News24

SA tipped for 'promising' growth

2011-09-01 22:44

Johannesburg  - In a report outlining the long-term growth outlook for the EEMEA countries - Eastern Europe, Middle East and Africa - Bank of America Merrill Lynch says in its view South Africa, Turkey and Saudi Arabia are the markets with the most promising ten-year growth outlook.

"Based on an analysis of growth determinants from demographics to leverage, we conclude that this decade Turkey, South Africa and Saudi Arabia will improve their growth performance. We see the highest average level of growth in Turkey (4.8%) and S. Africa (4.2%), with most of the rest of the region clustered between 3-4%," the bank says.

Under a heading 'South Africa: not spent yet', the bank forecasts that stronger-than-expected consumer spending and a stimulus from government investment on infrastructure is likely to boost growth to 5% between 2013 and 2016.

Without structural reform, economic growth is likely to fall back to a 4% trend pace, insufficient to meaningfully reduce very elevated unemployment, it predicts.

"We see sound reasons for a stronger than expected consumer story even though South Africa's growth may look somewhat pedestrian compared with BRIC economies like China and India.

"We think the thrust of government policy - on jobs, infrastructure and service delivery - will provide the backdrop for positive consumer growth that is less driven by the middle class and more by lower income households migrating up the income ladder.

"Government infrastructural spending will also be a key boost to growth over the next several years.

"We estimate that the combination of upward surprises to consumer spending and public infrastructural spending should help boost growth to a 5% pace between 2013 and 2016," the bank states.

But it notes that structural reform is key to boosting growth in Africa's richest state.

"Without efforts to address key headwinds to growth, for instance by alleviating the skills gap in the short-medium term via skilled immigration, revitalizing the educational system, and through labour and product market reform, we think South Africa is likely to moderate back to a 4% pace of growth until 2020.

"If tough decisions are taken over the next few years, South Africa's growth potential could accelerate beyond 2016 to 6%, in our view. The introduction of the national health system (NHI), while likely to be phased over a 15-year period, has the potential to

be a significant headwind to growth via a growing fiscal and tax burden.

The Bank of America Merill Lynch report also points out that a number of structural issues hamper South Africa's ability to maximise economic growth and employment, in its view.

Three key constraints, it notes, are a skills mismatch, inflexible labour markets and onerous product market regulation.

On the skills issue, it says that the demand for unskilled labour has been declining over the past two decades as traditional labour intensive industries such as mining, agriculture and manufacturing have been in secular decline as the economy has orientated towards a more skills and services based footing.

"However, educational standards are very poor. Only 35% of South Africans over the age of 20 have a secondary school pass according to the SA Institute of Race Relations and there are only 26 PhD graduates per million of the population compared with 264 in Australia and 187 in South Korea."

The report further notes that the World Economic Forum (WEF) Global Competitiveness Index shows South Africa's ranking falling from 45 in 2008/09 to 54 in 2010/11, out of 139 countries. On labour market flexibility, South Africa slipped from 88th in 2008/09 to 97 in 2010/11.

"The underlying components show inflexible hiring and firing practices (135th), a lack of flexibility in wage determination by companies (131st), and poor labour-employer relations (132nd).

"These labour related weaknesses correspond to institutional strengths such as the accountability of private institutions (3rd), intellectual property protection (27th), property rights (29th), goods market efficiency (40th); financial market development (9th), business sophistication (38th); innovation (44th) and good scientific research institutions (29th)."

On onerous product market regulation, the bank notes that the OECD's product market regulation (PMR) scores highlight that South Africa has more restrictive regulation than OECD economies and other EM economies like Brazil.

"This is particularly in the areas of barriers to entrepreneurship and barriers to trade and investment.

"The OECD notes that SA firms complain of regulatory compliance complexity and complicated procedures for getting licences," the bank adds.

Comments
  • G.du Plessis - 2011-09-01 22:58

    Well that is some positive news!

      Shrike - 2011-09-01 23:38

      How is this good news? Read the article carefully..... The report further notes that the World Economic Forum (WEF) Global Competitiveness Index shows South Africa's ranking falling from 45 in 2008/09 to 54 in 2010/11, out of 139 countries. On labour market flexibility, South Africa slipped from 88th in 2008/09 to 97 in 2010/11. We are going backwards.....Viva

      G.du Plessis - 2011-09-01 23:45

      That Global Competitiveness ranking slip is old news - it came out a few weeks back. The new opinions expressed by Merrill Lynch add a fresh point of view to what has been gloomy news the last few weeks; a positive spin on the future of SA.

      Shrike - 2011-09-01 23:48

      There is always hope...... Let's see if our government does the right things to bring this growth home.....

      Shrike - 2011-09-01 23:54

      And improves the education system..... "However, educational standards are very poor. Only 35% of South Africans over the age of 20 have a secondary school pass according to the SA Institute of Race Relations and there are only 26 PhD graduates per million of the population compared with 264 in Australia and 187 in South Korea." I wonder how these percentages compare to the BEE targets they want us to implement......

      Met - 2011-09-02 06:09

      Sad to see how the average decent SA is being deceived and misled. Bottom line- DEBT!!!. This will not go away in 5 or even 10 yrs. Test Merryll Lynchs credibility- What did they say in 2006?

      Nero - 2011-09-02 09:27

      The only sustained growth in SA is in our President's pants.

  • Schalk - 2011-09-01 23:12

    Very interesting reading - its nice to see some guys with thick glasses backing up what many of us have been saying on this forum: - SA has massive growth potential - This growth will be wasted if the ANC and ANCYL keep chasing skills out of the country - Our hopeless primary education system needs a major revamp in order to meet this growth potential - Idiotic additional socialistic taxation (e.g. NHI) will deter growth - Our labor laws are absolutely ridiculous and anti-growth (we rank virtually last in the entire world) - In keeping with the current status quo we will keep sliding in terms of global competitiveness Not bad... These Merrill Lynch guys have summed SA up pretty well here. I just wish that more decision makers in government actually had the mental capacity to understand these words.

      Shrike - 2011-09-01 23:43

      "Without structural reform, economic growth is likely to fall back to a 4% trend pace, insufficient to meaningfully reduce very elevated unemployment, it predicts. " Structural reform with the ANC? Are these guys dreaming?!?

      Shrike - 2011-09-01 23:45

      Nevertheless a very good article.....

  • Shrike - 2011-09-01 23:41

    Out of 139 countries we are at: "The underlying components show inflexible hiring and firing practices (135th), a lack of flexibility in wage determination by companies (131st), and poor labour-employer relations (132nd). " That is what BEE does to our country......

  • kolobe - 2011-09-02 07:11

    thought we were heading for zim way, local pessimists (whom will never go anywhere) need to keep shut

      balan.morgen - 2012-06-07 15:53

      Kolobe please shut up you troll

  • WCD - 2011-09-02 08:22

    Bank of America Merrill Lynch ! Another free lunch for the Yanks ! They prey on the weak, beware of Merrill Lynch, they ease into struggling economies, bury them in depth with empty development promises, then they strike, like a snake in the grass. The payback is forever and your economy will be manipulated by the ever changing d$ll$r. Next step is a military army base and a 'space plan'

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