2019 Business Outlook for South Africa

2019 Business Outlook for South Africa

2018 has been one of the most turbulent years for the economy in recent history. After a devastating slump in the first half of the year, figures for the third quarter indicate that the economy has exited the recession, and the forecasts for next year are a little brighter. The road ahead is still like to be bumpy, however. Here’s what you need to know about the economic outlook, and how to keep your business healthy in the year ahead.

A disastrous first half of 2018

The first quarter of 2018 saw the economy shrink by 2.6% – the worst quarter-on-quarter decline since 2009. The second quarter again saw the economy shrink by 0.4%. Growing policy uncertainty weakened investment, while VAT-hikes reduced private consumption . With businesses and consumers taking hits from all sides, two consecutive quarters of negative growth indicated a recession.

Ending the year on a high

South Africa breathed a collective sigh of relief in the third quarter of 2018 – growth of 2.2% indicated recession had been escaped. The growth was driven by increased manufacturing and agricultural output, as well as household spending bouncing back. Problem-areas were fixed investment (such as in construction), due to the uncertainty around land-reform policies, and the high price of oil. However, the stage has been set for a business resurgence next year.

What to expect in 2019

While analysts’ projections for 2019 vary, there is general agreement that it will be a year of both growth and turbulence, as South Africa attempts to regenerate its economy after a tough 2018.

JPMorgan economist Sthembiso Nkalanga remains sceptical of the growth potential, saying that economic support is not sufficient, and that further policies need to be implemented to increase investment – therefore predicting a growth rate of 1.3%.

Focus Economics has a more mixed view – predicting a growth rate of 1.6%. They note that real wage increases and government policy to stimulate the economy will increase household spending and fixed investment. However, they remain concerned about a lack of structural adjustment, and that further downgrades from rating agencies could damage investment and undo positive changes.

Johann Els, Chief Economist at Old Mutual, is more optimistic – going so far as to predict a 2% growth rate. He notes that it is important to see South Africa within the shifting sands of the global economy. With South Africa’s strong economic ties to China, their stability is in our favour. Meanwhile, the slowing down of the United States’ growth will stabilise global markets, allowing emerging economies such as South Africa to grow, and a stronger Rand that will encourage local investment. Finally, there are massive reductions in fuel prices set for December and January – the biggest cuts since the end of 2008. This will reduce inflation and increase household consumption.

Navigating the foggy road ahead

Much of the disagreement about the outlook for 2019 is caused by unpredictable variables: government policies to create jobs should strengthen the economy, while investment in education should provide the increase in skilled labour needed to boost productivity. Policies that implement fair land-reform could both decrease uncertainty (and therefore increase investment) and boost agricultural output, while Eskom’s deal with independent energy companies may finally solve the energy crisis that has plagued business productivity. There is massive potential and many beneficial policies – their implementation will be vital. Businesses need to be prepared to for all possibilities.

Uncertain times require flexible financing

The key takeaway, then, is that businesses need to be highly adaptive: to weather the storm if there are slow periods, and to be able to rapidly expand production and invest in new infrastructure and materials if there is sudden growth. This can be incredibly difficult to manage with conventional financing. Taking out large loans before a downturn can lead to bankruptcy – while getting substantial loans to expand during an upturn can prove impossible for SMEs without sufficient collateral and credit history. With credit terms of up to 120 days necessary to make sales, this can make managing cash flow a never-ending battle.

Factoring offers a more flexible alternative. You sell your accounts receivable to a third-party organisation, called a factor, who then collects the account from your client when they are due. Merchant Factors evaluates your business on your acquisition of work rather than credit history – so you can easily expand to meet economic opportunities. With working capital worries a thing of the past, you can focus on building your business to reach its potential, no matter the challenges.

For fast, flexible business finance – contact Merchant Factors today.

Finance beyond the Numbers.