South Africa in the 2020s – an extract from a recent article by Clem Sunter
Just over 32 years ago in 1987, Clem Sunter published a book entitled The World and South Africa in the 1990s. For South Africa, he played the ‘High Road’ scenario where proper negotiations between the real leaders of the major parties would produce a political settlement that allowed the country to return to the world stage. However, he made it clear that in the long run a thriving economy in which everyone participated was a precondition for the country to become a winning nation.
Now let’s focus on South Africa in the 2020s.
The first and second flags influencing the future are interrelated: the battle against corruption and the improvement in quality of infrastructure. The latter refers not only to state-owned enterprises and physical infrastructure like roads and ports, but also to national education and health. For a country to win, it needs a sound platform on which to launch its strategy of moving up the rankings in the Premier League of nations. China recognized this in 1978.
The third flag is around the effectiveness and integrity of the country’s leadership along with the setting of an inspirational vision which puts all South Africans first and which can only be achieved through co-operation. I believe that Cyril Ramaphosa has started down the path of turning this flag green. Although the pace of reform is frustrating to some people, there is no doubt in my mind that we are in a new era.
The fourth flag is about building on the pockets of excellence that this country already possesses in so many different fields. It is about using them as examples for poorer performing institutions to escape mediocrity by raising their game too. We are not starting from scratch.
The fifth flag is the critical one. It is about encouraging entrepreneurship and small business development throughout this country because it is the only way of reducing the hideous unemployment rate and giving ordinary people genuine economic freedom. Collaboration between the formal and informal sectors of the economy will be required to make this happen.
The last flag is around land reform. The issue needs to be settled in a way that provides an equitable solution for all our citizens while maintaining the high level of productivity and quality of agricultural products for which South Africa is renowned. The possible effects of climate change must also be figured into the equation.
The South African scenarios
As I implied at the beginning of this article, there have always been two crossroads for South Africa to take the High Road in the long run. The first was political and successfully navigated towards the end of the last century. However, the second crossroads was economic and is where we stand right now having had almost ten years of disappointing GDP growth and even a recession.
I am prepared to follow the instinct of my colleagues in the 1980s. Despite all the negative feelings at the time about the country’s prospects locally and overseas, they maintained that the door was opening for the High Road to prevail. At present, the pessimists are back in fashion but as I mentioned earlier there is a new game in town and we are still the most sophisticated economy in Africa. Thus, I give a return to the High Road trajectory, with all the flags I talked about turning green, a heads-up with a probability of 80%.
Nevertheless, that leaves a 20% probability for South Africa descending down the ‘Low Road’ to a Waste Land- a future which nobody in his or her right mind desires in a world that is getting tougher by the day.
Let me finish by posing a question: if we can win the Rugby World Cup three times, surely it is not asking too much of this country to take the High Road twice when its future is on the line? When push comes to shove, ordinary South Africans can do extraordinary things!
Clem Sunter was right in the eighties, and many times subsequently. We can take heart from this extract!
Tito Mboweni in the Spotlight
Over the last few months, Minister Mboweni has made a number of telling tweets that has caused the ruling party to distance themselves from his tweets and haul him over the coals! However it would appear that the minister is being a realist and his tweets are more like an impassioned plea for all to understand the predicament we are in.
An extract from a recent speech by Minister Mboweni points out the key reforms that are needed to facilitate the following:
- An efficient and capable state
- Prudent fiscal and monetary policy
- A competitive and flexible exchange rate
- A trade regime which promotes open and beneficial trade, particularly with the rest of the African continent
- A reimagined industrial strategy
- Opening up ‘network industries’ that is transport, logistics and telecommunications. This means reorganising Eskom and other state-owned companies
- Lowering barriers to entry
- Prioritising job-creating sectors, such as agriculture and tourism
- An overarching legal framework with an independent judiciary and strong property rights
- A well-functioning financial sector
It is only through the implementation of the needed reforms that we can benefit from the advantages presented by our country, such as the young labour market, world class infrastructure and a sophisticated financial market. Achieving an inclusive, job creating and sustainable economy will not be possible without the reforms.
Minister Mboweni will expand on the status of the reforms when he presents the Budget in February.
Repo rate reduced on back of favourable Data
A good start to the new year when the Reserve bank announced a surprise reduction of 25 basis points to the repo rate. Good news for those with borrowings and the forecast is that we should get another cut in the 4th quarter 2020. The outlook for inflation is positive and the medium-term inflation outlook has been revised significantly lower compared to the November forecast.
The inflation forecast generated by the SARB’s Quarterly Projection Model (QPM) averages 4.1% in 2019 (down from 4.2%), 4.7% for 2020 (down from 5.1%) and 4.6% for 2021 (down from 4.7%). The Bank’s forecast for headline CPI inflation for 2022 is 4.5%. Headline CPI inflation is now expected to peak at 4.9% in the final quarter of 2020 and settle at 4.5% in the third quarter of 2021 (one quarter earlier). The forecast for core inflation for 2019 is unchanged at 4.2%, is 4.3% in 2020 (down from 4.5%) and 4.4% in 2021 (down from 4.6%). The Bank’s forecast for core inflation for 2022 is 4.5%. Food price inflation continues to surprise to the downside on a monthly basis, and is revised from 5.8% to 4.7% for 2020.
So it looks like we have a reasonable platform to start building our economy although the predictions for GDP growth remain relatively low over the next three years. Let’s hope that the foundation work being done now will yield positive results over the medium to long term.
Budget Speech 26th February 2020
South Africa will be holding its breathe at 14h00 Wednesday 26th February 2020 as Minister Mboweni presents his Budget for the 2021 financial year. There literally can only be bad news as the whole country is going to be affected by whatever reforms will be announced, but without these reforms South Africa will undoubtedly fail, so we need to make short to medium term sacrifices. There will be increased taxes, what shape or form is anyone’s guess. But this needs to be accompanied with a reduced Government wage bill and holes plugged in our leaking State-Owned Entities.
We will be providing commentary on the budget announcements directly after the budget speech.