South Africa Business Forecast Report Q3 2009

Publication Date	July 2009
Publisher	Business Monitor
Product Type	Report
Pages	67
ISBN Number	1745-0713
Product Code	BMI02157

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Summary

South Africa's 2009 parliamentary elections have been an extraordinary event in many respects.

Perhaps most importantly, the ruling African National Congress (ANC) scored a clear electoral victory, gaining 65.9% of all votes, followed by the Democratic Alliance (DA, 16.7%) and the Congress of the People (COPE, 7.4%). While this represented one of its weakest results in years, the outcome is nevertheless impressive, given the difficult circumstances the ANC was facing over the past year. Indeed, with the ruling party weakened by the formation of the rival COPE and President Jacob Zuma's credibility battered by allegations of corruption, many expected the ANC to fare significantly worse. As such, the result constitutes a strong vote of confidence, which was urgently needed at a time when South Africa is likely to face one its greatest economic challenges in decades. We forecast a real GDP contraction of 1.9% in 2009, followed by sluggish growth of 1.8% in 2010.

Although we do not expect drastic changes to South Africa's policy environment, we maintain our view that President Zuma will face an enormous task handling different expectations from the investor community and the country's left-wing factions. While the ANC is by no means a slave to the country's trade unions and the communist party, we believe their influence on the policy agenda will be felt over the coming years. Furthermore, Zuma will have no choice but to respond to demands from the country's poorer social classes, for whom he promised to ease the current economic pain and fight poverty and crime.

Although boasting the region's most open banking system, South African financial institutions remain, for the time being, in a good position to ride out the adverse external credit conditions.

That said, non-performing loans as a percentage of total advances stood at a manageable 3.9% at the end of 2008, but this is expected to rise over the course of 2009 and will take a heavy toll on commercial banks' profitability, despite aggressive cuts in the benchmark interest rate. While this does not yet pose a serious risk to the banking sector at present, a longer-than-expected downturn in global and domestic growth could undermine the stability of the South African financial system over the longer term.

In the State of the Nation address at the beginning of June, President Jacob Zuma announced that employment creation will be a top priority for the ANC over the coming years. The government will try to create 500,000 additional workplaces by the end of 2009 and a total of 4mn job opportunities by 2014. Given the sharp downturn in domestic economic growth (we forecast a contraction of 1.9% in 2009), we believe the authorities will face considerable challenges fulfilling their objective over the course of this year.

Content

Executive Summary
Zuma in The Driver's Seat, at Last
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Implications of An Anc Victory
- While failing to Regain Its Two-Thirds Majority in Parliament, The African National Congress Managed to Defend Its Clear Lead in The Elections.
- Foreign Policy
- What Does Jacob Zuma Mean for Zimbabwe?
- The Instalment of Jacob Zuma as President of South Africa Will Not Solve Zimbabwe's Domestic Problems, but Is Likely to Be Supportive of The Country's Peace Process over The Longer Term.
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- No Quick Fix for Economic Recovery
- following A Sharp Recession in 2009, We Believe The South African Economy Is Unlikely to Bounce Back Strongly in
- 2010, with Subdued Private Consumption and Export Growth Weighing on The Overall Growth Number over The Medium Term.
- Monetary Policy
- One Final Interest Rate Cut on The Cards
- We Believe The South African Reserve Bank Is Likely to Implement One Further 50bps Interest Rate Cut before Completing Its Monetary Easing Cycle, Taking The Benchmark Interest Rate to 7.00% by End-09.
- Exchange Rate Policy
- Exposed to Risk Sentiment
- following The Push through Key Resistance at around Zar8.2000/US$ on May 27, The South African Rand Still Has Scope to Make Further Modest Gains towards The Zar7.8000/US$ Area over The Short Term, Especially on The Back of Further US Dollar Weakness.
- Debt Outlook
- Local Debt: beyond Its Peak
- despite The Potential for A Temporary Compression in Government Bond Yields, Rising Public Debt and Ongoing High Inflationary Pressures Will Keep Yield Levels Elevated over The Medium Term.
- Banking Sector
- Sheltered, but Is The Worst Yet to Come?
- While The Global Credit Crunch Had Only A Limited, Direct Impact on The South African Banking Sector, A Prolonged Slowdown in Global Growth Could Pose Significant Credit Risks Going Forward.
- Regional Outlook
- Ssa : Set to Outperform
- Although Numerous Sub-Saharan African Economies Will Feel The Pinch amidst The Global Recession, The Region Will Remain One of The Best Performing Ones over The Coming Years.
Chapter 3: 10-Year Forecast
- The South African Economy to 2018
- Structural Constraints to Curb Long-Term Growth
- While We Forecast Relatively Stable Real Gdp Growth Rates over The Coming 10 Years, Ongoing Structural Shortcomings Will Continue to Limit South Africa's Long-Term Growth Potential.
Chapter 4: Special Report
- The Outlook for Global Banking
- Table: Loa N-to-Deposit Ratios , Selected States
- Table: Loa N Gro Wth (% Chg Y-O-Y), Selected States
- Table: Commercia L Banking Business Enviro Nment Rati Ngs, Selected Stat Es
- Business Environment Rating Outlook
Chapter 5: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
- Table: Bmi Business and Operatio Nal Risk Rati Ngs
- Table: Bmi Legal Framework Rati Ngs
- Institutions
- Infrastructure
- Table: Labour Forc E Qua Lity
- Market Orientation
- Table: Bmi Trade Rati Ngs
- Table: Top Export Desti Natio Ns
- Tax Regime
- Operational Risk
Chapter 6: Key Sectors
- Petrochemicals
- Executive Summary
- Bmi Expects No Expansion in Refinery Capacity following Consolidation, Although Continuing Enlargement of S Ynthetic Oil Capacity Is Expected.
- Chemicals
- Executive Summary
- The South African Chemicals Industry Is Likely to Report Growth throughout The Forecast Period, despite The Impact of The Global Economic Crisis.
Chapter 7: BMI Global Assumptions
- Global Assumptions
- Table: Global Assumptions
- Table: Global & Regional Real Gdp Gro Wth
- Table: Commodities
List of Tables
- Table: South Africa Political Overview
- Table: Economic Acti Vity
- Table: Monetar Y Policy
- Table: Exchange Rat E Policy
- Table: for Eign Debt
- Table: South Africa Long-Term Macroeconomic Forecasts
- Table: Middle East & Africa Annual Fdi Inflows
- Table: South Africa Chemicals and Petrochemicals Sector, 2006-2013
- Table: South Africa's Chemcials Trade Data, 2005-2008