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ECONOMETRIX | Leaders in Economic Insight
Assessment of the economic &
financial outlook
Dr. Azar Jammine
Director & Chief Economist of Econometrix
Afrifocus26 June 2019
IMF Forecasts for Growth of Sub-Saharan Countries
2019-2023
Senegal 8.7
Rwanda 7.9
Ethiopia 7.2
Côte d'Ivoire 7.0
Mauritania 6.7
Uganda 6.2
Kenya 6.1
Burkina Faso 6.0
Egypt 5.9
Ghana 5.7
Guinea 5.7
Malawi 5.4
Sierra Leone 5.2
Mozambique 5.1
Cameroon 4.9
Mali 4.9
Democratic Republic of the Congo 4.5
Tanzania 4.5
Botswana 4.3
Mauritius 4.0
Morocco 4.0
Zambia 2.8
Namibia 2.6
Nigeria 2.5
Angola 2.5
Lesotho 2.4
Zimbabwe 2.1
Libya 2.0
South Africa 1.6
Algeria 1.4
Liberia 0.3
Source: IMF WEO, Apr19
Trade Figures (including BLNS)
World Zones Exports Imports
% of Total % of Total
2000 2018 2000 2018
Africa 13.0 26.7 3.0 12.6
America 11.0 8.6 15.0 9.6
Asia 18.0 31.5 18.0 45.2
Europe 30.0 25.5 43.0 30.5
Oceania 2.0 1.1 2.0 1.6
Total 100 100 100 100
Source: SARS
Gross Domestic Product
y/y % q/q - official
Sector 2018 Q1 '19
Total 0.8 -3.2
Agriculture -4.8 -13.2
Mining -1.7 -10.8
Manufacturing 1.0 -8.8
Electricity 0.9 -6.9
Construction -1.2 -2.2
Trade 0.6 -3.6
Transport 1.6 -4.4
Finance 1.8 1.1
General Government 1.2 1.2
Personal Services 1.0 1.1Source: StatsSA
Employment growth remains below GDP growth
Unemployment Q1 2019: 27.6% vs 26.7% in Q1 2018
Expanded definition of unemployment Q1 2019: 38.0% vs Q1 2018: 36.7%
Employment declined by -86,000 or -0.5% y-o-y cf forecast +0.6% y-o-y growth
for Q1
Formal sector employment declined by -135,000 y-o-y or -1.2%
Construction loses jobs because of no work & poor payment
One of the key objectives in SONA was the attainment of growth in excess of
population growth (1.55% currently). It is also intended to create 2m jobs over the
next decade for young people. This is equivalent to 200,000 jobs per annum or
1.2% of total employment. Even if this is attained, it will be insufficient to dent
unemployment. Growth in excess of 4% per annum is needed to bring down
unemployment given that around 400,000 people enter the job market each year.
Quarterly Employment Survey vs Quarterly Labour Force Survey (formal sector)
Gain/Loss of Jobs
QES QLFS QES QLFS
Y/y change Q/q change
Mar18-Mar19 Dec18-Mar19
TOTAL 76 -135 22 -126
Mining 5 18 6 -20
Manufacturing 9 -72 5 16
Electricity, Gas & Water -2 4 -1 8
Construction -23 -53 -1 -51
Trade, Hotels & Non-Financial Services 67 -16 -8 39
Transport & Communications 3 29 -3 14
Financial & Business Services 57 124 5 -96
Community Services -40 -164 19 -35
Source: Statistics South Africa
How did we get here? Increased corruption & state capture saw hundreds of billions of Rands being
diverted away from developmental requirements
Government has increasingly viewed the private sector as “the enemy” instead of
partnering with it
Policy uncertainty has grown in areas such as land reform, mining, BBBEE, Reserve
Bank independence, visa restrictions, cost of broadband & regulation more generally
Lip service paid to the need to improve education & skills
Yet undue obsession with transformation has resulted in managers being ill prepared
to cope with responsibilities
Shortage of skills exacerbated by large scale emigration
Shortage of skills & associated increase in income inequality has increased worker
militancy
All these problems manifested in collapse of SOE’s & associated increase in
government's labilities
Leading to credit rating downgrades
Economic failures resulting from the above has led to increased calls for more
government intervention & regulation leading to vicious cycle of decline
No of South Africans abroad
UK 210,000
Australia 190,000
US 100,000
New Zealand 60,000
Botswana 40,000
Germany 20,000
Zimbabwe 20,000
Chile 20,000
Other 240,000
Source: Pew Research
Breakdown of voting patterns
2019 2014 Change
No. eligible to vote (millions) 35.9 31.4 4.5
Registered Voters (millions) 26.78 25.39 1.39
No. who voted 17.67 18.65 -0.98
Voters as % of those eligible to vote 49.2 59.4 -10.2
Voter turnout (% of registered voters) 65.99 73.48 -7.49
Spoilt ballots (thousands) 235.5 252.3 -16.8
% of voters 1.33 1.35 -0.02
Source: IEC
Breakdown by party 2019 vs 2014
2019 2014 Change
millions
ANC 10.03 11.44 -1.41
DA 3.62 4.09 -0.47
EFF 1.88 1.17 0.71
IFP 0.59 0.45 0.14
FFplus 0.41 0.17 0.25
Only 2.1% of tax payers account for 69% of personal tax paid and most from DA?
What do we mean by restructuring?
Reducing corruption & state capture
Impatience is developing regarding bringing perpetrators to book
Restructuring & improving competence & finances of SOEs
Need to reduce financial liability on government
Convince investor community that lights will stay on
Trim wasteful public expenditure including cost of public service remuneration
Implementing infrastructural investment projects speedily & successfully
Reforming education & skills development to prepare for the 4IR
To help address youth unemployment & inextricable move to capital intensity
Improving industrial relations
Reducing concentration of power in big business & organised labour
Deregulation of economy
Promotion of small business & entrepreneurship
Conclusion: all this is set to take time & is unlikely to lift growth materially for at least a
couple of years
Major risks to global outlook
Positive impact of US tax cuts to fade
Higher interest rates globally
Massive global additions to liquidity being reversed
High levels of public debt in advanced economies
Increased protectionism
Brexit
Imbalance of current account deficits
Aging populations
Climate change
Threat to cyber security
Forecast by FOMC members: Federal funds rate
Median Range
Jun 18 Sep 18 Dec 18 Mar 19 Jun 19 Jun 18 Sep 18 Dec 18 Mar 19 Jun 19
End 2019
3.1 3.1 2.9 2.4 2.4 1.9-3.6 2.1-3.6 2.4-3.1 2.4-2.9 1.9-2.6
End 2020
3.4 3.4 3.1 2.6 2.1 1.9-4.1 2.1-3.9 2.4-3.6 2.4-3.4 1.9-3.1
End 2021
3.4 3.1 2.6 2.4 2.1-4.1 2.4-3.6 2.4-3.6 1.9-3.1
Longer Run
2.9 3.0 2.8 2.8 2.5 2.3-3.5 2.5-3.5 2.5-3.5 2.5-3.5 2.4-3.3
Source: US Federal Reserve Bank
Market Exchange Rates
Change % vs Dollar
1 Jan - 26 Jun 2019
Russia 10.8
Thailand 5.5
Japan 2.7
Mexico 2.2
Indonesia 2.1
Chile 1.9
Brazil 1.2
Singapore 0.7
Poland 0.4
South Africa 0.4
Czech Republic 0.3
India 0.2
China 0.0
Britain -0.1
Euro -0.5
Australia -1.3
Hungary -1.3
Taiwan -1.5
South Korea -3.6
Turkey -8.8
Argentina -11.1
*R 14.32Source: Econometrix & Bloomberg
Exchange Rate Forecast
2018 2019 2020 2021 2022
R / $ 13.23 14.50 15.28 15.95 16.70
Year End (Q4) 14.25 14.87 15.50 16.19 16.90
R / € 15.60 16.52 18.00 18.66 19.16
Year End (Q4) 16.27 17.10 18.44 18.78 19.26
R / £ 17.64 18.71 20.00 21.20 22.29
Year End (Q4) 18.35 19.33 20.38 21.62 22.56
R/Yen 8.38 7.55 7.20 7.04 6.75
Year End (Q4) 7.91 7.35 7.12 6.96 6.67
$ / € 1.18 1.14 1.18 1.17 1.15
Year End (Q4) 1.14 1.15 1.19 1.16 1.14
Source: Omega; Econometrix
Decline in SARS’ ability to collect revenue
Decline in tax buoyancy over past 3 years from 1.37 to 0.91
Return to original tax buoyancy would yield extra R40bn or 3.5% more
tax revenue
No of taxpayers assessed has declined from 6.0m in 2014, to 4.9m in
2017 despite increase in registered taxpayers from 16.8m in 2014 to
20.0m in 2017
Proportion of taxpayers submitting returns has fallen from 87.0% in
2014, to 76.5% in 2017
No of companies assessed for tax has declined from 817,597 in 2015, to
483,473 in 2018 i.e. from 84.9% to 56.9% of companies
Laffer curve effect makes raising tax rates further counterproductive
Tobacco excise duties have fallen by R20bn over past two years despite
higher excise duties
Illicit cigarettes (40% of total) sold for R10 per packet cf R17.85 per
packet excise duty
Income Tax by Income Group 2019/20
Taxable BracketTaxable income
R billionNo. of Taxpayers
Proportion of Taxpayers
Proportion of Population
Proportion of Tax Paid
R70,000 - R250,000 641.3 4,334,196 56.7 7.8 8.4
R250,000 - R500,000 758.4 2,154,380 28.2 3.9 22.7
R500,000 - R1m 591.9 871,962 11.4 1.6 28.1
R1m - R1.5m 193.9 161,868 2.1 0.3 11.9
More than R1.5m 362.7 120,751 1.6 0.2 28.9
Total 2548.1 7,643,157 100.0 13.7 100.0
Source: National Treasury, Econometrix
SA Economic growth forecasts (%)
2018 2019 2020 2021 2022
Gross Domestic Product 0.8 0.5 1.0 1.8 1.8
Year End (Q4) 0.2 0.8 1.1 1.4 2.0
Gross Domestic Expenditure 1.0 0.5 1.5 2.0 2.3
Year End (Q4) -1.3 2.4 1.5 2.1 2.2
Private Consumption 1.8 0.7 1.5 1.6 2.1
Year End (Q4) 1.2 0.8 1.4 1.7 2.1
Fixed Investment -1.4 -2.1 1.8 3.2 3.8
Year End (Q4) -4.1 -1.0 2.2 3.8 3.8
Government Consumption 1.9 1.1 1.2 1.3 1.6
Year End (Q4) 1.9 1.1 1.3 1.5 1.6
Current A/C Balance As % of GDP -3.6 -3.2 -3.9 -3.9 -4.0
Source: SARB; Econometrix
Takeout from presentation Hope lies in Ramaphosa addressing structural weaknesses now that election out of
the way
In particular, reduced corruption & improved governance at SARS could unleash
enormous resources for development
However, restructuring will take time so growth will remain pedestrian through 2020
Capital investment likely to be held back by low business confidence
Growth will struggle to exceed 1% in 2019 implying continuing negative per capita
growth
Eskom represents a huge challenge
Inflation to remain close to inflation target 4.5% midpoint, paving the way for rate
cuts
Continued risks of further credit rating downgrades next year
Possibility of global economic slowdown dominating domestic economic backdrop
ECONOMETRIX | Leaders in Economic Insight
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