Sam Rolland, transport economist at Econometrix, talks about the current state of South Africa’s economy, what it means for the transport industry, and what transporters can do to make life easier for themselves.
Ratings downgrades, a technical economic recession, low consumer confidence and rising unemployment are just some of the economic buzzwords South Africans have become accustomed to in recent times. How do all of these issues affect consumers and transport operators?
“The decline in economic activity affects the transport and logistics industry across all stages of production in the economy. In the first quarter of this year, transport, storage and communication fell by 1,6 percent. The strong freight income for the quarter suggests that firms would have been reducing inventories and not engaging in production,” Rolland says.
There are, of course, numerous reasons for the decline in economic activity and the effects of these have had a wide-ranging negative impact on both consumers and businesses.
“The release of the consumer confidence index in July showed that consumer confidence fell dramatically in the second quarter of this year. More importantly, the downgrade affected consumers’ outlook for the next twelve months, which means that purchasing of durable goods, such as new vehicles and appliances, will be delayed.
“On the business side, uncertainty in business conditions in the near future has led to erratic sales orders that have generally had a negative effect on the market. Businesses remain hesitant to expand their activities in case of a downgrade and a dramatic reduction in economic activity,” Rolland explains.
How has the downgrade affected the transport industry? According to Rolland, the depressed business confidence of the past two quarters has meant that businesses have been very reluctant to enter into expansionary activities. Fortunately, however, the mining and agricultural sectors have seen improvements in the past few months.“This is thanks to the increased commodity prices (although the mining sector has suffered a staggering blow to investment with the release of the latest Mining Charter) and the recovery of the agricultural sector from the drought.
“Discussions with industry have shown that many farmers are taking this opportunity to replace tractors and other machinery, while firms with large inventory levels, particularly exporters, are taking this chance to draw down on inventories, which should bode positively for the transport and logistics industry,” Rolland explains.
The other factor to consider is the technical economic recession – which implies that the country has experienced two consecutive quarters of negative economic growth; in this instance a 0,3-percent decline in the fourth quarter of 2016, followed by a 0,7-percent decline in the first quarter of 2017. According to Rolland, all sectors of the economy saw contractions, except for agriculture and mining.
“What the economy needs is a return to confidence that will spur new spending, new investment and better job growth. For this to happen, we need to see cooperation from business and government to ensure better policy certainty. This has been spoken about before, and remains more relevant in 2017 than ever,” Rolland insists.
As for the rest of 2017, Rolland says that the Econometrix outlook shows the economy treading water for the next three quarters, to average around 0,6-percent growth. “This is in line with similar forecasts and reflects the bleak mood facing the country. “The failure of the ruling ANC to define a clear path out of the recession at its recent policy conference also weighs in on businesses, particularly those in slowing industries that need policy guidance in order to expand,” he says.
So then, what does Rolland suggest the transport sector can do to expand?
“In times where weak growth is largely driven by domestic factors, local transport operators should look to sectors showing expansionary activities and a positive outlook. In the first quarter of the year, income from freight transportation in agriculture and manufactured food, beverages and tobacco products contributed 1,1 and 3,7 percent to the 13,9 percent growth in total income from freight transportation.
“While mining activities are likely to pull back in the latter half of 2017, mining firms may still take this opportunity to draw down on inventories, taking advantage of improved commodity prices. “We have also continued to see positive growth in the numbers of transported freight payloads, suggesting that transport operators still have many opportunities for growth in the economy. Further, transport operators that work in the export-goods markets should be encouraged by the improving demand in the global economy,” Rolland says. Happily, it’s not all doom and gloom ...
Rolland says that there are a number of opportunities for the economy to grow. “Before the political events earlier in the year, the economy was showing signs of improving and firms were gearing up for a good year, following the tough conditions of 2016,” he says.
The stronger rand and stable interest rates are encouraging for many actors in the economy. Econometrix’s own forecasts suggest that interest rates should remain stable for the rest of the year, which means that credit conditions should ease for many businesses and consumers. Should a stable political environment begin to appear, we may find a rise in confidence and growth prospects.” We’re sure that “stronger rand”, “stable interest rates”, and “confidence and growth” are buzzwords every South African consumer and business just cannot wait to hear.