SA’s ECONOMY: Junk status might not be all that bad – Dawie Roodt

This is according to Dawie Roodt, chief economist of the Efficient Group, who addressed the Ekurhuleni Captains of Industry Forum, at the Mannah Guest House.

According to Roodt, all the uncertainty surrounding the question of whether or not SA will be downgraded is causing a lot of nervous flutters, so if the downgrade happens it will allow the country to start focusing on the task of recovering the economy.

“There is still a lot of positives regarding this economy. A downgrade could even possibly be a blessing in disguise as it could result, over the long run, in the recovery of the currency,” he said.

Roodt believes that one of the challenges opposing growth is that the Rand is seriously devalued and, by his calculations, its true worth is around R7 to the dollar.

He expects the Rand to recover to possibly less than R14 to the dollar by the end of the year.

He explained that South Africa is facing a downgrade because of the country’s weak economic growth, which speaks of an inability to address the fiscal debt.

Currently South Africa has recorded a government debt to GDP of 50.10 per cent of the country’s Gross Domestic Product in 2015 (fiscal deficit is when a government’s total expenditures exceeds the revenue that it generates).

Roodt said there was a time when South Africa managed to bring the fiscal debt down to 25 per cent, but it will take decades to achieve such a feat again.

He also believes South Africa is facing a recession, if one considers a recession can also mean the economic growth (estimated at one per cent) is lower than the population growth (estimated at two per cent).

Roodt expects to see interest rates rise with inflation (currently at around six per cent) to accelerate to around eight per cent.

“The real area of concern is the inflation of food, which could be around 12 per cent due to the drought. This is adding to the tension on the streets, exasperated by the high levels of unemployment,” he said.

He pointed out that SA’s economy is being hammered by what is happening throughout the world, which is in a state of monetary madness and fiscal follies.

“This is partly due to the ever growing role of the central banks that have become very powerful institutions,” he explained.

“The problem is that these central banks are making huge mistakes, which are causing bubbles of concern in the financial market.

“When it comes to monetary madness, consider how the American debt keeps rising, but the interest rates keeps falling. This means the government keeps on borrowing a lot of money.

“They are also possibly facing a recession, while the Chinese economic market is slowing down. Across the world debt levels of countries remain very high, including South Africa.”

Apart from the global economy impacting on South Africa, he said politics still plays significant role in the country’s welfare.

Roodt stressed that South Africa is still run by the tripartite of the ANC, Cosatu and the SACP.

“The SACP focuses on Leninism, not Marxism, which means centralisation of power, therefore cadre deployment.

“This is why we still see government holding onto state-owned enterprises and trying to take over treasury, as happened with Nenegate. This is all part of cadre deployment and centralisation of power.

“The tripartite came to power in 1994 with clear ideals, but with the progression of time we see today a government which is ideologically confused and making contradictory policies, followed by weak implementation.

“This does not bode well for a country’s economic welfare.”

Roodt spelled out numerous challenges to the SA economy, such as debt traps, deflation, unemployment, bad market bubbles and very weak economic growth.

“What we need is to maintain positive rates, not to waste a good recession and prudent fiscal management,” he said.

He added that unemployment (currently seven million people are without jobs) is driven by the weak growth, along with current labour legislation and regulation.

“One way to ease the tension is by giving people more money, and the government has been doing this by providing grants.

“But there is a limit, as 17 million people are currently on grants, compared to 15 million who have jobs. The government cannot sustain such an imbalance, hence the fiscal debt.

“Our economy also employs millions of civil servants, who are being paid more than the private sector, which means the country’s wage bill keeps skyrocketing.

“We are, therefore, in the position of a possible downgrade because of the government’s exorbitant social spending and the rise in the wage bill, while, at the same time, there has been a collapse in revenue since 2009.”

In order to address the crisis in the economy, Roodt said he would like to see more clarity on policies, political certainty and clarity on private property.

For him, to fix the economy also includes addressing the army of civil servants (by reducing their pay) and decreasing the size of government.

“We also need to see a continuous decrease of government spending, an increase of productivity (hampered by Eskom’s problems), privatising SOEs, scrapping anti-job legislation and establishing a world class skills development system,” he said.

“We also need to stop protecting our failures and to address what needs to be fixed.

“I, however, still believe that if we take the right decision right now, in about two to three years things could look rosier for our economy.”