Corporate SA shares its views on SA economy for 2015
The South African economy very narrowly escaped sliding into an economic recession in the first half of 2014, following a number of challenges and rigorous market downgrading. Added to this, the latest figures for 2015 are predicting marginal Gross Domestic Product (GDP) growth for the year of around 2.1%, as Africa’s most advanced economy continues to drastically underperform. With this in mind, industry leaders share their points of view on doing business in South Africa and its status as a gateway into Africa in 2015.
According to Nicholas de Canha, CEO of Imperial Fleet Management, “Realistically, the South African economy faced a number of hurdles in 2014, not least of all the six month strike in the Platinum sector that saw the economy take a significant knock. While this, and the strike by National Union of Metalworkers of South Africa (Numsa) and the severe power shortages towards the end of the year weren’t the only influencing factors to stagnate economic growth, these certainly had a significant impact on industries and subsequently subdued growth in the economy and business confidence.”
Adding some perspective, de Canha further states; “The National Development Plan (NDP) laid out a GDP growth target of 5.5% and while currently the economy’s growth is far off this mark, if we consider that the country’s output potential is closer to 6% GDP, we recognise that the economy is significantly underperforming. The better growth rates in the US in particular, make our slower growth a challenge for the rand.”
Speaking as the International Monetary Fund’s mission chief in South Africa at the end of last year, Laura Papi said that while there are a number of factors contributing to weaker economic performance in the country, domestic structural constraints had become more binding.
de Canha agrees and says: “Labour market issues and power shortages aren’t the only challenges that South Africa faces. Concurring downgrading of the country’s economic outlook as reflected in the ratings agency downgrades, continued volatility in the Rand, soft commodities prices, higher lending costs for government and consumers – with consumers having less affordability – all continue to add layers of complexity to economic recovery. However, until we have the right policy frameworks in place that will support private sector growth and sustainable employment and productivity in the private sector, economic growth and outputs will remain sluggish.”
Mathieu du Plooy, CEO of WSP Africa, agrees and feels that it has become more difficult to feel optimistic about structural and economic growth in South Africa, compared to, say, 18 months ago. “In the bigger picture, South Africa is still the most sophisticated economy on the continent and it boasts huge potential as a key investment location, both for the market opportunities that lie within its borders and as a point of entry to access other opportunities on the continent. That said, however, there are structural challenges that certainly need to be addressed if the economy’s true opportunities are to come to fruition.”
The South African Government has confirmed that the implementation of the NDP provides an adequate framework to populate broad-sweeping and sustainable economic growth in the country. Since its adoption by the national government in 2012, implementation of the National Infrastructure Plan (NIP) – and the sixteen identified Strategic Infrastructure Projects (SIPs) – has become essential to Government’s strategy to attract investment, grow and transform the economy. With this, during the 2014 National Budget address, Government announced a three year commitment totalling an investment of R847 billion into the NIP-SIPs.
“While this remains a fantastic commitment by Government, the SIPs aren’t coming to market fast enough at the moment. It’s likely that the procurement processes and a lack of the necessary skills within Government departments and parastatals is at the head of the problem, creating a bottleneck that is stalling the awarding and development of these projects,” adds du Plooy. “If we are truly going to achieve the strategic goals of the NDP for 2030, things certainly need to move a lot faster. And increased engagement between public and private sector – particularly around involving the private sector in the early stages of infrastructure planning and design – is absolutely critical to the successful implementation of the NIP and the SIPs and therefore achieving the objectives and targets laid out in the NDP.”
“There’s no denying that continuous investments to improve the country’s infrastructure will play a critical role in turning things around in the economy in the medium-to-long-term, as well as enable South Africa to reclaim its position as the powerhouse economy on the continent and a gateway into Africa,” concludes du Plooy.
On the other hand; Servest Southern Africa and Africa CEO, Kevin Derrick is more opportunistic about the role South Africa still has to play as a gateway to the rest of the continent. Where some industries in South Africa have begun to reach saturation point, increased competition in smaller markets and sluggish economic performance have led to a significant number of South African businesses using their operations in the country to springboard into the rest of the continent.
Derrick points out the opportunities; “As industrialisation accelerates in Africa over the next ten years, and the upsurge in investment in infrastructure, mining and retail development continues, expansion opportunities on the continent are becoming plentiful. I believe Africa’s time has come and, despite the global economic credit crisis of 2008/09 that still seems to be having a knock on effect in global markets, the continent offers businesses an exciting platform for investment and growth.”
For most businesses expanding into Africa, the recipe for success will likely include; developing a strong understanding of each one’s landscape, adhering to legislations, conducting business with strong moral ethics and incorporate well-designed Public Private Partnerships – as partnering with the state as this is critical to successfully doing business in country.
Expanding into Africa is hardly a new strategy – the ideology at least has been around for hundreds of years with more frequent success stories from South African and international businesses over the last several decades. That said, the opportunities that exist to use South Africa as a gateway into the continent have been too muted over the last 12-24 months and over shadowed with excessive focus being placed on the challenges the country faces.