2017 has kicked off on a more positive note than last year did. The minister of finance has survived December, the rand is not in freefall and the recent rain seems to have broken the back of the devastating drought.
This is a good start, but the prospects for 2017 depend on President Jacob Zuma not screwing up as he did in December 2015 when he fired Nhlanhla Nene, and on how the subsequent political infighting within the ANC unfolds.
The ANC is at a crossroads
The ANC will either affect radical leadership changes to turn around the downward moral trajectory of the party, or face the same fate of many other revolutionary parties and alliances that disintegrate within 15 to 20 years of taking power.
Unfortunately, the ANC’s internal cogs normally turn very slowly, but towards the end of 2016 there seemed to be an acceleration of criticism of Zuma from various factions from within ANC ranks – something that has not happened since the ANC took power in 1994.
The ANC will elect a new leader in December. This deadline will add further spice to the political machinations within the party.
Zuma is however not going to let go without a fight – as he has shown over the past several years when he remained in power despite scandal after scandal. The Zuma faction has also started hinting at a third term as ANC leader.
Uncertainty
Unfortunately, these unfolding political events have increased uncertainty and led to plummeting investor and business confidence levels, with dire prospects for the economy. The opportunity cost of this uncertainty is clearly visible in various economic indicators, such as the poor economic growth rate, increased unemployment, poor foreign direct investment and foreigners aggressively disinvesting from our financial markets.
The one positive development of 2016 – if it can be interpreted as positive – was that South Africa avoided a credit ratings downgrade, but this sword will continue to hang over our heads in the months to come.
So in many ways the fate of the ANC in 2017 will be the fate of South Africa. Hopefully, the economy will not be collateral damage.
Exchange rate
The exchange rate of the rand is often seen as an indicator of how well South Africa is performing.
The rand started 2016 on R15.54/$ and fell to R16.85/$ on January 18. At the time many commentators feared that R20/$ was on the cards. Yet, despite being very volatile, the rand strengthened by 12% to end the year at R13.60.
In fact, the rand was the second best performing currency in 2016, only pipped by Brazil’s real which, according to Bloomberg, strengthened by 21%.
Despite a possible oversold position in January 2016, who would have put money on such a performance in January last year? Not me.
Within this context it would be very difficult to forecast what 2017 holds in store for our economy.
A recent Reuters poll of 36 strategists and economists from around the world predicts that the rand will end the year at around R14.53 against the dollar. These strategists and economists, of course, put many caveats on their predictions, which may include the outcome of the ANC infighting, a potential ratings downgrade and even the Trump factor to name but a few.
Call me cynical, but the exchange rate prospects are currently at the mercy of external developments and shocks, rather than sound economic theory. US President-elect Donald Trump may even have a bigger impact on the value of the rand than Zuma.
The best we can hope for is some sober thinking among the political leadership and a stable exchange rate.
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