SA growth forecast raised

JOHANNESBURG. – Credit rating agency Fitch has raised its forecast for South Africa’s economic growth and said the country’s budget deficit for the fiscal year will likely be smaller than the government’s earlier projections.

But this doesn’t mean a positive ratings adjustment is on the cards yet, it said.

In a statement last week, Fitch revised its earlier forecast of 4,9 percent growth in 2021 up to 5,3 percent. It further said a “robust economic performance” and stronger-than-expected fiscal revenue in recent months meant SA’s budget deficit in the fiscal year ending in March 2022 would likely be an improvement on projections from February this year.

It warned that the government would still face “substantial challenges” in its battle to stabilise debt by 2025/26.

These include the prospect of possible further bailouts to troubled state-owned enterprises, and pressure placed on the public purse by the July riots in KwaZulu-Natal and parts of Gauteng.

“The social unrest in July has increased pressure on the government to raise support for the poor – pressure that could rise further if the ruling African National Congress [ANC] performs poorly in municipal elections in November,” Fitch said.

“The ANC leadership has agreed on the need for a basic income grant in principle, for example, although we believe its cost will make implementation unlikely in the next few years. Higher social spending, if introduced, could be offset by revenue measures, but these might not fully cover expenditure, and could weigh on economic growth.”

But the agency said it expected a strong recovery in activity after the July unrest – which a Sasria executive flagged as the most expensive blitz riot the world had seen in a decade – which it attributed in part to an uptick in manufacturing activity.

“The August 2021 manufacturing purchasing managers’ index (PMI) and mobility data point to a strong recovery in activity following disruption in July caused by the most serious riots in decades,” Fitch said.

The rating agency noted that the consolidated budget deficit was likely to be “significantly smaller” than the 9,3 percent projected in the February budget, but that fiscal support extended after the riots would mean a little less breathing space.

It also said inflationary pressures appeared under control.

“Meanwhile, inflationary pressures appear manageable, with year on year consumer price inflation falling to 4.6 percent in July, close to the 4,5 percent mid-point of the central bank’s target range. We believe interest-rate hikes over the coming years, and thus upward pressure on interest expenditure, will remain relatively contained,” the statement said.

While tax collection had been heavily impacted by the hard lockdown in 2020, Fitch noted that fiscal revenue had seen a 54 percent increase year-on-year for the first four months of 2021/22 – though this is expected to level out for the rest of the year.

Recent strong revenue from mining is also expected to slow as the commodity price environment becomes less favourable, Fitch said.

Fitch affirmed SA’s rating at BB- with a negative outlook in May.

Positive rating

It said at the time that a positive rating action might be triggered by progress in key areas that would increase its confidence that government debt/GDP stabilisation could be achieved in the medium term.

But in its statement, Fitch said it was still “unclear” whether positive developments it had outlined would be sustained.

Currently the prospects for the planting season of grain and oilseeds in SA indicate that there will be sufficient stock to ensure prices of white maize commodities will stay at the low-end of price levels for the next year, according to Wessel Lemmer, general manager of Agbiz Grain.

That is good news for consumers who depend on white maize flour as a staple food. The same can be expected for yellow maize which is used in feed for the meat industry.

These were some of the points made at a virtual symposium hosted by Agbiz Grain last week. Delegates included producers, storage operators, animal feed manufacturers, traders and oilseed processors.

“We have, for example, developed a grain storage cost index to provide greater transparency. Also, the use of technology is shifting from previously mainly being on the production side, to now also in storage. This is to improve efficiencies by having advanced monitoring of grains in storage and to stay competitive in terms of costs,” said Lemmer.

Milling companies pointed out that they prefer a hard kernel of maize which offers better extraction and fewer losses. So, it is important to increase these types of efficiencies in the milling part of the value chain as that will lower the cost of bread and white maize meal especially.

“We believe there are opportunities in this regard for individual companies to do contract farming to meet specific needs,”said Lemmer.

The grain and oilseed sector plays a big role in the growth of the total economy of South Africa, according to Jerry Maritz, chairperson of Agbiz Grain.

Derek Mathews, chairperson of Grain SA, stated that they supported the introduction of new initiatives such as a super grade white maize, provided that the incentive reached the farm.

“If the incentives reach the farm, farmers will produce what their consumers, such as millers, demand. Most of our farmers are astute businessmen and they know that principle very well,”said Mathews. – fin24.com