A long and bumpy road ahead

A long and bumpy road ahead

As we are about to draw the curtain on what has arguably been one of the most tumultuous years in South Africa’s history it is difficult to find something to be cheerful

Bafikile Bonke Simelane, President, Master Builders South Africa

about as we approach the Festive Season, especially after last week’s grim and sobering Finance Minister’s Medium Term Budget Policy Statement (MTBPS) which has had mixed but largely negative reactions. The country is again facing the prospect of yet another credit rating downgrade.

Subsequent to his maiden MTBPS the Finance Minister announced that South Africa will unveil a stimulus package focusing on tourism and manufacturing to turn around the economy. It remains to be seen if this will be enough to kick-start the economy in a deep, meaningful and sustainable manner especially when revenue collection shortfalls are taken into account. The Minister also slashed the growth estimate to 0.7 percent from 1.3 percent.

While there was an expectation that there would be a revenue shortfall for the 2017 financial year, it was very concerning to note, that there was no clear plan on how the massive R50 billion shortfall would be filled. The Minister did confirm that only part of the shortfall will be funded by way of sale of shares in Telkom. It is even more concerning to note that the country’s contingency reserves would be utilised during this year and for the coming three years. These funds are generally only utilised when there is no other suitable alternative, which is certainly cause for alarm.

The downward revision of projected growth does not bode well for the unemployment rate of 27.7%. Given the current slow economic growth highlighted by the Minister, coupled with the high levels of political, regulatory and policy uncertainty, the Minister’s budget presentation has not painted a picture IN which local or foreign investors would have confidence.

Construction-specific statistics were also concerning, as reported by Elsie Snyman, the CEO of Industry Insights. The South African economy came out of a technical recession and grew by 2.5 percent in the second quarter of 2017, which was much better for all sectors of the economy, except the construction sector, which was the only sector to exhibit negative GDP growth in the second quarter.

This is largely in line with expectations, with Industry Insights project data, as well as building plans data from Stats SA suggesting a more depressed outlook for the foreseeable future which means continuing adverse trading conditions. Property Economist Erwin Rode is quoted as saying: “lack of vigour” may be the best way to describe the current performance across the full spectrum of property in South Africa. Sadly, we have to disagree with him.

Construction GDP declined by 0.5 percent in the second quarter, marginally better than the 0.8 percent decline in the first quarter. There has been a clear and robust downward trend in the construction GDP figures over the last 8-12 quarters, with growth declining quarter by quarter, and entering negative territory this year. According to South African Reserve Bank Deputy Governor Daniel Mminele, GDP growth was unlikely to be maintained at levels achieved in the second quarter when the economy emerged from recession. “We may not be in a recession, but it is quite doubtful that the 2.5% momentum of the second quarter can be sustained,”

It is clear that in 2018 we will still be grappling with the new normal characterised by VUCA; Volatility, Uncertainty, Complexity and Ambiguity.

It is against this background that we wish our members a safe and restful Festive Season in preparation for what in all likelihood will be yet another tough and difficult 2018 dominated by the pre-occupation of the aftermath of credit ratings and the 2019 general election irrespective of who emerges as the new President of the ANC at its 54th national elective conference.

Bafikile Bonke Simelane

President, Master Builders South Africa