Fitch surprise shows SA played game well - economist


Cape Town - Although it is not yet 100% certain, data already available from the BankservAfrica Economic Transaction Index (Beti) shows there is a good chance that recessionary conditions will carry on in SA, Mike Schüssler, chief economist at Economists dotcoza, told Fin24 on Wednesday.

He is glad that ratings agency Fitch has given SA a stern warning that if the country's gross domestic product (GDP) grows any slower, it will have to downgrade.

In a surprise move on Wednesday, Fitch affirmed that it is keeping South Africa's investment grade credit outlook stable, while warning that political and growth concerns should be addressed. Statistics SA also recorded a negative growth rate of -1.2% in the first quarter of 2016.

"The Fitch decision to keep its outlook stable shows SA played the public relations game well by talking to the agency. However, SA now has more than six months to work a lot harder at economic growth. At the moment that hard work has not been done yet," cautioned Schüssler.

On top of that, interbank transactions under R5m in May recorded its largest drop in a single month since August 2008, the latest Beti revealed.

"Various data is showing that things are not looking good for the second quarter. It is likely that SA's growth might decline for 2016 or be zero. This will impact the next Fitch rating," explained Schüssler.

"Business confidence data shows a 7-year low and the Beti also shows things are not going well in the SA economy. Other bad news include car sales which declined by double digits in May compared to a year ago."

READ: SA interbank transactions drop most in 8 years - index

If data for the second quarter shows SA has gone into a recession, he thinks there is more than a 90% chance that Fitch and S&P will downgrade SA in December.

"We still have time to turn things around. Then we may have a chance to avoid a further downgrade. At this time, however, I do not think we have a big chance of avoiding it though," said Schüssler.

"We need proper controls of state owned enterprises (SOEs) to show there is no state capture. There should also be a focus on labour so that small and medium enterprises (SMEs) can grow. SA is futher more, still under pressure because of commodity prices and another piece of evidence is the decline in export containers going through Portnet harbours, showing the biggest decline ever."

He explained that, although there will be positive aspects in the SA economy, he is starting to wonder if that is going to help SA enough to avoid a second quarter of negative growth.

"The bullet is not through the head yet. The ratings downgrade has not happened yet, but we need to be aware as a country that we have veered so far away from normal economic policies that we need plans to become a lot more responsive to economic conditions," said Schüssler.

"We cannot just rely on Government to create jobs. We must also get the rules and regulations right to make businesses feel comfortable so that when they do create jobs, they do not feel the pressure from everyone criticising them."

READ: Junk reprieve strengthens rand after GDP news hurts currency

He emphasised that SA is very reliant on foreigners' short term money in order to pay of the country's imports.

"We have to get things going. We have to point out that we have an economy that is very modern in Africa. Fitch praised our institutions for still standing strong, but they are under pressure. We must appreciate that our Public Protector, the Minister of Finance, Treasury and our justice system are resisting pressure," said Schüssler.

"We have to make sure businesses can make a profit in this country. Profit is not a swear word. The richest countries have always been capitalist in nature. But we cannot create the European red tape in a country where we do not have the European skills."

That is why he emphasised that a lot of uplifting still has to be done in SA a lot.

"Even the average Chinese is now richer than us. We have fallen behind most of the world since 2009. We have added too many rules and rules do not create wealth, but rather more chances of corruption," said Schüssler.

"We do not realise the number of rules and regulations has put SA out of sync with our developmental status. We shoot ourselves in the foot with these rules. This not only relates to labour unions, but even to rules of professional bodies. In many circles there is a realisation that SA is in a serious situation, but not all understand this."

ALSO READ: SA makes final junk hurdle, but GDP dives 1.2%

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