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Blog: 15 January 2017 (Our predictions for South Africa's economy in 2017)
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In today's blog we make a few predictions on South Africa's economy (note some of them will be tongue in cheek) and some of it will be wishful thinking, but we are allowed to dream.
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So what is install for SA in 2017?
Well lets start with the bad stuff:
We suspect that the #Zupta clan (President Zuma, the Gupta Brothers, the new public protector, state security big wigs, the NPA's head and famous Zupta puppet Mr Abrahams will continue to look for ways in which to remove Finance minister Pravin Gordhan from his position so that they can gain access to the Treasury (as they have attempted to do already via Nenegate and "most qualified" minister according to Zuma, the infamous weekend special David Des van Rooyen). The reason they want access to the Treasury is to push through a financing deal for nuclear power for South Africa so that the Guptas can sell their Uranium at inflated prices to ESKOM (since their uranium mine is not actually viable at current uranium prices) they will just rape South Africa's biggest SOE.
We already know the Gupta's have/had massive influence at ESKOM, with their buddy and pal former ESKOM CEO Brian Molefe, who frequented a supposed shebeen close to the Gupta's home in Saxonwold. We find it odd that you would drive all that way to go drink Mr Molefec . Loads of shebeens between Megawatt park and Saxonwold. We therefore know the Gupta's home compound in Saxonwold was Molefe's drinking spot. And here they arranged shady deals for the Gupta's optimum coal deal with ESKOM and we are sure even shadier deals were planned for ESKOMs nuclear and uranium deals.
We suspect that the #Zupta clan (President Zuma, the Gupta Brothers, the new public protector, state security big wigs, the NPA's head and famous Zupta puppet Mr Abrahams will continue to look for ways in which to remove Finance minister Pravin Gordhan from his position so that they can gain access to the Treasury (as they have attempted to do already via Nenegate and "most qualified" minister according to Zuma, the infamous weekend special David Des van Rooyen). The reason they want access to the Treasury is to push through a financing deal for nuclear power for South Africa so that the Guptas can sell their Uranium at inflated prices to ESKOM (since their uranium mine is not actually viable at current uranium prices) they will just rape South Africa's biggest SOE.
We already know the Gupta's have/had massive influence at ESKOM, with their buddy and pal former ESKOM CEO Brian Molefe, who frequented a supposed shebeen close to the Gupta's home in Saxonwold. We find it odd that you would drive all that way to go drink Mr Molefec . Loads of shebeens between Megawatt park and Saxonwold. We therefore know the Gupta's home compound in Saxonwold was Molefe's drinking spot. And here they arranged shady deals for the Gupta's optimum coal deal with ESKOM and we are sure even shadier deals were planned for ESKOMs nuclear and uranium deals.
Expect the stripping of state resources to continue unabated during 2017 while president Zuma is in control and the law enforcement agencies just looking on while there is wide spread rumors and even evidence of corruption up to the highest echelons of government.
New public protector is now used as a pawn against the banks of South Africa that refused to keep doing business with the Gupta linked companies due to large unexplained sums flying around. We know a large number of transactions were flagged by authorities as suspicious. Know this banks are being targeted by the new public protector looking to dig up dirt worth 30 years old to try and "punish"the banks for the actions against the Guptas.
We suspect a cabinet reshuffle will be in order, in which Mr Hannekom will be removed because he suggested at NEC meeting that a vote should be taken on whether Mr Zuma should step down. We suspetct Minister Gordhan might be in the firing line too. With Mr Zuma looking to get rid of the one man that holds the keys to the state purse, and replace him with one of his chommies. But the market reaction to this possibility is probably the one thing stopping president Zuma from removing Minster Gordhan in this way. So intimidation via state arms such as the Hawks and the NPA is probably set to continue in 2017 with subtle hints of legal action against Minster Gordhan set to continue in 2017. In this way #zuptas are hoping to crack Minister Gordhan and see him resign and hand over the keys to SA's finances to an Indian family. 23 years after democracy the fight for freedom has been lost and the government is now run by an Indian family (who are immigrants into SA). Not even local South Africans.
New public protector is now used as a pawn against the banks of South Africa that refused to keep doing business with the Gupta linked companies due to large unexplained sums flying around. We know a large number of transactions were flagged by authorities as suspicious. Know this banks are being targeted by the new public protector looking to dig up dirt worth 30 years old to try and "punish"the banks for the actions against the Guptas.
We suspect a cabinet reshuffle will be in order, in which Mr Hannekom will be removed because he suggested at NEC meeting that a vote should be taken on whether Mr Zuma should step down. We suspetct Minister Gordhan might be in the firing line too. With Mr Zuma looking to get rid of the one man that holds the keys to the state purse, and replace him with one of his chommies. But the market reaction to this possibility is probably the one thing stopping president Zuma from removing Minster Gordhan in this way. So intimidation via state arms such as the Hawks and the NPA is probably set to continue in 2017 with subtle hints of legal action against Minster Gordhan set to continue in 2017. In this way #zuptas are hoping to crack Minister Gordhan and see him resign and hand over the keys to SA's finances to an Indian family. 23 years after democracy the fight for freedom has been lost and the government is now run by an Indian family (who are immigrants into SA). Not even local South Africans.
The above mentioned is worst case scenario for South Africa and we dearly hope that this does not materialize as the consequences will be dire. Downgrade to junk status, crippling of the state and money being stolen blindly that should be used for the delivery of services in SA. Continued protests due to lack of service delivery. Continued nepotism and deployment of friends and families and continued corruption making live for ordinary South African's ever harder while the politically connected thrives.
Ok enough with the politics. What about economics?
SA's economy is set to grow and levels around or just below 1% for the year. Problem for South Africa is the fact that the population grows faster than the economy. Thus more needs to share of the economic pie, that is growing at a rate slower than the number of people that needs to share it, leading to an effective decline in South Africa's GDP per capita. I.e the value of SA's economy per person living in it is getting smaller. South Africa needs economic growth figures around 6% to reduce its systemically high levels of unemployment.
But with government looking to cut spending (especially on staff), economic growth wont come from government. Businesses are struggling due to ever increasing input costs (a lot of that is caused by a weak Rand), ever increasing electricity prices from ESKOM and above inflation wage demands by labour unions. This environment is less than ideal for businesses and fostering growth. And this is partly the reason why South Africa's economic growth has been meandering along at levels around 1%.
We also foresee the state pushing up taxes to boost it's coffers since tax revenues are falling below estimated targets and additional funding is required by the state to foot extra bills such as SAA bailouts, E-tolls and SANRAL mess, #feesmustfall campaigns, and numerous other government projects that is sucking the state coffers dry.
SA's economy is set to grow and levels around or just below 1% for the year. Problem for South Africa is the fact that the population grows faster than the economy. Thus more needs to share of the economic pie, that is growing at a rate slower than the number of people that needs to share it, leading to an effective decline in South Africa's GDP per capita. I.e the value of SA's economy per person living in it is getting smaller. South Africa needs economic growth figures around 6% to reduce its systemically high levels of unemployment.
But with government looking to cut spending (especially on staff), economic growth wont come from government. Businesses are struggling due to ever increasing input costs (a lot of that is caused by a weak Rand), ever increasing electricity prices from ESKOM and above inflation wage demands by labour unions. This environment is less than ideal for businesses and fostering growth. And this is partly the reason why South Africa's economic growth has been meandering along at levels around 1%.
We also foresee the state pushing up taxes to boost it's coffers since tax revenues are falling below estimated targets and additional funding is required by the state to foot extra bills such as SAA bailouts, E-tolls and SANRAL mess, #feesmustfall campaigns, and numerous other government projects that is sucking the state coffers dry.
Sluggish demand for commodities and relatively low prices for commodities has a significant impact on South Africa as we largely a commodities based economy (and little to no policies in place to move South Africa away from it's dependence on commodities). Interest rate increases in the USA and possible future increases and strong economic growth in the US will keep demand for US dollars high (and keep South Africa Rand under pressure), and this will continue to keep commodity prices under pressure too as there is a strong negative correlation between the US dollar and commodity prices. Structural changes needs to take place in SA's economy. See SA's current economic structure here.
South Africa's inflation rate is set to continue flirting with the South African Reserve Bank (SARB)'s upper end target of 6% in 2016. Will be interesting to see what the new CPI basket looks like and it's impact on the levels of inflation. We have been highly critical of SARB in 2016, with their poor inflation forecasting skills (see poor inflation forecasting here) and the fact that they raised interest rates even though higher levels of inflation was not driven by consumer demand but rather by external factors such as the drought SA experienced (pushing up food prices as more food items had to be imported in SA). We hope SARB gets a new team of forecasters so that policy setting is based on accurate forecasts and not the stuff we currently seeing from SARB. Based on our opinion that SARB raised interest rates twice in 2016 when we feel they shouldn't have we suspect that there will be little to no movements on the interest rate front in 2017.
Unemployment is set to stay at current high levels, as there is nothing that drives companies to employ more people. It's gonna be interesting to see if the large metro's under DA control (City of Johannesburg, Tshwane and Nelson Mandela Bay) sees improvements in the levels of unemployment (see unemployment per metro here).
South Africans are in for yet another bumpy ride in 2017, but at the end of it, we will not see a lot of economic growth, inflation will not have improved from current levels, interest rates would not have increased (we hope sanity prevails at SARB), a higher tax burden will be imposed on those that can pay taxes (to foot the ever increasing maintenance bill of those that cant get work or doesn't want to work), unemployment will not have improved, the Rand will in all likelihood have lost more ground against the Dollar and other major currencies, and political games will continue until a new president of the ANC is elected. So South Africans hoping or dreaming about the silver bullet for the economy in 2017, we suggest you keep dreaming until 2018 and let's hope a new president of the ANC and the country can change things around and get South Africa out of it's sluggish stagnating state.
South Africa's inflation rate is set to continue flirting with the South African Reserve Bank (SARB)'s upper end target of 6% in 2016. Will be interesting to see what the new CPI basket looks like and it's impact on the levels of inflation. We have been highly critical of SARB in 2016, with their poor inflation forecasting skills (see poor inflation forecasting here) and the fact that they raised interest rates even though higher levels of inflation was not driven by consumer demand but rather by external factors such as the drought SA experienced (pushing up food prices as more food items had to be imported in SA). We hope SARB gets a new team of forecasters so that policy setting is based on accurate forecasts and not the stuff we currently seeing from SARB. Based on our opinion that SARB raised interest rates twice in 2016 when we feel they shouldn't have we suspect that there will be little to no movements on the interest rate front in 2017.
Unemployment is set to stay at current high levels, as there is nothing that drives companies to employ more people. It's gonna be interesting to see if the large metro's under DA control (City of Johannesburg, Tshwane and Nelson Mandela Bay) sees improvements in the levels of unemployment (see unemployment per metro here).
South Africans are in for yet another bumpy ride in 2017, but at the end of it, we will not see a lot of economic growth, inflation will not have improved from current levels, interest rates would not have increased (we hope sanity prevails at SARB), a higher tax burden will be imposed on those that can pay taxes (to foot the ever increasing maintenance bill of those that cant get work or doesn't want to work), unemployment will not have improved, the Rand will in all likelihood have lost more ground against the Dollar and other major currencies, and political games will continue until a new president of the ANC is elected. So South Africans hoping or dreaming about the silver bullet for the economy in 2017, we suggest you keep dreaming until 2018 and let's hope a new president of the ANC and the country can change things around and get South Africa out of it's sluggish stagnating state.