Economic situation in South Africa not so bad

Delivering a press briefing in Rosebank on Wednesday Muscat explained that although there was general pessimism about the economy, things will not deteriorate going forward.

FNB lowered its growth forecast to 0.2%, a full percentage below Treasury’s forecast. “We are facing difficult times in the economy, but it’s not as bad as South Africans around the braai will tell you,” he said.

Fighting pessimism

FNB’s Bureau of Economic Research also recently released the consumer confidence index, which fell two points to -11. “Consumers are pessimistic about the economy and businesses are also showing big signs of pessimism.”

The problem with businesses being pessimistic is that they don’t invest, he explained. “We need to grow private sector investment to create jobs, creating a virtuous circle.”

Private sector investment fell by 7%, which has implications for job creation, said Muscat. If businesses are not confident in the returns they will get, they will not invest and hire more people, he explained.

Research also shows that businesses believe that the political climate is a hindrance. But South Africa is not unique in this. He listed the UK, Brazil and the US as examples of countries whose political challenges are influencing the economic front.

Strained consumers

Consumers are taking strain, in an environment with growing unemployment. Consumers are tightening their budgets, and spending less, especially on durable goods, which are more expensive, he explained.

Interest rates have peaked and inflation is trending down, which could be good news for consumers. “Inflation is expected to peak at 7.1% for the last quarter of the year.”

The current account deficit is 6% of GDP. To “close the gap”, interest rates are raised, which makes things more expensive for consumers, he said. Another solution is to raise production, through manufacturing. But South Africa’s electricity and labour challenges are not responding to the production need, he said.

However, there is still optimism about future prospects as South Africa’s trade surplus for May 2016 was at R18.7bn.

“The current slowdown is entering its sixth year, which is probably why things feel bad,” said Muscat. If it approaches 10 years, it would be a decade of lost opportunity to grow the economy.

Entrepreneurial prospects

Figures from FNB show that there are about 75 000 new businesses created each month. “This could be close to one million new businesses each year,” said Sanjeev Orie, CEO of FNB Business Value Adds.

In the first two years, however, 40% of new businesses are closed, he said.

“The closure rates for businesses are high.

“South Africans are very entrepreneurial, but even though they are entrepreneurial, they are not successful at being entrepreneurs,” he explained.

This is often because they don’t understand how business and markets work.

Orie said entrepreneurs normally succeed after the third or fourth attempt, adding that small businesses are still a hotbed for job creation.