Sunday, January 16

Wandile Sihlobo on SA’s third quarter GDP contraction and failed land expropriation vote


FIFI PETERS: We knew that the third wave of the Covid-19 pandemic and the Level 4 lockdowns that followed, as well as the July riots, would have a negative impact on the economy. We knew this and we expected it too, but we didn’t expect things to be as bad as South Africa Statistics reported today, with our economy contracting 1.5% quarter-over-quarter between July and September. This was far worse than economists expected.

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One of the largest sectors that did show weakness in the third quarter was agriculture, which fell more than 13%. This is a big problem because agriculture has been one of the sources of hope for this economy. It has been one of the sectors, in fact the only sector, that has grown during the pandemic.

Let’s take a look at what’s going on right now with Agbiz chief economist Wandile Sihlobo. Wandile, thank you very much for your time. The 13.6%, I’ll be precise, the 13.6% contraction in agriculture quarter-over-quarter during the third quarter, was it in line with your own expectations?

DEAR FRIEND: I’d say it was worse than we expected. We expected there to be a possibility of a somewhat less optimistic performance than we saw in the second quarter. But I think the magnitude of the contraction is the only thing that surprised us quite a bit here. I say that, Fifi, because in the second quarter of each year there is always a strong activity, with harvests happening, many things happening in grains, also within the horticultural space.

The third quarter is usually a somewhat quiet period in agriculture compared to what we see in the second quarter. But I think the magnitude here is the surprising thing. It’s even worse, if you look at it, to say that the third quarter of this year compared to the third quarter of last year is still down to about 7% less than that, which I think is a surprise, because this is generally a Fantastic year on the ground from what we observe among our colleagues.

FIFI PETERS: So what do you think it was the weeds in the sector in the third quarter that hampered growth?

DEAR FRIEND:

Our view is that this is a problem and we think that while this is an important thing to focus on, we still believe that when the fourth quarter numbers come in you will see a good route there and, who knows, this could even be somewhat of a review. of these things that usually happen.

So we are careful not to read much of this third quarter number because all the other indicators for agriculture [are] the high frequency ones. The grain sector had the largest harvest in the history of this country. We saw record harvests in the horticultural space, and even cattle are not doing badly. So our take is that as the fourth quarter numbers go up, you will see that rebound to the point that even with this number, we are still not downgrading our annual growth figure, which is just over 6. % for agriculture for this year.

FIFI PETERS: Well. That is encouraging. But I just want to dig a little deeper in terms of understanding the magnitude of the decline. We had just talked to one of the FNB wealth managers and she was saying that based on her forecasts, they were quite surprised by the degree to which the July riots altered things for agriculture. So can you give us an idea, based on the figures, of the impact the July riots had on your sector?

DEAR FRIEND: The impact was obviously there, but we don’t think that with the polls we’ve done it has been that significant. I’ll give you a number, for example. In our surveys of agricultural companies, purely agricultural companies reported [for] retailers, the cost of that was around R1.2 billion. That was the work we did with the National Council for Agricultural Marketing as part of the food safety work team. If you looked at the trade figures, for example, agricultural exports, in the third quarter of the year compared to the third quarter of last year, we actually increased 8% year-on-year.

This is important because it tells you that in the ports, although there were failures, the activity continued; the trade was still going on. Disruptions are on that scale of just over R1.2 billion as I was mentioning, which again speaks to the point of saying that while the impact was an outage at KZN, we are very [careful] not to say that it was the biggest drag on what is coming out of these numbers that you are seeing. We think that was less true; it was not so important in the agricultural period.

FIFI PETERS: Okay, good to know citrus that got stuck in ports once got out and got out on time.

However, get away from the past, if we can call the third quarter like that, the present and what happened and it came down in parliament today, that vote on the land grab without compensation, and if you can move on or if you can’t. ahead. Currently he did not get the numbers he needed to change the Constitution and move on.

Your initial impressions of what this could mean for the industry and the investments to come?

DEAR FRIEND: On our side, this is a positive development, because we really do not prefer a change in the Constitution. But I think one of the important things that we are all watching now is what the next step will be. Will a new motion be tabled in parliament or will we move forward on this particular issue? That is the official we are waiting for.

But in terms of investment in general in the sector, we know from the figures that there has not been a drastic decrease in investment in agriculture, but it has had a downward trend. Obviously, every time you talk to people who think about long-term investments, they are immersed in the history of land reform.

So the idea is to move away from expropriation, but rather to have a more pragmatic policy approach to land reform that would be conducive to attracting investment, especially when we think of agriculture as the technology sectors that will help us drive recovery. economical. for this particular year.

I think the government is already thinking about some of these things. If you remember SONA’s statement from the president, he spoke about the Agrarian Reform Agency. That could be one of APP’s approaches to say, let’s get away from expropriation, but can this agency be one of the instruments to push for agrarian reform? The failures that we have seen are not only the legislative issue, but the institutional failures within the department; then you do need an instrument that can be useful. [towards] pushing us towards the implementation of the agrarian reform.

FIFI PETERS: It’s okay. So today is a welcome result in parliament. He is looking at what the next steps might be, but agrees that there is a need for land reform. He says the government is looking at how to make that happen better, in the future.

DEAR FRIEND: Yes

It’s okay. Wandile, my friend, let’s leave it there. Thank you very much for your time, as always. Wandile Sihlobo is Agbiz’s chief economist.


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