Cyril Ramaphosa Pledges $62billion Infrastructure Investment Plan to Resuscitate a ‘Lifeless’ SA Economy.

Cyril Ramaphosa Pledges $62billion Infrastructure Investment Plan to Resuscitate a ‘Lifeless’ SA Economy.

South Africa (SA) is the most industrialized economy on the African continent and abound with several mineral deposits.  One of the rarest elements in the world which is Gold, makes up roughly 0.003 parts per million of the earth’s crust. The recent ranking released in September 2020 shows that SA is the 9th largest gold producer in the world and the 2nd in Africa behind Ghana.

According to NS ENERGY, SA is the world’s fifth-biggest supplier of coal as fuel. The country consumes more than half of its coal production for domestic purposes. More than 70% of the electricity produced in the country is derived from coal.

According to Minerals Council South Africa, the country’s coal industry employed 86,647 people in 2018, accounting for nearly 19% of the overall number of employees in the mining sector.

However, the SA economy has been battling with a battalion of macro-economic challenges before the outbreak of COVID-19.

Compared to the financial crises in 2008, South Africa is far worse off in its attempt to recover from the COVID-19 crises. Rising debt, galloping unemployment rates, and energy crises are but a few of such macro-economic challenges.

 Growth Projections

The International Monetary Fund (IMF) in its October edition of the Sub-Saharan regional economic outlook stated that South Africa (SA)’s economy will contract by 8.0 percent in 2020, driven mainly by the impact of containment measures.

The lockdown was put in place in late March and relaxed in early May with most of the restrictions on activities being lifted.

According to the IMF, investment, exports, and private consumption are set to decline, partially offset by reduced imports in 2020. The output will recover modestly during 2021, growing by 3.0 percent, and will maintain momentum thereafter as business confidence responds to growth-enhancing reforms.

The government of South Africa however, expects the economy to contract by 7.8% in 2020. The stock of gross debt is also expected to rise from R4trillion in 2020 to R5.5 trillion in 2023/2024.

African Development Bank Group has also pointed out that real GDP grew at an estimated 0.7% in 2019, down from 0.8% in 2018, and is projected to rise to 1.1% in 2020 and 1.8% in 2021 amid domestic and global downside risks.

Stats SA also revealed that GDP fell by just over 16.4% between the first quarter and second quarter of 2020, resulting in an annualized growth rate of -51%.

Debt & Deficit

The ADB Group stated that the fiscal deficit remained high at an estimated 4.3% in 2019, up from 4.2% in 2018, as the country continued to face revenue shortfalls due to slow economic growth. The tax revenue-to-GDP ratio declined marginally to 25.7% in 2019 from 25.9% in 2018.

The fiscal deficit is financed through domestic capital markets. National government debt was estimated at 55.6% of GDP in 2019, up from 52.7% in 2018. Foreign debt accounted for only 6.3% of GDP, ensuring sustainable debt financing. The current account deficit widened to 3.5% in 2018, as the terms of trade deteriorated, with rand prices of imports increasing more than those of exports.

The current account deficit was financed primarily through foreign direct investment inflows, which grew 163% in 2018 compared with 2017.

 Unemployment

The IMF expects the already bad unemployment situation in South Africa to worsen in 2020.  The recent forecast by the Fund shows that the unemployment rate could skyrocket to 37.0% at the of 2020, up from 28.7% in 2019 before declining marginally to 36.5% in 2021.

The AfDB Group stated that South Africa’s unemployment increased to 27.1% at the end of 2018 from 26.5% at the end of 2016. Youth unemployment also increased to 54.7% at the end of 2018 from 51% at the end of 2016. The AfDB Group cited low skills among the causes of the high unemployment rate in SA.

The latest Quarterly Labour Force Survey for the second quarter showed that as many as 2.2 million jobs were shed in the country during this period.

By the extended definition, which includes those people who have actively given up looking for work, the real unemployment rate in South Africa climbed from 39.7% to 42% over the period.

 Manufacturing activity decreases at a sharper pace in Q3 2020

Manufacturing output decreased 10.8% year-on-year in August, down from the 10.2% decline logged in July.

August's downturn was primarily driven by sharper declines in the manufacture of petroleum, chemical products, rubber, and plastic products, as well as in basic iron and steel, non-ferrous metal products, metal products, and machinery output. Meanwhile, food and beverage output contracted at a softer pace compared to the previous month, as did the manufacture of motor vehicles, parts and accessories, and other transport equipment.

On a seasonally-adjusted monthly basis, manufacturing output rose at a more moderate pace of 3.6% in August (July: +5.9% mom). Meanwhile, the trend pointed down, with the annual average variation of manufacturing production coming in at minus 11.5%, down from July's minus 10.8%.

FocusEconomics Consensus Forecast panelists project manufacturing output to expand 5.8% in 2021, which is up 3.5 percentage points from last month’s estimate. For 2022, the panel sees manufacturing output growing 3.4%.

 Inflation recedes in August

Consumer prices rose 0.17% from the previous month in August, coming in below the 1.31% rise logged in July and marking the softest rise in prices since May. The result was largely driven by moderating price pressures for housing and utilities as well as for transportation. Prices for alcoholic beverages and tobacco goods also grew at a more subdued pace compared to the previous month.

Inflation came in at 3.1% in August, down slightly from July’s 3.2%. Accordingly, the trend pointed down mildly, with annual average inflation coming in at 3.5% in August (July: 3.6%). Lastly, core inflation rose to 3.3% from the previous month's 3.2%.

FocusEconomics Consensus Forecast panelists see inflation averaging 4.0% in 2021, which is unchanged from last month’s estimate, and 4.3% in 2022.

South Africa’s Economic Reconstruction and Recovery plan

On 15 October, President Cyril Ramaphosa outlined the economic reconstruction and recovery plan for South Africa to parliament. The South African government says it will unlock R1 trillion (about $62 billion) for infrastructure projects over the next four years.

“The plan aims to expedite the recovery of South Africa’s economy that was, like most economies, deeply affected by the Covid-19 pandemic”, the president said.

The planned programs will revive the gloomy economy which is expected to further decline by at least 8% this year. The government sees this strategy as an opportunity to not only give a new face to the country but also generate jobs for the youth and promote local businesses, therefore lower the unemployment rate.

A key priority intervention is promoting aggressive infrastructure investment and supporting its delivery, the pandemic severely disrupted economic activity.  Each of these areas is vital to the rejuvenation of our economy, reducing the cost of doing business and improving the country’s competitiveness,” the President said.

The specific objectives of the plan are to: Create jobs through infrastructure development and mass employment programs; Reindustrialise the economy focusing on small businesses and strengthening medium and large businesses; Accelerate economic forms, investment, and growth; Fight crime and corruption, and Improve the capability of the state.

Ramaphosa said that government is determined to create jobs for both those South Africans who lost their jobs during the coronavirus lockdown as well as those who did not have jobs before the pandemic.

speaking_head.png

“The damage caused by the pandemic to an already weak economy, to employment, to livelihoods, to public finances, and state-owned companies have been colossal.

“We need to see this moment as a rupture with the past and an opportunity to drive fundamental and lasting change, placing the economy on a new path to growth. We aim to do this through a major infrastructure program and large-scale employment stimulus, coupled with an intensive localization drive and industrial expansion”, Ramaphosa told lawmakers.

The government in this recovery plan, is targeting a 3% average annual economic growth over the next decade. Further details of the plan include;

The Public Works Minister, Patricia de Lille, earlier announced the creation of 60,000 jobs through several projects, within the framework of a new infrastructure investment fund at a cost of R100 billion ($6 billion).

About 11,800 megawatts of new power generation capacity will be brought online from 2022, more than half of which will come from renewable sources.

Agreements will also be finalized with independent power producers to supply another 2,000 megawatts of capacity from existing projects by June 2021.

About R13.8 billion will be spent on creating 800,000 jobs and economic opportunities by the end of March next year. A further R86.2 billion will be spent on employment creation over the next two years. The government will seek to promote industrialization by increasing local production and procurement.

Data costs will be reduced and broadband expanded to poor households. The time it takes to secure mining and water licenses will be halved. An R350 welfare grant for those who don’t qualify for other government support will be extended by three months.

The government intends to hire 300,000 teacher assistants and allocating grants to about 75,000 small-scale farmers. More than 60,000 road-construction jobs will also be created and an additional 6,000 community health workers and nursing assistants will be hired.

This stimulus will also provide additional support in vulnerable sectors such as small-scale farmers and workers in childhood development.

Ramamphosa said that the special Covid-19 grant will be extended by a further three months, thus, until the end of December to assist those in distress and help with additional support. The president however said that “the stretched nature of our financial resources does make it impossible to extend it beyond these three months”.

http://www.behindthebrand.tv

...