-quarter in the first three months of the year. 

She said data for the second quarter had not shown much evidence of the boost promised by reduced load-shedding. The economy should return to growth, albeit to a mere 0.5%. 

South Africa’s declining economic growth is shown in the graph below. 

Despite the ANC losing its 30-year majority in this year’s elections and South Africa avoiding a left-leaning coalition, the wave of optimism experienced in recent weeks may be misplaced. 

President Ramaphosa appointed a cabinet that includes seven other parties while retaining a strong (71%) ANC presence, with the DA holding 15.6% ministerial positions and the remaining parties at 13.4%. 

This does not indicate much fundamental change will occur that could spur economic growth above 2% per annum. 

Looking ahead, the ability of the two larger parties, the ANC and DA, to move beyond historic political confrontation and ideological and economic differences remains to be seen.

These differences make it unlikely that the Government of National Unity (GNU) will survive the next five years. 

This increases political uncertainty, scaring away investors and preventing local companies from committing capital to long-term projects. 

Much has changed in a short period of time, but much is still the same. The ANC, still responsible for many of the inefficiencies and administrative failures of government, retains a heavy majority of ministerial positions and roughly 73% of the Budget allocation. 

“It is unclear whether or not the new administration is reorientated enough to create a growth-enabling environment that can support stronger, more inclusive growth.” 

However, Antelme said there are a few reasons to be cautiously optimistic. In particular, the ministers in the economic cluster support increased private-sector participation in the economy. 

Critically, Operation Vulindlela’s prioritised interventions to fast-track economic reform provide a roadmap for the reference of new ministers, with a high level of political support. 

A number of key legislative decisions—including revised White Papers on transport and logistics, the Water Services Act, and the National Water Infrastructure Agency Bill—are also already in motion for 2024.