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South African Economic Outlook for Small Business, November 2016 - Blog

South African Economic Outlook for Small Business, November 2016

South African Economic Outlook for Small Business, November 2016

The IMF’s Economic Outlook for September reported that South Africa had lost its place as the largest economy on the African continent to Nigeria, after a brief period in which it regained the top spot. The IMF forecasts more miserable news for the South African economy – stagnant growth rates of 0.1%. South Africa’s economic prospects have been almost totally held hostage to events in domestic politics.

The IMF’s Economic Outlook for September reported that South Africa had lost its place as the largest economy on the African continent to Nigeria, after a brief period in which it regained the top spot. The IMF forecasts more miserable news for the South African economy – stagnant growth rates of 0.1%. South Africa’s economic prospects have been almost totally held hostage to events in domestic politics.

 

Political problems

 

The major cause for the low growth forecasts is the state of political turmoil that has characterised South African government action in recent months. The market is recoiling at the policy uncertainty that has stemmed from large-scale in-fighting in the ruling ANC, with South African president Jacob Zuma jostling for power with Minister of Finance Pravin Gordhan. On October 11 2016, the National Prosecuting Authority issued summons to Gordhan regarding fraud charges, a move that caused the rand to depreciate by about 3% against the dollar. The move was condemned by high-level ANC officials, with Deputy President Cyril Ramaphosa and other high-ranking MPs issuing their support for Gordhan.

Investor hopes for a return to a more open and stable policy environment have been dashed, as the divisions within the ANC have come vividly into public sight.

On Sunday 23 October, ANC Chief Whip Jackson Mthembu publicly excoriated Jacob Zuma, calling for the entire national executive committee (including himself) to resign. This comes as the nation waits the release of the Public Protector’s report into allegations of so-called state capture – a term coined to describe the relationship between Zuma and the Gupta family, who are alleged to have had illegal influence over government operations.

 

Uncertain international standing

 

Further fuelling uncertainty is South Africa’s decision to pull out of participation in the Rome Statute, which legislates the International Criminal Court (ICC). This move has been widely condemned by civil society, and is perceived to be a slight to the ideals of universal human rights that are enshrined in the South African constitution. Some commentators, however, see South Africa’s decision as one that could lead to closer economic ties with other African countries – the ICC is (incorrectly) perceived as being anti-African, and rejecting it may lead to closer economic ties with African countries. If this possibility becomes reality, it may open up new avenues for small businesses looking to export to the African continent.

 

Tax increases?

 

Trouble in government has meant that there have been few positive signs of policy intervention that could successfully provide relief for small businesses in South Africa. Some analysts predict that Gordhan’s mini-budget – a mid-year update – may contain tax increases, especially for those in a high income bracket. This comes as revenue received by SARS has come in under expectations, with government expenditure exceeding tax income. SARS reports 4.1m tax submissions, as the tax season comes to a close. Income from VAT has been especially poor, a signal that consumers have been pushed by inflationary pressures, and are hesitant about spending.

 

Property markets flat

 

South Africa’s property market growth is largely stagnant, according to ooba, a property tracker. Prices have increased by 6% year-on-year, but compared to the second quarter of 2016, have dropped by 3.3%.