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Glimmer of hope

Glimmer of hope

Author: Tendani Mantshimuli, Consumer Economist, Liberty Life
Date: 2013-02-21
The final months of 2012 held a glimmer of positive news for the South African economy but there are still serious concerns for policymakers.

Policy certainty - The ANC elective conference in Mangaung provided some policy certainty to the market. Wholesale nationalisation has been ruled out although the state does reserve the right to nationalise what it deems strategic industries. The proposed mining tax remains the one potential frictional issue for the mining sector.

Manufacturing recovers - Manufacturing data for November was more positive than anticipated which supported GDP growth for the final quarter of the year. An improvement in the manufacturing sector in 2013 will depend on the continuance of infrastructure expenditure by government and a steady improvement in the global economy. This will be positive for a recovery of the domestic economy.

Consumers still shopping - Retail sales improved more than expected for the month of November. September and October were difficult months with strikes in the transport and mining sectors. The transport strike led to some disruption of stock reaching supermarket shelves and therefore affected retail sales.

There are serious concerns that face the economy:
Inflation rises -Inflation is likely to rise further due to high administered prices which include petrol, electricity, medical aid as well as educational costs. The petrol price has increased by 41c/l this month, mainly due to Rand weakness. There's currently an under recovery which means that we can expect a further rise in the petrol price in the coming month.

Repayment of high debt levels - Part of the financing of the increase in retail sales mentioned above was most likely from unsecured lending. While growth in this aggregate hasn't yet added significantly to overall household debt, the debt levels themselves are still high so that the servicing or repayment thereof puts a constraint to disposable income. The SA Reserve Bank left rates unchanged with the prime overdraft rate at a historic low of 8.5%.

Unemployment continues unabated - The on-going labour unrest not only undermines our production and the country's ability to meet its export commitments; it inevitably results in retrenchments which will add to the already high number of unemployed South Africans. The looming retrenchments in the mining sector are a case in point.

We have already seen that high unemployment is a recipe for social unrest and, to an observer and potential investor to South Africa who doesn't understand the country's dynamics; it could be interpreted as if government is not in full control of the country. This has implications for investment flows into the country and its credit rating. Also, for any SA business to expand and do well we need social and economic stability so it's important that labour unrest is addressed expeditiously.