Mixed bag for SA in 2019
Improved growth expected to be tempered by weighty political considerations
As SA limps out of 2018 with expected growth below 1% and its final investment grade still in tow, attention is moving to 2019, an election year with much riding on it.
With national and provincial elections approaching, President Cyril Ramaphosa will be under intense scrutiny to revitalize the economy and make a dent in the unemployment rate, which is near 30%.
Among the key issues investors will be watching are clarity on land reform, growth forecasts and interest rate hikes.
A poll by the Institute of Race Relations on a possible voter turnout of 69% – which it considers likely – put ANC support at 59%, the DA at 22% and a negligible change in support for the EFF.
However, analysts believe political uncertainty is likely to increase ahead of the elections.
“Clarity on expropriation without compensation is still outstanding, while political parties are seeking increased leverage in a number of areas, including populist policies, racial divide, property rights and socialism,” Investec chief economist Annabel Bishop said.
While it looks set to be a clear-cut win for the ANC again, there is debate over whether the election will see Ramaphosa move more swiftly with reforms or whether the ANC will continue to fracture.
Depending on the outcome, SA could still see a downgrade from Moody’s Investors Service to subinvestment grade, which would trigger an exclusion from the Citi World Government Bond index and a forced selling of government bonds.
While economists agree the increase in interest rates for the first time in two years in November was a risky exercise, further increases are still expected in 2019.
Reserve Bank governor Lesetja Kganyago warned at the last meeting of the monetary policy committee that the longer-term risks to the inflation outlook – tighter global financial conditions, a weaker exchange rate, high wage rate, oil prices and rising electricity and water tariffs – remain high.
At least one 25 basis point increase is expected in 2019.
Investors will continue to call for more policy certainty, especially around expropriation of land without compensation.
The National Assembly adopted a report recommending the constitution be amended to allow land expropriation without compensation.
There have been arguments that the change would deter investment without dealing with the real causes of the slow pace of land reform.
“Even with a constitutional change, we retain the view that land redistribution will have a limited effect on the overall economy,” economist John Ashbourne said.
Growth is likely to be stronger in 2019 than in 2018.
SA plunged into recession for the first time since the global financial crisis in the first half of 2018.
While this will weigh on growth, credit ratings agency S&P Global Ratings said the government’s commitment to reforms and the economic stimulus package announced by Ramaphosa in September “will boost investor confidence, investment and growth”.
The Treasury expects growth of 1.7%, the Reserve Bank 1.9% and the World Bank 1.3%. -BusinessLIVE