SA must tend green shoots to help economy grow stronger

12 December 2016

By Deputy Director-General Monale Ratsoma

As we approach the end of 2016, SA has a lot to build on in the pursuit of faster and more inclusive economic growth in 2017.

At the beginning of the year, optimistic scenarios were difficult to sell. The events of December 2015 painted gloom over the year ahead.

Investors were looking at South African assets as a potential one-way bet. For many, junk status, by at least one of the three main rating agencies, was inevitable. For some pundits an economic recession had become a baseline scenario.

While compiling the budget for 2016, we projected economic growth of 0.9% for the year ahead. To many this seemed optimistic. In the first quarter the economy shrunk 1.2%. At this point, consensus was pointing to economic growth of near zero and below.

But now, against all odds, we finish the year relatively on the front foot. Having been on a recent investor road show abroad, I am inspired and encouraged by the positivity towards SA, which unfortunately is often in contrast to how South Africans view their prospects. Sentiment can become self-fulfilling.

There was a belief among foreign investors that SA seemed to have reached a turning point. Moody’s made a similar assessment in its review earlier in the year.

Since then there has been confirmation of green shoots in the economy. Performance in mining and manufacturing, the main drag in the past few years, has been encouraging. The sharp contractions in these sectors seem to be abating.

Steady commodity prices and increases in capacity utilisation in the manufacturing sector may spur investment. Retail sales suggest resilience. The services sector, which accounts for the largest share of the economy, continues to provide a necessary cushion.

The 2016 third-quarter 0.2% (quarter-on-quarter) economic growth number can be misleading, while the 0.7% (yearon-year) reading points to some life in the economy.

But 0.7% is not worth celebrating. We need much more in order to make a real difference in the lives of people.

Globally, growth remains elusive. Countries are becoming increasingly desperate as society rises against establishments and the elite.

Employment

As we usher in 2017, we should focus our minds on providing the correct manure for our green shoots. We need growth to create employment and a more just society. It is unlikely to be spurred by a global recovery so we need to engineer our own growth.

Countries that make the right diagnostics and move quickly to implement reforms have been able to separate themselves from the rest of the pack.

By implementing reforms in the pricing of gas, relaxing rules for foreign direct investment in construction and railways and extending the expiry dates for industrial licences, among others, India has sustained growth of more than 7%.

Rwanda has seen a surge in investment through reforms aimed at improving the ease of doing business.

SA has had progress on some reforms. Stabilising the electricity grid is a boost for confidence and investment. There has also been progress on necessary labour reforms that will stand us in good stead.

There is progress in building the oceans economy, industrial production, agricultural parks, and supporting small business. We now need to build scale enough for aggregate macro numbers to show.

In the world of limited resources, scale can only be achieved through a meticulous focus on understanding multipliers and channelling resources together with decisive policy making. Our agenda for 2017 must be implementation.

But policy alone does not create growth and employment. It merely creates an enabling environment that can also be easily compromised.

For SA to prosper and overcome its challenges of poverty, inequality and employment, we will all need to unite towards a common purpose. The foundation has been laid; we need only to intensify our efforts.

Monale Ratsoma is Deputy Director-General for Economic Policy at the National Treasury