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South Africa Business Forecast Report Q4 2014

  • July 2014
  • -
  • Business Monitor International
  • -
  • 46 pages

Core Views
The South African economy will grow at a tepid rate over the medium term, with real GDP expanding by just 1.8% in 2014 and 2.3% in 2015. Our below-consensus view is predicated on several factors including weak investment sentiment and the ongoing retrenchment in the gold and platinum mining sectors. South Africa's current account deficit will shrink to 4.6% of GDP in 2014 and 3.9% in 2015 – following a shortfall of 5.8% in 2013 – thanks to recovering export growth and subdued import demand. The deficit will be covered by capital and financial inflows, meaning that a repeat of the sharp rand depreciation seen in mid-2013 is unlikely.

President Jacob Zuma's position looks more secure due to the relative success of the ruling African National Congress at the May 2014 elections. The composition of the new cabinet suggests that more indecision on economic policy lies ahead, but some of the appointments are positive for investors and there are early signs of progress regarding the hugely damaging strike in the platinum sector.

Major Forecast Changes
We are now forecasting depreciation of the rand over the coming years owing to a sustained current account deficit and tepid inflows of foreign investment. We previously held a more constructive outlook based on expectations of momentum for reform following the May 2014 elections, but we now expect 'more of the same' for policy (ie
slow progress).

Table Of Contents

South Africa Business Forecast Report Q4 2014
Executive Summary.... 5
Core Views..5
Major Forecast Changes5
Key Risks To Outlook....5
Chapter 1: Political Outlook.. 7
SWOT Analysis.... 7
BMI Political Risk Ratings. 7
Domestic Politics 8
New Cabinet: Some Glimmers Of Hope8
President Jacob Zuma's position looks more secure due to the relative success of the ruling African National Congress at the May
2014 elections. The composition of the new cabinet suggests that more indecision on economic policy lies ahead, but some of the
appointments are positive for investors and there are early signs of progress regarding the hugely damaging strike in the platinum
sector.
TABLE: Political Overview ...8
Long-Term Political Outlook 10
Political Trials And Tribulations Over The Coming Decade..10
Many issues threaten South Africa's political stability over the long term, not least the inequalities still stemming from the apartheid era
and the foreign policy challenge of Zimbabwe. Although our core scenario envisages no major change to the political backdrop, we
present a number of alternative scenarios.
Chapter 2: Economic Outlook.. 13
SWOT Analysis.. 13
BMI Economic Risk Ratings. 13
Economic Activity.. 14
Weak Growth On Several Fronts....14
Weak economic growth will continue in South Africa over the remainder of 2014 and throughout 2015 owing to power shortages,
industrial action in the mining sector and a beleaguered consumer sector. We forecast real GDP growth of 1.8% in 2014 and 2.3% in
TABLE: Real GDP Growth, % chg q-o-q, SAAR...14
TABLE: Economic Acti vit y....15
Balance Of Payments.. 16
Current Account Deficit To Shrink, Slowly...16
South Africa's current account deficit will shrink to 4.6% of GDP in 2014 and 3.9% in 2015 - following a shortfall of 5.8% in 2013 -
thanks to recovering export growth and subdued import demand. The deficit will be covered by capital and financial inflows, meaning
that a repeat of the sharp rand depreciation seen in mid-2013 is unlikely.
TABLE: Current Account16
Monetary Policy. 18
Rate Hikes Ahead Despite Stagflation Dilemma18
The South African Reserve Bank will continue to hike interest rates slowly in a bid to anchor inflation expectations, despite the
deleterious impact on economic growth. We expect a 50 basis point hike this month (July), taking the repo rate to 6.00%.
TABLE: Monetar y Polic y.18
Exchange Rate Policy. 20
ZAR: Multiple Reasons To Be Bearish20
The South African rand will range-trade for the remainder of 2014 and subsequently depreciate in 2015 and 2016. The main drivers of
this weakness will be a sustained current account deficit and tepid inflows of foreign investment.
TABLE: BMI Currenc y Forecast ...20
TABLE: Exchange Rate21
Chapter 3: 10-Year Forecast 23
The South African Economy To 2023.. 23
Underperformance Among EM Peers Ahead23
The South African economy will grow at a slow pace of around 3% annually over the coming 10 years. Power shortages, industrial
action and divestment in the mining sector will weigh on economic expansion, resulting in long-term economic underperformance versus
emerging market peers.
table : Long -Term Macr oec onomic Forecasts ..23
Chapter 4: Business Environment 27
SWOT Analysis.. 27
BMI Business Environment Risk Ratings 27
Business Environment Outlook 28
Institutions.... 28
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS...28
Table : BMI LEGAL FRAMEWORK RATING...29
Table: LABOUR FORCE QUALITY.30
Infrastructure 31
Table : TRADE AND INVESTMENT RATINGS....31
Market Orientation.. 32
TABLE: AFRICA - ANNUAL FDI INFLOWS32
TABLe: Top Export Destinations33
Operational Risk 34
Chapter 5: Key Sectors.. 35
Pharmaceuticals and Healthcare.. 35
TABLE: Pharmaceutical Sales , Hist orical Data And Forecasts 36
TABLE: Healthcare Expenditure Trends, Historical Data And Forecasts 37
TABLE: Government Healt hcare Expenditure Trends , Hist orical Data And Forecasts ... 37
TABLE: Private Healthcare Expenditure Trends, Historical Data And Forecasts... 37
Telecommunications... 38
TABLE: Telec oms Sect or - Mobile - Hist orical Data and Forecasts 39
TABLE: Telec oms Sect or - Wireline - Hist orical Data and Forecasts .. 40
Other Key Sectors.. 43
Table : Oil and Gas Sect or Key Indicat ors 43
Table : Infrastructure Sect or Key Indicat ors 43
Table : Defence and Securit y Sect or Key Indicat ors ....43
Table : Food and Drink Sect or Key Indicat ors ..44
Table : Aut os Sect or Key Indicat ors .44
Table : Freig ht Key Indicat ors ....44
Chapter 6: BMI Global Assumptions. 45
Global Outlook... 45
Global Recovery Still On Track..45
Table : Global Assumpti ons ....45
Table: Developed States, Real GDP GrowtH, %.46
Table : BMI VERSUS BLOO MBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 46
Table : Emerging Markets , Real GDP Growt h, %47

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