So, the South African economy has the legs to thrive in difficult times, job creation is cyclical in the short term and a year is a very long time in the lives of monetary policy authorities. These may be key lessons to learn in a week of mixed fortunes for the economy and markets.
Figures released this week gave a glimmer of hope in the fight against unemployment but told of a looming threat in the fight against inflation.
The Quarterly Employment Survey, released by Statistics SA, showed that in the second quarter, the economy created 131 000 jobs in the formal, non-agricultural -sector. This represents an increase of 1,9%. This is an improvement from a 2,1% decrease in the first quarter. All sectors showed positive growth, with one remaining unchanged. Construction continued to lead job creation when it increased employment by 12,3% during the second quarter. The construction sector remains the crucial barometer of economic activity.
Absa economist John Loos tells of how what we are seeing can get better. “When you walk into an economy that is growing at 6%,” he recently said, “you walk into a building site”, and South Africa is not quite there yet.
Loos adds: “The consumer boom is nearly over. We are shifting to a fixed investment-led boom, and building in non-residential property could feature strongly.” Gross domestic expenditure in the second quarter grew by 4,9% compared to 8,8% during the second quarter of last year.
A lot of work remains to be done to reverse unemployment, but that depends on whether one believes the economy can reach a growth trajectory of 6%.
Brain Kantor and Carmen Marcheti of Investec Securities certainly do. Their recent report elegantly implodes the myth that 6% is a pipe dream. They note that factors such as openness to globalisation, integration of technology into daily life and building of bridges between the first and second economies are drivers of South Africa’s growth. They note that the world economy and its influence on resource prices has been a positive force for growth since 1999, and especially after 2003. They reserve the last word for rating agencies and argue that their view of South Africa, while improved, still undervalues the country. They also take a swipe at The Economist for “its patronising and, at times, hostile views on South Africa” while “regurgitating old issues, and adding nothing new”.
Their view of a resilient economy seems to be borne by a bourse that continues to touch fresh highs with the backdrop of a strong rand. On Wednesday the JSE peaked at 16 552,96, which went almost unnoticed.
This week, Statistics SA also reported that CPIX (inflation excluding mortgages) for the month of August grew at 4,8%. This is just shy of the 5% mark economists were suggesting will trigger an interest rate hike.
Annabel Bishop, an economist at Investec, said rates should remain on hold for the rest of the year but warned that a 0,5% hike in December will become a distinct possibility “if oil prices remain stubbornly high”.
Which brings us to the difference a year makes in the life of Tito Mboweni. This time last year, the nation was holding its breath over oil prices spiking above $55 a barrel. At the time, the Treasury estimated that the effect on inflation would be roughly 0,5%.
Next month, he will convene his monetary policy committee with the spectre of $70 a barrel looming large and, if he is to stick to his mandate, this would require raising rates. This week, rating agency Fitch warned that emerging market economies would have to “raise interest rates sharply” in the face of high oil prices. If the governor raises rates before year end, he may wish he had seized the moment and lowered them last year, when the threat, in comparison, was less ominous.
Where the wealth lies
New estimates of the world’s wealth show that South Africa has a considerable amount of catching up to do if it wants to play in the economic league of the world’s big boys.
A recent report by the World Bank, Where Is the Wealth of Nations?, offers estimates of total wealth, including produced capital, natural resources and the value of human skills and capabilities in calculating the wealth of the world, instead of only looking at the gross domestic product of countries.
The new figures confirm that many of the poorest countries in the world are not on a sustainable path. It suggests that resource depletion and surging population growth are draining the net “savings” of the world’s poorest countries and could cripple future generations.
Switzerland heads the list of wealthiest countries with per capita wealth of $648 241. Other countries in the top 10 include Sweden, France and Austria, as well as the United States and Japan. Belgium-Luxembourg, counted as one entity, is ranked 10th with $451 714 per capita.
Sub-Saharan Africa dominates the list of the top 10 poorest countries, with Ethiopia having the lowest level of total wealth, according to the report. It has a per capita wealth of $1 965. The net savings rate of the region is 0%.
The average for world citizens is $90 210, which means South Africa is considerably under par with per capita wealth of $59 629. Overall, the sub-Saharan African region has per capita wealth of $10 730.
China and India, boasting some of the fastest-growing economies in the world, are rated at $9 387 and $6 820 respectively.
Brazil, an emerging market economy like South Africa, ranks above South Africa with $86 922. But Malaysia, another peer economy, rates below South Africa with $46 687 per capita.
According to the report, South Africa is at the point where wealth creation keeps pace with the population growth. It states that South Africa’s wealth has remained stable, while only five African countries have managed to grow their wealth.
Critics of the report state that some of the figures are dated and that countries such as Ethiopia had managed to improve their economy since their status was calculated. The estimates are based on figures from 2000 and 2002. — Yolandi Groenwald