The outcome of the 2019 elections could determine South Africa’s long-term economic prospects. Should the African National Congress (ANC) manage to increase or maintain its support base and continue with its current reforms, this could positively impact on sentiment.
This is according to Senior Economist at the Bureau for Economic Research (BER) at the University of Stellenbosch, Hugo Pienaar.
The BER says the early optimism that the election of Cyril Ramaphosa as ANC president would improve sentiment and bring about economic growth has not materialised.
Pienaar says the situation could deteriorate even further should the ANC and Ramaphosa not perform at the polls.
“The negative scenario would be you get to the 2019 elections, the ANC loses significant support and they lose a lot of that support to the EFF. So that increases policy uncertainty. Mr Ramaphosa is not able to push through his agenda. So, you don’t have growth picking up to the same extent as in the baseline. But it also means the fiscal situation is deteriorating and in that scenario, by early 2020 we then assume that Moody’s will actually downgrade South Africa’s credit rating to junk status.”
Pienaar says in the short-term things are starting to look up for the local economy. He says it looks like the Reserve Bank will continue raising interest rates for the foreseeable future, financial institutions seem more amenable to extending credit.
“What we are starting to see is that household credit extension is starting to pick up a bit, household income is under pressure and we do think that, especially if you look at some of your more semi terrible or durable consumption if there’s a further acceleration in credit extension you know. That should boost spending a little bit.”
Pienaar also warns that for the country to attract Foreign Direct Investment there will need to be more tangible economic growth. He says the private sector will need to play a leading role in this.
“I think the foreign investors are probably receiving talk about long-term Foreign Direct Investment or FDI, as you mention, they promised sitting and looking at South African corporates and saintly saying to themselves, ‘well, we first want to see South African corporates having a bit more confidence in their own economy in an example starting to invest before we return to South Africa.’”
