Welcome to the Doctors' Portal
00:00 Sunday
Mediclinic News : ELECTIONS ARE DONE – WHERE TO NOW FOR OUR ECONOMY

Title

ELECTIONS ARE DONE – WHERE TO NOW FOR OUR ECONOMY

Date

2019-06-03

Link

elections-are-done-where-to-now-for-our-economy-24565169

News Description

President Cyril Ramaphosa inherited a multi-faceted socio-economic crisis when he took office in 2018.Dysfunctional municipalities, incompetent leadership at key state-owned enterprises and criminal allegations against members in the executive have complicated the task of addressing the enormous challenges facing the country, more so given the country’s limited fiscal room to manoeuvre. Nonetheless, citizens shared a new optimism for an economic revival when Ramaphosa took office. Ramaphosa is likely to implement some economic, political and regulatory reforms to rebuild a fragile foundation and restore state capacity in the next five years. The magnitude of the reform agenda will determine how high and sustainable South Africa's growth trajectory will be in the coming years and whether the broader population will be better off. Against the backdrop of moderate global growth and reduced policy uncertainty in key industries in South Africa, Momentum Investments expects the economy to grow at an average of 2% in the next five years, reaching above 3% in the outer years. While positive political momentum should have a favourable impact on confidence – populist political posturing and factional tensions within the ruling party could be stumbling blocks for the implementation of more contentious policy reforms, such as national health insurance and land expropriation without compensation,. Under this base case scenario, the government is likely to continue dismantling patronage networks built under the previous administration. Similarly, institutional credibility is likely to be restored, while financial and operational inefficiencies at state-owned enterprises are expected to be addressed. But change will take time. These measures are anticipated to drive a recovery in the investment climate over time, stemming the depreciation in the local currency caused by poor relative growth differentials, structurally high twin deficits and perceived policy risk. Reconstructing an inclusive economy that addresses the country’s social ills will take time and as such the unemployment rate could stay elevated as growth is initially insufficient to meet the needs of a growing labour market. Returning to a positive primary balance (fiscal sustainability) is likely to be achieved in the medium term, but contingent liability stress will likely remain a threat to the sovereign ratings outlook. In an alternative best case scenario, average growth in the next five years could recover to its longer term rate of 3.25%: A revival in consumer and business sentiment should lead to higher consumption and investment, while an increase in competitiveness and an improvement in the ease of doing business should buoy economic activity. Moreover, external investment inflows would likely improve on a significant reduction in political noise and a more stable economic environment. Higher growth and healthier tax revenues should lead to an improvement in the country’s fiscal and debt ratios, which could gradually guide South Africa’s sovereign rating back into investment grade. Under the best case scenario, the government is expected to accelerate its reform efforts in the product and labour markets and collaborative efforts by government and the private sector would begin to resolve the country’s challenges.At this level of growth, the country would be better enabled to dent unemployment and make inroads into poverty and inequality. In the worst case scenario, against a weaker global economic setting, heightened factionalism will likely cause the president to shelve his reform plans – hampering a faster implementation of economic transformation. Consequently, an inconclusive policy environment may persist and internal business sentiment and external investor confidence will then likely remain in the doldrums. Work streams between the private sector and government may then reach a stalemate and growth in investment will continue to lag. Growth paralysis will likely set in – stifling economic activity so that growth will unlikely increase meaningfully above 1% on average in the next five-year period. This scenario would exacerbate an already-high level of unemployment and rampant poverty. Building a more prosperous future for South Africa and ensuring an improvement in living standards for all its citizens will require Ramaphosa to effect political and economic stability, a strengthening of state institutions and law enforcement agencies, an alignment of priorities, an effective social compact and a commitment to implement initiatives that promote long-term inclusive growth. While the challenge is great, a better future for South Africa’s people depends on it. Sanisha Packirisamy is the chief economist at Momentum Investments
Created at 2019/06/10 02:26 PM by Mediclinic
Last modified at 2019/06/10 02:26 PM by Mediclinic