Worry for SA’s neighbours as Gordhan readies budget

Author: Memory Mataranyika (News24).

Harare – Analysts have projected a dim outlook for South Africa and its neighbours Botswana, Zambia and Zimbabwe as Finance Minister Pravin Gordhan readies for a belt-tightening Budget Speech for Africa’s second-largest economy.

President Jacob Zuma last week emphasised the need to contain costs for the South African government and Gordhan will be hard pressed to deliver as he seeks to restore investor confidence and fix a struggling economy.

Analysts at FocusEconomics said on Tuesday that “latest indicators point to another dismal expansion in the final quarter of 2015 and the outset of the new year. Manufacturing barely grew in December and the business confidence index recorded the second-lowest reading” in nearly a decade in January.

“The county’s outlook is dim. The current electricity and water supply constraints will hamper growth by both interrupting production and discouraging investment,” FocusEconomics said in a note on selected African economies.

A panel of analysts at the economics research company said they expected the economy to expand by 1.1% in 2016 and 1.7% in 2017.

“We expect the weak currency will start to have a positive effect on those industries which are import substituting, and may result in the PMI gaining ground later in the year,” said the analysts surveyed by FocusEconomics.

Peter Attard Montalto, emerging markets economist at Nomura, said he expects inflation in South Africa “to rise significantly in 2016 as margin compression runs out of road, and retail sector wages and input costs like electricity rise” which would be further compounded by higher food prices from the drought that is currently ravaging southern Africa.

While inflation is expected to go up in South Africa, its northern neighbour Zimbabwe is seen as remaining in deflation. Zimbabwe has also been hit by negative investor sentiment as President Robert Mugabe’s Zanu-PF party continues to be dogged by battles for a successor for the aged leader, who turned 92 on Sunday.

“Other issues are the growing discontent within Zanu-PF ranks over the role and influence of the unelected Ms Mugabe and her increasingly hysterical and irrational attacks on supposed successors to her husband,” said Gary van Staden, an analyst at NKC African Economics.

Other economists said the succession fights in Zimbabwe are affecting economic policy formulation and implementation, with ministers seeking to derail each others’ efforts and projects.

Zimbabwe requires external financing and foreign investment to boost its industries and mines, which have also been affected by indigenisation and consolidation policies aimed at the diamond sector.

Economist Moses Moyo said Mugabe’s failure to deal effectively with the succession wars in Zanu-PF is fuelling speculation that his wife intends to take over from him, and highlighted that this uncertainty would deter investors from committing funds to projects in the country.

Zimbabwe, together with other regional countries, is heavily reliant on South Africa for trade. They will be watching Gordhan closely when he unveils his 2016 budget against a backdrop of drought, electricity and water shortages as well as rising food costs across the region.

FocusEconomics analysts said of Zambia, which has also battled currency weakness this year, that “the fall in revenues stemming from poor agricultural and mineral exports has put a strain on public finances” while “borrowing costs have soared as gaps in the country’s budget widen”.

“Crucial fiscal consolidation measures are not likely to be enacted during the run up to August’s elections, which dim the outlook for public finances and as well as for growth. Panellists expect the economy to grow 3.9% in 2016, and 5.3% in 2017.”

Botswana also likely entered into “a small fiscal deficit” in 2015 due to falling state revenues from diamond sales as the region – which is heavily reliant on income from commodities – sustained weaker metal prices.

“As the precious stones are Botswana’s economic backbone, GDP growth decelerated, and the slowdown was exacerbated by persisting water and electricity shortages.

“The government plans to keep public spending broadly stable in the next fiscal year in order to support the economy, which is why the budget gap will likely widen moderately amid persistently-low gem prices,” FocusEconomics said.