PESA Editorial – South Africa - 1Q2017/18

Constraints on South Africa’s 2017 Growth

In the midst of weak business and consumer confidence, the outlook for domestic growth has declined. The South African Reserve Bank (SARB) revised its GDP growth forecasts by 0.2 percentage points for 2017 and 2018, and by 0.3 percentage points in 2019. The new forecasts are now 1%, 1.5% and 1.7% respectively. This deterioration in the forecasts is attributed to the impact of the recent credit rating downgrades, by Standard and Poor’s and Fitch on domestic private sector gross fixed capital formation. The downgrade is also expected to weigh on public sector investment, through higher funding costs and difficulty in accessing funding1.

The year-on-year inflation rate, as measured by the consumer price index (CPI) for all urban areas, moderated to 6.1% and 5.3% in March and April. Food price inflation was the main contributor to the downside surprise in April, reaching 6.6% (from 8.7%). There was a decline in the contribution of the category of food and non-alcoholic beverages in the overall inflation by 1.5% points in March to 1.1% points. Core inflation, which excludes food, fuel and electricity, is measured at 4.8%, down from 4.9%2.SARB’s inflation forecasts have improved over the near term, but remain unchanged in the outer quarters. Following the previous forecast, it is expected that headline consumer price inflation will still be within the range of 3 – 6% for the rest of the forecast period. It is expected that inflation will average 5.7% in 2017, compared to 5.9% in 2016. In 2018 it is expected to average 5.3%, while the inflation forecast for 2019 remains unchanged at 5.5%3. This improvement is attributed to the downward revisions to international oil price and domestic electricity tariff assumptions.

At the end of May, a decision was reached to keep interest rates on hold at 7%4. Heavily indebted consumers can breathe a sigh of relief, thanks not only to the stability of the cost of their repayments, but expectations of a rate cut in the future.


ZAR-USD Exchange Rate
Figure 1: ZAR-USD Exchange Rate (2012-2017)


During the first six months of 2012, the Rand depreciated against the US Dollar by 6.59%. After a year the Rand continued to depreciate by 14.53%. After 5 years from 15 February 2012 up until 15 February 2016, the Rand depreciated by 105% against the US dollar – as is shown by the figure above.


ZAR-EUR Exchange Rate
Figure 1: ZAR-EUR Exchange Rate (2012-2017)


According to the corresponding figure, in 6 months, the Rand depreciated against the Euro by 0.07%, however after a year it depreciated against the Euro by 17.50%. In a 5-year period, the Rand depreciated against the Euro by 74.83%.


ZAR-CNY Exchange Rate
Figure 1: ZAR-CNY Exchange Rate (2012-2017)


According to the corresponding figure, during 6 months from 15 February 2012, the Yuan appreciated against the Rand by 5.26%. After a year, the Yuan continued to appreciate against the Rand by 13.63%. During a 5-year period, the Yuan still depreciated against the Rand by 49.83%.

Even though the inflation outlook for the near term has improved, inflation is still worryingly near the upper end of its targeted range of 3 – 6%. The recent downgrades to junk status and political unrest have led South Africa’s economic growth projection decline to 1.1% for this year. Consumers should capitalise on the unchanged interest rate, at 7%, while it lasts. There continues to be much uncertainty in the economic environment, and the Rand is highly volatile against its major trading partners.


Current Affairs Update

Brian Molefe Reinstated as CEO of Eskom

Public Enterprises Minister, Lynn Brown, has taken the decision to reinstate Mr Brian Molefe as the CEO of Eskom. This happens five months after he was accused of corruption in a state capture report. Minister Brown released this media statement on 12 May 2017 and one of the other issues discussed were Mr Molefe’s pension that needed to be re-evaluated. The Eskom Board then reached a decision after considering different options that Mr Molefe has to return all monies that he received upon his departure on the 1st of January and that he must be reinstated as the Group Executive as soon as possible5. The decision by Minister Brown to bring back Mr Molefe back at Eskom has received a lot of criticism more especially from opposition parties and unions. Molefe was implicated in a corruption report that was presented by the then Public Protector, Thuli Madonsela, where it raised questions over a coal deal between Eskom and a company that is owned by the Gupta family. As much as Molefe and the Gupta family have denied doing any corruption in the coal deal, his reinstatement is likely to raise concerns among the investors about transparency at Eskom due to the fact that Molefe was heavily influenced by the Gupta family.


President Zuma Signs the FICA Amendment Bill

President Jacob Zuma has finally signed the Financial Intelligence Centre Amendment (FICA) bill into law, and is expected to send a clear message about fighting money laundering in South Africa (SA). This new FICA bill is basically an amendment of the already existing Financial Intelligence Centre Act‚ 2001 which aims to strengthen the ability of SA to fight the different financial crimes such as terrorism financing, money laundering, corruption and tax evasion. Since 2003, SA has been a member of the Financial Action Task Force (FATF), this being an international body which its main aim to set best practices for combating financial crimes6. This amended Act is good for SA in the sense that it sends a strong message about fighting financial crimes that are hindering the growth of our country. It also protects the integrity of our financial system together with our tax base and we remain being part of the global financial system due to following international best practices set out by the FATF that help in fighting corruption and tax evasion. This amendment of the Act also makes sure that criminals cannot use SA financial system to conduct their crimes or hide their revenues that they make from the criminal activities, it also makes sure that the government is able to continue borrowing internationally in order to finance very much important social services for the average citizens more especially the poor South Africans in the rural areas.


SA Hosts Successful WEF Africa Conference

SA has successfully hosted the 27th World Economic Forum (WEF) Africa, at the Chief Albert Luthuli International Convention Centre in Durban from 3-5 May 2017. The main aim of this event was to look at the different instruments that can accelerate effective regional industrial corridors, like the public-private collaboration which aims to boost integration and inclusive and sustainable economic growth. It also gives an opportunity for local, regional businesses as well as investors who have shown interest in the region, to exchange knowledge and explore partnerships with governments7. This year’s theme is “Achieving Inclusive Growth through Responsive and Responsible Leadership”. SA has been faced with slow economic growth, decrease in foreign investments and the recent increase in economic policy uncertainty due to the recent credit-rating downgrades by S&P and Fitch. This Forum has come at the right time to discuss the issues which currently face SA and Africa as a whole. It also has brought together leaders from different walks of life to provide solutions to issues that face the African region currently, it also provides potential investment opportunities for the region which is very much needed, given the subdued economic growth globally which has severely affected the region in a bad way because of being highly dependent on what is happening globally.


1-4 South African Reserve Bank
5 South African Ministry of Public Enterprises
6 South African National Treasury
7 South African Government Communication and Information System.




Inga Mtolo

Inga Mtolo




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