24 February 2023
Economy
Economic wrap: A rough Q2
February 2023 was a pretty good reflection of the sentiment rollercoaster South Africans are riding these days.
It was a month in which the South African women's cricket team become the first national cricket side to reach a World Cup final - and then came within a whisker of winning. Then unemployment eased back slightly to 32.7%, based on the Statistics SA Quarterly Labour Force Survey for the fourth quarter of 2022. We had the announcement of a positive Budget 2023, a sobering State of the Nation address, and a telling-off by the world's anti-money laundering body.
Then March rolled around and the run on Silicon Valley Bank in the US sent ripples around the world. South Africa saw global ratings agency S&P Global revising the country's outlook down from positive to stable, as a result of the ongoing energy crisis. GDP data for the fourth quarter of 2022 was also announced, showing a decline of 1.3% between October and December last year, which was dragged down by a decline in demand for mining output and ongoing load shedding.
In response to the latter, President Cyril Ramaphosa not only reshuffled his Cabinet but also appointed a Minister in the Presidency to look after electricity, Kgosientsho Ramokgopa; who will be responsible for pulling the strings of both business and government and turning a bleak scenario into a possible growth story for South Africa.
Some good news, some bad, and a whole lot in between.
To make sense of the mood and the implications of key developments in the first quarter of the year, we sat down with Chief Economist Mamello Matikinca-Ngwenya, and Chantal Robertson, Head of Cross-Border Advice.
What's the mood out there?
Globally, sentiment is veering towards the negative. The ongoing war in Russia continues to be a notable geo-political risk, and one which has implications for South Africa due to our close ties with fellow BRICS member, Russia. In addition, the cost of servicing debt continues to tick upward, and interest rates are high and rising due to inflationary pressures. There is no sugarcoating things: the rest of 2023 is going to be challenging.
'When times are tough, you can't create good news,' Robertson says, pragmatically. However, she notes that rather than falling into negative rhetoric, we should all be mindful that the global economy is also in a state of uncertainty.
Domestic economic activity was surprisingly resilient in 2022 with the agriculture and financial services sectors significantly outperforming expectations. However, South Africa's GDP growth forecast assumes that economic activity will slow down quite meaningfully from the end of this year as global economic activity comes under pressure and energy supply shortages constrain domestic activity.
Matikinca-Ngwenya points out that consumers are already doing their bit by installing their own backup power or solar systems to address the energy constraints. National Treasury is also getting involved in Eskom's debt restructuring by taking on R254 billion of Eskom's R423 billion debt which was at risk of defaulting. This move is positive as it will allow the parastatal to focus on maintenance, transmission and distribution.
'Treasury has another set of eyes on the problem, helping to ensure we are moving in the right direction,' says Matikinca-Ngwenya. 'Yes, we need to be realistic about time, but the levers are being put in place.'
While the government has acted to cushion Eskom and its constraints, Matikinca-Ngwenya says it is still critical that the private sector comes to the party. 'Government and the private sector working together will offer enough intervention in the system to see us through to 2024,' she says.
Of course, load shedding isn't the only problem on the radar.
Should we be concerned about the greylisting?
Robertson has written and spoken extensively on the issue of South Africa's greylisting, and notes that it is critical that South Africa does not take its eye off this particular ball. She notes that the Global Solutions team will continue to monitor developments as they unfold.
Recapping the 24 February 2023 announcement by the Financial Action Task Force (FATF) that South Africa had been greylisted, Robertson notes that South Africa was well aware that this might be the outcome and had already begun to put legislation in place to better fight financial crime. In February, FATF made it clear that South Africa has already made significant progress on many of the recommended actions to improve its anti-financial crime systems, including developing stronger national anti-money laundering and terrorism financing policies.
Most countries take three years to exit the FATF grey list, after fixing the issues highlighted by the global body. On the upside, South Africa has a clear plan to be delisted by the end of January 2025, or possibly even sooner.
What is of concern, says Matikinca-Ngwenya, is that the greylisting highlights issues around law enforcement in South Africa and will impact how the country is perceived abroad and, particularly, among key trading partners. 'For some institutions, this will damage business relations and we may see increased de-risking behaviour to reduce the cost of doing business,' she says.
Amidst the uncertainty, what lies in my control?
With investments in renewables at a global level at record highs, the potential for South Africa's Just Energy Transition Investment Plan to yield dividends in the future does look positive. However, while strategic investments into this sector must be given time to bear fruit, Robertson urges against complacency.
'We live in uncertain times, and when you do, you seek comfort in diversification,' says Robertson, reinforcing the importance of a well-constructed and managed wealth plan which includes offshore exposure.
How best to navigate both local stressors and global pressures might seem daunting, but Robertson reminds RMB Private Bank clients that a team of experts with industry information and vast know-how are just a phone call away if you are seeking guidance on how to navigate the current challenges. When in doubt, dial down the rhetoric and rather contact your private advisor for a clearer picture, she advises.
It was a month in which the South African women's cricket team become the first national cricket side to reach a World Cup final - and then came within a whisker of winning. Then unemployment eased back slightly to 32.7%, based on the Statistics SA Quarterly Labour Force Survey for the fourth quarter of 2022. We had the announcement of a positive Budget 2023, a sobering State of the Nation address, and a telling-off by the world's anti-money laundering body.
Then March rolled around and the run on Silicon Valley Bank in the US sent ripples around the world. South Africa saw global ratings agency S&P Global revising the country's outlook down from positive to stable, as a result of the ongoing energy crisis. GDP data for the fourth quarter of 2022 was also announced, showing a decline of 1.3% between October and December last year, which was dragged down by a decline in demand for mining output and ongoing load shedding.
In response to the latter, President Cyril Ramaphosa not only reshuffled his Cabinet but also appointed a Minister in the Presidency to look after electricity, Kgosientsho Ramokgopa; who will be responsible for pulling the strings of both business and government and turning a bleak scenario into a possible growth story for South Africa.
Some good news, some bad, and a whole lot in between.
To make sense of the mood and the implications of key developments in the first quarter of the year, we sat down with Chief Economist Mamello Matikinca-Ngwenya, and Chantal Robertson, Head of Cross-Border Advice.
Globally, sentiment is veering towards the negative. The ongoing war in Russia continues to be a notable geo-political risk, and one which has implications for South Africa due to our close ties with fellow BRICS member, Russia. In addition, the cost of servicing debt continues to tick upward, and interest rates are high and rising due to inflationary pressures. There is no sugarcoating things: the rest of 2023 is going to be challenging.
'When times are tough, you can't create good news,' Robertson says, pragmatically. However, she notes that rather than falling into negative rhetoric, we should all be mindful that the global economy is also in a state of uncertainty.
Domestic economic activity was surprisingly resilient in 2022 with the agriculture and financial services sectors significantly outperforming expectations. However, South Africa's GDP growth forecast assumes that economic activity will slow down quite meaningfully from the end of this year as global economic activity comes under pressure and energy supply shortages constrain domestic activity.
Matikinca-Ngwenya points out that consumers are already doing their bit by installing their own backup power or solar systems to address the energy constraints. National Treasury is also getting involved in Eskom's debt restructuring by taking on R254 billion of Eskom's R423 billion debt which was at risk of defaulting. This move is positive as it will allow the parastatal to focus on maintenance, transmission and distribution.
'Treasury has another set of eyes on the problem, helping to ensure we are moving in the right direction,' says Matikinca-Ngwenya. 'Yes, we need to be realistic about time, but the levers are being put in place.'
While the government has acted to cushion Eskom and its constraints, Matikinca-Ngwenya says it is still critical that the private sector comes to the party. 'Government and the private sector working together will offer enough intervention in the system to see us through to 2024,' she says.
Of course, load shedding isn't the only problem on the radar.
Robertson has written and spoken extensively on the issue of South Africa's greylisting, and notes that it is critical that South Africa does not take its eye off this particular ball. She notes that the Global Solutions team will continue to monitor developments as they unfold.
Recapping the 24 February 2023 announcement by the Financial Action Task Force (FATF) that South Africa had been greylisted, Robertson notes that South Africa was well aware that this might be the outcome and had already begun to put legislation in place to better fight financial crime. In February, FATF made it clear that South Africa has already made significant progress on many of the recommended actions to improve its anti-financial crime systems, including developing stronger national anti-money laundering and terrorism financing policies.
Most countries take three years to exit the FATF grey list, after fixing the issues highlighted by the global body. On the upside, South Africa has a clear plan to be delisted by the end of January 2025, or possibly even sooner.
What is of concern, says Matikinca-Ngwenya, is that the greylisting highlights issues around law enforcement in South Africa and will impact how the country is perceived abroad and, particularly, among key trading partners. 'For some institutions, this will damage business relations and we may see increased de-risking behaviour to reduce the cost of doing business,' she says.
With investments in renewables at a global level at record highs, the potential for South Africa's Just Energy Transition Investment Plan to yield dividends in the future does look positive. However, while strategic investments into this sector must be given time to bear fruit, Robertson urges against complacency.
'We live in uncertain times, and when you do, you seek comfort in diversification,' says Robertson, reinforcing the importance of a well-constructed and managed wealth plan which includes offshore exposure.
How best to navigate both local stressors and global pressures might seem daunting, but Robertson reminds RMB Private Bank clients that a team of experts with industry information and vast know-how are just a phone call away if you are seeking guidance on how to navigate the current challenges. When in doubt, dial down the rhetoric and rather contact your private advisor for a clearer picture, she advises.