The downside
The recent signing of the so-called “Durban Declaration” to combat disruption at construction projects has been lauded by all and sundry involved with the construction sector and is certainly a welcome initiative. Unfortunately, it masks the long-standing decline in building activity, including the slow pace of infrastructure upgrading crucial to the economy's growth. Only since the formation of a government of national unity (GNU) has the country’s national political leadership started to tackle key obstacles to growth and development. The so-called “construction mafia” has been around for many years, and their criminal acts of extortion, intimidation, and sabotage have hitherto not been addressed. Enter Minister of Public Works and Infrastructure Dean Macpherson and Deputy Minister of Finance Ashor Sarupen (both from the Democratic Alliance), and a national summit for crime-free construction sites is arranged, with participation by the Deputy Minister of Police and the Construction Industry Development Board. The declaration outlines a framework of interventions to combat criminality at construction sites, which need to be implemented post haste to prevent further backlogs with more than 180 development projects that have been affected. South Africa is still counting the cost of a decade of state capture under the previous head of state, and the GNU has its work cut out.
The upside
Rate-cutting cycle continues
During November, the Monetary Policy Committee (MPC) of the Reserve Bank lowered the official bank rate (the so-called repo rate), by another 25 basis points. This was followed by an equal reduction of the prime overdraft rate of the commercial banks, which now stands at 11.25%. Although millions of indebted consumers would have been disappointed by the meagre decline in debt servicing costs, the sharp drop in the consumer price index (CPI) in October provides hope for a series of further interest rate declines in 2025.
At an annualised rate of merely 2.8%, consumer inflation is now below the bottom mark of the Reserve Bank’s inflation target range of 3% to 6%, and the MPC is fast running out of reasons to maintain its overly restrictive monetary policy stance. The latter statement is vindicated by the fact that the real prime rate (prime minus inflation) has continued to rise and now stands at 8.5% - one of the highest commercial lending rates in the world. What is even more perplexing from the perspective of the quest for higher economic growth is the fact that the real prime rate stood at 5% at the beginning of 2020 (before the Covid pandemic), which means that the actual cost of credit (and of capital) in South Africa has now increased by 69%. Hopefully, the MPC will lower rates further early in 2025, a vital trigger to lift the country’s growth rate and create more jobs.
Hefty increase in trade surplus
A trade surplus is on the cards again for 2024, which will mark the ninth successive year that South Africa has managed to export more goods than it imports. The star export performers during October were precious metals, chemicals and machinery & equipment, with a decline in mineral imports also contributing to the run of trade surplus months in 2024. Although a trade surplus is not a prerequisite for macroeconomic stability, it certainly contributes to relieving pressure on a country’s exchange rate.
No doubt the relentless rise in South Africa’s trade surplus constitutes one of the reasons for the rand’s resilience against the US dollar. The greenback has staged a comeback in the wake of the recent Republican Party’s electoral victories in the US. Still, the rand has only lost 1.3% of its value over the past three months against the world’s dominant currency – the second-best performer of the 16 key global currencies monitored by Currencies Direct.
Welcome, return to job creation.
Following stagnant job growth during the year's first half, the economy finally expanded employment in the third quarter, adding 122,000 jobs in the formal sectors and another 165,000 jobs in the informal sectors (non-agricultural). It is encouraging that the construction sector outperformed all the industry groups in the private sector during the third quarter, raising employment by 176,000. Construction represents the most labour-intensive sector of the economy, and the Government of National Unity’s new-found commitment to cooperate with the private sector in repairing and expanding the country’s logistics infrastructure seems to be bearing fruit.
On Balance by Dr Roelof Botha deliberately emphasises positive news that, more often than not, emphasises the resilience of the South African economy and the immense scope for new business opportunities.
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