Nedbank CEO Mike Brown believes that South Africa’s economy can no longer afford the government’s dithering and delay in dealing with the country’s many challenges.
In the bank’s financial results for the fiscal year ending December 2022, the CEO stated that immediate and decisive leadership, action, and delivery are badly required in the country.
Brown predicted that economic circumstances would worsen further in the fourth quarter of 2022 as the country’s electrical issue worsened, global economy slowed, commodity prices fell, and the strain on family income from previous inflation and interest rate rises deepened.
Network infrastructure, which is primarily provided by state-owned monopolies and is required to enable higher levels of GDP growth and long-term job creation in South Africa, has deteriorated over time, particularly in the areas of electricity supply and distribution, transportation and logistics, and water infrastructure.
Furthermore, municipal service delivery is inadequate, and crime and corruption levels are unacceptably high, according to him.
“These are critical foundations required for business confidence, sustainable investment, higher economic growth and job creation as well as fiscal sustainability, and more urgent action is needed.
“Progress on structural reforms to address these matters has been far too slow, and the will of the political and public sector to make meaningful changes is uneven and actual delivery is poor.
“This cannot continue. More urgent and decisive leadership and action is required,” the chief executive said.
He stated that Nedbank is eager to collaborate with the government in speeding and implementing essential structural changes.
In terms of load shedding, Nedbank stated that the impact on its own activities was minimal. Nonetheless, generator run-time grew by more than 200% throughout its activities, including offices and branches, and diesel-related expenditures more than quadrupled to R59 million in 2022.
The true impact of load shedding was apparent with clients, where the outages harmed company and consumer trust, and as a result, GDP growth will be harmed in 2023 and beyond, it stated.
“From an SME perspective, load-shedding is making it increasingly difficult to start a business.”
A bleak future
According to Nedbank, the global economic situation would deteriorate further in 2023, with a downturn in advanced nations likely to worsen as the previous year’s increase in inflation, substantially higher interest rates, and diminished wealth effects affect household incomes and expenditure.
According to the organisation, the Ukrainian conflict, uncertain energy sources, dramatically higher manufacturing costs, and weak global economic forecasts will all erode firm profitability and dampen fixed investment.
“Emerging and developing countries face similar challenges, with slower growth in advanced countries likely to weigh on export earnings, while higher inflation and interest rates will subdue domestic demand.”
According to the report, China’s decision to suspend its rigorous zero-Covid policy may give some assistance to global trade and commodities prices, but the danger of sovereign default remains significant.
With severely limited budgetary headroom, a relatively strong US currency, and dramatically increased US interest rates, many developing nations with significant exposure to foreign debt are struggling to pay their commitments.
The bank reported that economic circumstances in South Africa deteriorated dramatically in early 2023, harmed by a steep increase in rolling blackouts as the country’s power shortfall worsened.
“Load-shedding is likely to continue at elevated levels throughout 2023. Combined with slower global demand and softer commodity prices, this will negatively impact domestic production and exports, resulting in a wider current deficit in 2023.
“Furthermore, the rise in inflation and higher interest rates will continue to weigh on household incomes and contain consumer spending,” it said.
While renewable energy projects will help fixed investment, the upside will be constrained by recurrent power outages and poorer domestic and global economic prospects, as well as falling commodity prices, delayed progress on structural reforms, and continuing policy uncertainty, according to the report.
The bank predicts that South Africa’s GDP growth would decline in 2023, although headline inflation will remain low. But, because inflation has remained higher than predicted, the South African Central Bank is forecast to raise interest rates again in March, with rate reduction likely in 2024.
Concerns over job security and earnings expectations will put consumers under pressure in the larger economy, according to the bank, while debt should remain manageable. Nonetheless, the continuing uncertainty caused by the economy’s poly-crisis will keep investment depressed.
“Heightened uncertainty about the country’s growth prospects amid paralysing structural constraints will probably discourage new large capital projects and subdue demand for general loans,” it said. “However, renewable-energy projects should provide some foundation for corporate loans.”
