Goldman Sachs Sub-Saharan Africa Head, Colin Coleman, expects South Africa’s economy to grow by almost 3 percent in 2019 as a result of President Cyril Ramaphosa’s reforms. Colin predicts a much higher figure than analysts polled by Reuters who predict the economy will grow by 1.7 percent in 2019, after a sluggish growth of 0.8 percent in 2018.
Ramaphosa unveiled a ‘stimulus and recovery’ plan when his reform drive suffered a setback in August. Data published revealed that Africa’s most industrialised economy entered a recession in the second quarter of 2018. Coleman noted that the stimulus plan had encouraged investors by giving certainty on mining and visa rules and by emphasising skills development and education.
Coleman, who heads Goldman’s Johannesburg office noted that “part of the reason why Goldman Sachs is quite bullish on our ability to get back to 2.8 percent growth next year and 3.2 percent in 2020 is that the global backdrop is constructive. The two largest economies, USA and China are doing well”.
Since President Ramaphosa replaced Jacob Zuma, business confidence has fallen, as the scale of challenges facing him is clear. One of the areas of concern are the state-owned firms, which have been struggling with severe liquidity issues.
Coleman said power firm Eskom, presented the South African government with a major challenge because it accounts for around three quarters of its contingent liabilities. This is an area of concern for ratings agencies like Moodys which is scheduled to review the country’s last investment grade credit in October 2018.
Offering a possible solution, Coleman said “you’ve got to get a very significant equity injection (into Eskom), and practically its unlikely to come from government”. He also said there are only a few equity investors who would be interested in supporting South African Airways (SAA), which is currently struggling.
Coleman noted that “whoever would want to buy it (SAA) would want a balance sheet that is not broken, a restructuring plan that is credible and control to effect the turnaround”. He added that “you need to have terms which are sufficiently attractive to buyers”.