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SA needs more investment, but govt’s bucket has holes in it – Nedbank chief economist news of 2021

SA needs more investment, but govt’s bucket has holes in it – Nedbank chief economist news of 2021


Nedbank's Nicky Weimar says economic growth usually comes from four sources of demand, namely consumer spending, fixed investment, government spending and exports.


Nedbank’s Nicky Weimar says economic growth usually comes from four sources of demand, namely consumer spending, fixed investment, government spending and exports.

  • SA can’t solely rely on government spending to stimulate growth because the state just doesn’t have the money, says Nedbank’s group chief economist Nicky Weimar.
  • Weimar says economic growth usually comes from four sources of demand, namely consumer spending, fixed investment, government spending and exports.
  • She says the only way government can ensure that the country does not land in a fiscal crisis would be to cut its spending and generate tax income.

If SA wants to escape its unhappy economic story, it can’t solely rely on government spending to stimulate growth because the state just doesn’t have the money. This according to Nedbank’s group chief economist Nicky Weimar. 

Weimar told a virtual annual conference of International Housing Solutions (IHS) on Wednesday that South Africa needs to instead pin its hopes on exports to provide the economy with “momentum” in the interim. 

“SA’s economy is not a great or happy story. Uncertainty is a key element looking ahead for the SA economy. Even before Covid-19, SA’s economy had a long period of stagnation and political turmoil like state capture, power cuts, lack of service delivery, deterioration of infrastructure, SOEs [state-owned enterprises] in a bad state and the build-up of public debt,” she said. 

Weimar explained that economic growth usually comes from four sources of demand, namely consumer spending (about 60% of SA’s GDP), fixed investment, government spending and exports.

“We don’t think growth will come from government spending and fixed investment. Government does not have the money and the recovery in fixed investment has been very disappointing and is still well below pre-lockdown levels.

“In the interim, it will likely rather be exports, mainly commodities due to global demand, that will provide momentum for SA, while consumer spending will also be a reasonable source of growth. There is a segment of the consumer market that was not as severely affected by the pandemic and which has kept consumer spending going,” said Weimar.

She said the only way government can ensure that the country does not land in a fiscal crisis would be to cut its spending and generate tax income.

“Government already relies heavily on taxes and will use that option, but the ability to raise more taxes is limited. Government is in a tight fiscal position for the next ten years, so it would have to spend carefully and that will be a drag on growth.” 

“Government sets the general investment environment, but its bucket has holes in it. Unless government gets its act together and stop the leaking and improves its policy choices, SA’s economic recovery will remain slow and fixed investment will not be a major source of growth.”

– Nedbank group chief economist Nicky Weimar

In her view, were it not for the renewable energy sector in SA, the electricity shortage would have been much worse and the impact on the economy and jobs much more dramatic. Nedbank has seen a huge number of requests from companies wanting to take advantage of government now allowing for 100 MW of embedded power generation.

‘SA’s recovery will continue despite bumps in the road’

The rand is so resilient because of positive trade flows coming in, and exports have been a major contributor.

“The SA Reserve Bank (SARB) is worried that this might change, because, although the rand is [currently] driven by the trade surplus from real exports, the rest of the rand value is driven by sentiment – that is the risk appetite of global investors. SARB is concerned that, once the US starts to unwind its quantitative easing, the dollar will strengthen and then capital will head back to advanced countries and put pressure on emerging currencies like the rand,” said Weimar.

“SA’s recovery will continue despite bumps in the road. If we want to do better in the long term, government has to fix the leaking bucket and solve the electricity problem. It should open generation and not protect Eskom’s monopoly. Government should also look at all SOEs and get them off government’s budget so that government’s debt burden can be brought down and we could then hopefully see some sovereign ratings upgrades.”

Education and building capacity in the civil service will also help to stop the leaks in the bucket.

“Furthermore, because of climate change and SA being a dry country, it does not have the luxury of not taking the necessary steps to ensure water security at an accelerated pace. Food security also potentially remains at risk,” she said.

Asked about the brain drain and its impact on the economy, she said when businesses shut down and entrepreneurs leave the country, jobs are lost and the impact of professional people leaving in healthcare, financial services and IT also has an impact. 

“This means we have to relook at the immigration policy and make it easy for entrepreneurs and skilled people to come to SA as we have a shortage of skills. I think the brain drain will remain elevated and drag on the economy. The biggest impact sadly is on the jobs market for unskilled and semi-skilled [workers],” Weimar concluded.

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