12 December, 2018
Shining light on our economy
this story, leading economist Dr Azar
Jammine, Director and Chief Economist of
Econometrix, gives the Dolphin Bay Brief
insights into the major factors that will
determine whether the South African economy
improves or deteriorates next year, and
outlines several reasons for hope.
acknowledged a general malaise in business
and an erosion of investor confidence in our
economy, due to the enormous economic and
political turbulence of recent times.
commentators have pointed to the economic
devastation wrought by state capture, the
threat of expropriation without compensation
and the rising populism of extreme political
organisations, among other factors.
and state capture have cost government an
enormous amount of money. It might take 10
years to make this up," Azar said.
South African economy did not plunge into a
deep recession a few months ago but was
steadily ground down over time, he observed.
Its performance has been "insipid" in recent
years, with growth rates of 0.6% in 2016,
1.3% in 2017, and 0.7% this year. The
recession was in fact a mild one,
precipitated by the recent serious drop in
agricultural production due to the drought,
followed by a return to normalcy from high
maize returns last year.
it is a problem if the economic growth does
not match population growth, and overall,
living standards are declining.
to future economic growth in South Africa
included huge structural problems, such as
poor infrastructure and weak institutions'
corruption, and the lack of marketable
skills among a large proportion of citizens.
poor education levels have prevented many
people from adding value to the economy and
have fostered inequality. This inequality
has bred resentment towards an increasingly
wealthy, corporate, executive class, many of
whom earned exorbitant salaries. This
inequality also resulted in regular
and state capture have cost government
an enormous amount of money. It might
take 10 years to make this up."
absence of co-operation between the public
and private sectors has also had a negative
effect, although President Cyril Ramaphosa
was taking steps to rectify this, Azar said.
around the proposed expropriation of
property without compensation was also
worrying and had been a big impediment to
growth for assets such as properties and
factories, although not to bonds.
the government expropriate property without
compensation "lock, stock and barrel", it
would be extremely damaging to the economy
and would result in a massive outflow of
capital and skills. However, if the issue
was handled carefully, there could be
government owns vast tracks of land on which
thousands of people live. If they were given
title deeds which could provide them with
collateral, it would unleash a vast influx
of wealth into the economy.
one of several reasons for hope, Azar
pointed out that the recent drop in oil
prices will help mitigate our economic
slump, as a massive reduction in the fuel
price. This development has the potential
to counterbalance many other problems, as
fuel affects the cost of doing business and
consumer expenses across the board.
good news is that inflation is set to
decline to 4.5% next month, so bonds, which
traded at 9% to 9.5%, were very competitive
by world standards. This bodes well for
future foreign investment.
Reserve Bank estimates inflation will hover
around 5.5% next year but this would still
remain highly competitive as few countries
offer such a return above inflation rates.
expropriation without compensation is
handled carefully, there could be
recent increase in interest rates by 25
basis points to a repo rate of 6.5% and a
prime lending rate of 10% was a reversal of
previous rates cuts, meaning the situation
was back where it started earlier in the
is not a disaster," Azar said, estimating
that somebody with a loan of R1 million
would now have to pay R500 more a month, and
the increases would benefit older people
has been some cynicism about the recent
Investment Summit and Jobs Summit, but they
were steps in the right direction.
Intimating that a Ramaphosa victory would be
the best path forward for SA, he said the
President was hampered by political
considerations but would be free to act more
decisively if the ANC won the next election
by a wide margin.
Rand is subject to many influences, and Azar
would not be drawn on whether its value was
likely to improve or deteriorate next year.
said the nature of the global economy was
such that very wealthy investors often swing
their immense purchasing power from one
market to another. Emerging economies,
including those of South Africa, Turkey,
Russia, Brazil and Argentina, were very
vulnerable to the vagaries of capital flow
due to their political and economic
unpredictability relative to those of more
also saw signs of a slowdown in some
more-established markets, especially China,
which could see more money flowing out of
emerging markets in general.
Rand was seen by some as a "proxy" currency
for getting in and out of other currencies
and this trend would probably not diminish
next year. Between $20 billion and $25
billion was traded in Rands every day in
South Africa, amounting to six to seven
percent of the country's entire GDP.
Rand is under-priced in comparison to its
real value, Azar said. An appropriate
exchange rate to the dollar was R13.50,
taking into account our current economic
situation and the value of other currencies.
The good news is that "we are nearly
Source: Dolphin Bay Chemicals