The short-run potential growth of the South African economy was about 2.3 percent and its medium-to long-run potential was 2.8 percent — which could rise to 3.3 percent if the announced policy and infrastructure plans were implemented, Nomura’s emerging-market analyst, Peter Attard Montalto, said on Monday.
He did not believe SA had the political leadership in government to spearhead the urgent policy changes required if SA was to increase its underlying growth potential, which was far too low. The pace of government reforms was likely to be slow going forward.
While the ruling African National Congress had hitched itself onto an annual economic growth target of 5 percent -6 percent which it believed was necessary to meet the country’s enormous unemployment challenge, Attard Montalto argued that “there have been precious few major policy successes so far that have boosted potential growth towards that level. Indeed, we very much view the infrastructure programme, changes at Eskom, reforms coming through from the Department of Public Enterprises, the youth wage subsidy, and others as simply running to stand still.
“An expanding population and expanding labour force require a certain level of progress to stand still, but there has been little that takes a meaningful step forwards,” he said.
The post-2015 period of high political stress domestically and soft growth globally would drag the country down and prevent it from breaching its 2.8 percent medium-to long-term growth potential. The local government elections in 2016 and the national elections in 2019 loomed while a host of other internal developments would contribute to the stress, such as the shakeup of the labour movement, the formation of new political parties, a slightly tighter fiscal policy stance, higher taxes, continued strike activity and energy security issues.
Internationally, the exit of the US Federal Reserve from its quantitative easing policy and the softness in global demand -including slower growth in China -would act as a restraint to growth.
Nomura predicted moderate growth in total factor productivity as government policy changed very slowly, as long-run shifts in the economy such as education and training started to pay dividends and as some foreign direct investment resumed. This growth would, however, be “pretty slow” compared with the country’s peers as SA’s longstanding problems with parastatals and electricity security would continue to play a role -though less so than in the 2008-2014 period.
