INSIGHT
than last year, and there is real cause for
optimism even though we are still in a
transition phase. We are in a more consistent
and supportive environment, which is likely
to affect participants in different ways. It
should encourage the large multinational
companies to divert investment to South
Africa, and also encourage other potential
investors to choose South Africa as an
investment destination.
Macro economic environment
Andrew van Zyl, SRK Consulting partner and
principal consultant.
Mamello Matikinca-Ngwenya, chief economist
at FNB.
prices, but some exporters of product such
as dimension stone are affected, and Van
Zyl argues commodity prices are more
likely to be in an upswing phase than
downswing, with exceptions.
In the modern market, there is often no
longer a direct relationship between supply
and demand. This generates increased
volatility, he suggests, and tends to stem
from two sources: new technologies and
stockpiling or hording.
“From a risk management perspective,
you get market participants who attempt
to influence commodity prices by hording
stock. This skews a commodity’s price
in the short term, especially in the case
of high technology commodities such as
battery minerals. This can be compounded
by changes in technology: if a company
or speculator has stockpiled a commodity
which falls out of favour and no longer in
demand, a subsequent attempt to unload
that stockpile can have a dramatic impact
on the commodity, leading to a collapse in
the price,” he says.
“In South Africa, we are in a better space
in 2019 in terms of regulatory certainty
40_QUARRY SA| JANUARY/FEBRUARY 2019
“The macro-economic or geopolitical
environment is more difficult to predict
as we have no control over it. We remain
a small developing market subject to the
vicissitudes of the group of countries with
which we are fairly or unfairly bracketed,
a group which includes volatile countries
such as Brazil and Turkey. It is not clear
how this will impact us this year. All
we can hope is that our own move to
more competent leadership will generate
increased international confidence for
which we will be rewarded. Internally, less
corruption will certainly instil confidence
in taxpayers and over the coming year I
expect to this this culture becoming more
deeply embedded,” he says. “Regardless
of the macro-economic environment,
SRK remains focused on assisting clients
to manage endogenous, predominantly
technical, risks.”
Mamello Matikinca-Ngwenya, chief
economist at First National Bank (FNB),
speaking at the November Franchising
Leadership Summit, says that as a small,
open economy South Africa is vulnerable
to what happens globally. “Tito Mboweni
had a very difficult task of delivering the
medium-term budget policy statement,
and consequently the risk of a sovereign
downgrade has increased quite significantly
because of a deterioration in financial
indicators.”
Economic growth forecasts have been
slashed from the 1.5% announced in
February to a much weaker 0.7%. The
budget deficit meanwhile is now projected
at 4% of GDP compared with 3.6% of GDP
expected in the February budget.
This has tempered the considerable
optimism that came in the wake of the
favourable outcome of the ruling party’s
electoral conference a year ago, with
forecasts then being for GDP growth in 2018
of between 1.5% and 2.5%. The onset of
recession forced analysts to downgrade their
forecasts and the average consensus for 2019
is about 1.5%, which is also FNB’s average
growth forecast for the next three years.
“Inflation has lifted, but it should
remain within the target band. The drivers
“In the modern market,
there is often no longer
a direct relationship
between supply and
demand. This generates
increased volatility, and
tends to stem from two
sources: new technologies
and stockpiling or
hording.”
of inflation – the exchange rate and oil
price – are continuing to push inflation
higher, which means that expectations
are for the South African Reserve Bank to
increase interest rates by 75 basis points
during 2019. The weak demand we see in
the domestic economy will prevent any
meaningful increase in rates. The rand has
weakened during 2018, and what we have
seen historically is that a rand blow-out
is followed by an economic pick-up,” says
Matikinca-Ngwenya.
She points to a productivity graph
showing a steady decline in productivity in
the South African labour market in recent
years, which combined with a plateau
in other productivity indicators such as
ease of doing business and worsening
governance, means that South Africa’s
global competitiveness has worsened.
What could improve expectations
are some recent changes in governance,
in leadership at various state-owned
enterprises (SOEs) and greater certainty
relating to the Mining Charter – factors
which will contribute to increased growth,
and she points out that notwithstanding
governance issues South Africa continues
to attract substantial portfolio inflows.
However, these positives are countered
by uncertainty around land reform,
and the poor financial state of SOEs
(notwithstanding their governance has
improved). “We need to see government
rein in remuneration of state employees,
which is running at 35% of state
expenditure,” she says.
The biggest risk to the economy is that
even the paltry 1.5% growth forecast
is dependent on continued portfolio
inflows, which in turn is dependent on our
investment grade sovereign rating.