South Africa is awaiting one of the most crucial national elections since 1994, that will carry considerable implications on the country’s economic and political future.
According to Old Mutual Investment Group Chief Economist, Johann Els, Cyril Ramaphosa’s presidential victory heralded a significant change in SA. “We have already seen some progress in key areas under this new leadership: the Cabinet has been reshuffled for the better a few times; we have the Commission of Inquiry into State Capture and SARS; there are new boards at Eskom, Transnet and Denel; the Mining Charter has been finalised; a transparent process is underway to appoint a successor for the previously ineffective NPA head; and Tito Mboweni was appointed as Finance Minister after Nhlanhla Nene resigned on principle – with Mboweni and the SARB governor being a strong combination,” he underlines.
“We believe the ANC are on track for a comfortable win and, as such, expect more decisive moves to materialise after the elections, all of which will contribute towards the strengthening of confidence levels across the country,” he points out. “And we already know that confidence is a key driver of growth.”
With the latest GDP figure marking the end of SA’s recent recession at 2.2 percent for the third quarter of 2018, Els believes that we will see a return to positive growth in late 2018. “Consumer fundamentals aren’t currently that bad and are likely to improve as confidence improves, as well as being in line with cyclical economic pickup. In addition, investment could rise sharply again leading to growth possibly reaching 3 to 3.5 percent by 2021/2022,” he mentions.
When it comes to inflation and interest rates, Els considers the deflationary environment to last for a while, with the consensus facing a downside inflation forecast risk. “Inflation will likely remain within target range and I maintain my 2019 inflation forecast of 4.8 percent, which is well below the consensus of 5.5 percent,” he says.
In addition, Els expects the rand to strengthen again in 2019. Even if this is a short term event, he believes it could have significant impact on the likes of confidence and inflation. “This is within the context of a weaker dollar and more balanced, synchronized growth, including better Emerging Markets, as well as a pickup in cyclical SA growth and stable and low local inflation,” he explains.
“A good ANC election outcome and policy reform would lead to a stronger rand, based on improved confidence, and it could quite likely reach R12 to the dollar in 2019, with increased rand stability over the next few years if growth picks up in the direction of 3 to 3.5 percent.”