Research
Division
26 February 2018
Absa Research is produced by Absa Bank Limited acting through its Corporate and
Investment Bank division, which is a part of Barclays Africa Group Limited and also
affiliated with the Investment Bank of Barclays Bank PLC and its affiliates (referred to as
“Absa”).
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 7
South Africa Morning Sheet
ANC NEC meeting concludes today and could seal deal for cabinet reshuffle this
week
ANC calling for expansion of goods zero rated for VAT purposes to be expanded
The January private sector credit extension (PSCE) and February car sales data
will provide a pulse check on the consumer; we expect broadly unchanged PSCE
growth and a slower rate of contraction in car sales
The January PPI due to be published on Wednesday will contain changes to the
weights and product list of the basket
We expect a merchandise trade surplus of ZAR0.9bn and the January main
budget balance to reflect a deficit of ZAR39.3bn
The African National Congress’s National Executive Committee (NEC) is due to
conclude a two day meeting today, with a briefing scheduled for tomorrow. Now that
the 2018/19 Budget is tabled, expectations are running high that a cabinet reshuffle
will follow, with President Ramaphosa in some pressing need to appoint a Deputy
President and remove some of the ministers closely associated with allegations of state
capture or whose departments have struggled. In particular it will be interesting to see if
Ramaphosa selects ANC Deputy President David Mabuza as the state president or
instead aims for gender balance by choosing a senior ANC woman, such as Naledi
Pandor or Lindiwe Sisulu. Also of particular interest will be Ramaphosa’s decision about
whether to retain Malusi Gigaba as Finance Minister. President Ramaphosa has also
spoken about the need to shrink the bloated cabinet and government in general, but
such an approach, which would likely lead to the merging of some ministries,
would probably need to be carefully planned, thus suggesting that a broader cabinet
reshuffle and reorganisation could follow a smaller immediate one. This would give the
ANC time to reshuffle its parliamentary list to bring in new MPs, which would give
Ramaphosa a broader set of officials from which to pick his cabinet. Only two of
Ramaphosa’s cabinet picks can come from outside parliament. Two of the most
promising candidates for the Finance Minister post, Nhlanhla Nene and Mcebisi Jonas,
are currently not serving MPs. One interesting idea that is getting some airtime is
whether Ramaphosa might nominate ministers from the opposition benches, as Nelson
Mandela did, but this is less than likely, in our view, especially given that South Africa is
entering a pre-election year.
Separately, there have been some noteworthy high level deployments to the ANC
headquarters. Speaking yesterday, the ANC Secretary General, Ace Magashule, said
that the former spokesperson Zizi Kodwa, an ally of Ramaphosa, had been deployed to
the office of the ANC presidency to monitor implementation of party policy, service
delivery progress and, critically, the performance of ANC deployees. Meanwhile, Senzo
Mchunu, another Ramaphosa ally whom Magashule narrowly defeated, was deployed
Peter Worthington
+27 21 927 6525
Absa, South Africa
Miyelani Maluleke
+27 11 895 5655
Absa, South Africa
www.absa.co.za
ABSA | South Africa Morning Sheet
26 February 2018 2
as the chair of the ANC’s organizing committee. Magashule also said that the ANC is
moving “with speed” on a new cabinet, but declined to give a specific time frame for any
announcement, except to say that it would be “very soon”.
Secretary General Magashule also said that the NEC had resolved that further steps
needed to be taken to protect the poor from the impact of the 1 percentage point VAT
hike in the 2018 Budget. He said that the NEC had discussed whether or not the number of
zero-rated goods needed to be expanded. Currently, 19 basic foodstuffs and fuel are zero-
rated for VAT purposes. We think the National Treasury will not be enthusiastic about
increasing the number of goods that are VAT-free, because it is an imprecise way to protect
the poor. Currently, for example, fruit is zero rated for VAT purposes, but fruit is
predominantly consumed by higher-income households.
Attention will also refocus on regular data flow, with a flurry of key releases scheduled
for the week ahead. The January private sector credit extension due out on Wednesday and
February car sales data due on Thursday will provide a pulse check on the consumer. In
explaining an upward revision to its GDP growth forecast by 0.4pp to 1.5% for 2018, the
National Treasury last week argued that more favourable credit conditions and a confidence
boost would key in supporting stronger household consumption growth this year. In the
PSCE data, household lending growth has been relatively subdued across most major
categories of credit except instalment sales credit, which improved steadily over the course
of 2017 to 5.2% y/y by December from 0.7% y/y at the start of the year and 1.8% by mid-
year. That said, there is little evidence in the National Credit Regulator or Experian credit
data of increasing consumer debt strain. We expect overall PSCE, which includes corporate
sector credit extension, to have remained broadly unchanged at 6.6% y/y in January.
Meanwhile, after improving for most of H2 2017, car sales collapsed in December and
January but these data tend to be volatile around this period and we expect some
normalisation to about -2.6% y/y in February, compared with the 8.8% y/y fall in January.
Despite recent political developments, which may be positive for confidence, consumers
could remain in a defensive mindset, particularly with the tax hikes announced in the
Budget.
Stats SA is due to publish the January PPI data on Wednesday with an updated product
list and new weights. Since it revamped the index in 2013, the statistics office has been
updating industry weights annually on the basis of estimates from the national accounts
data. A total of 47 unmentioned products will fall out of the PPI while 49 new ones will be
added. As a result of this and the weight update, the ‘food products, beverages and tobacco
products’ category grows to be 34.77% of the basket from 33.72% previously. Our forecast,
based on the old weights is for PPI inflation to remain unchanged at 5.2% y/y (consensus:
5.1%) but the updating of the basket could affect the headline print.
South Africa’s ‘twin deficits’ will also come into focus this week with the release of the
January merchandise trade balance and main budget data on Wednesday at 14:00. An
improvement in the terms of trade and import compression have driven a strong
improvement in South Africa’s merchandise trade balance with December 2017 printing the
second highest surplus (ZAR15.7bn) since the start of the restated trade in 2010. The
January trade data usually show a large deficit, partly due to seasonal factors. However, in
light of the recent momentum, we forecast a small surplus of ZAR0.9bn. In the January main
budget data, we expect a deficit of ZAR39.3bn broadly in line with the provisional financing
data published early this month. In tabling a smaller projected revenue shortfall for FY
17/18 of ZAR48.2bn (compared to ZAR50.6bn in the MTBPS) last week, the Treasury
would have factored this data in. Therefore, the data are likely to reflect an improvement in
the gross tax revenue run rate.
ABSA | South Africa Morning Sheet
26 February 2018 3
FIGURE 1
Calendar
Time Country Event Period Consensus Absa Prior Prior-1
28-Feb 08:00 SA Money Supply M3, % y/y Jan 6.5 -- 6.4 6.6
08:00 SA Private Sector Credit, % y/y Jan 6.7 6.6 6.7 6.5
11:30 SA PPI, % y/y Jan 5.1 -- 5.2 5.1
11:30 SA PPI, % m/m Jan 0.3 -- 0.6 0.5
14:00 SA Monthly budget balance, ZAR bn Jan -- -39.3 13.2 -15.3
14:00 SA Trade balance, ZAR bn Jan -1.6 0.9 15.7 13.1
01-mar 11:00 SA Absa Manufacturing PMI, index Feb -- -- 49.9 44.9
- SA Naamsa vehicle sales, % y/y Feb -- -2.6 -8.8 -2.4
Source: Bloomberg, Absa Research
FIGURE 1
Review of last week’s key domestic data releases
Main indicators Period Survey Actual Prior Comments
Leading Indicator index Dec -- 104.6 A 105.2 R
Decline mainly due to a deceleration in the 12-month
percentage change in number of passenger cars sold
and lower hours worked in the manufacturing sector.
CPI, % y/y Jan 4.4 4.4 A 4.7
We expect the cyclical low point to come in February at
3.9% y/y after which a gradual increase is likely as
favourable base effects on food price inflation fade.
Core CPI, % y/y Jan 4.2 4.1 A 4.2
Softer-than-expected core CPI print likely reflects the
effects of subdued domestic demand and the recent
strength in the exchange rate.
Source: Bloomberg, Absa Research
ABSA | South Africa Morning Sheet
26 February 2018 4
FIGURE 3
Rand price of oil
FIGURE 4
SA petrol price movements, as of 22 Feb 2018
Source: Thomson Reuters, Absa Research Source: CEF, Absa Research
FIGURE 5
Agriculture futures prices
FIGURE 6
ZAR performance
Source: SAFEX, Thomson Reuters, Absa Research Note: Rise/fall in Nominal effective exchange rate implies ZAR app/depreciation.
Source: Thomson Reuters, Absa Research
500
550
600
650
700
750
800
850
900
950
1,000
Feb-17 May-17 Aug-17 Nov-17 Feb-18
ZAR/bbl Petrol 95
unleaded
Petrol 93
unleaded
Diesel
0.05%
Diesel
0.005%
Pump price (c/l) 1,412 1,419 1,257 1,259
Basic fuel price (c/l) 581 567 599 603
Daily over/(under)
recovery (c/l)41 43 47 45
Avg. over/(under)
recovery (c/l)35 38 47 45
o/w due to int'l price 18 21 29 27
o/w due to FX rate 17 17 17 17
A petrol price move that fully reflects the month-to-date over/under
recovery in Feb will trim 0.14pp from the CPI.
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
3,400
3,600
3,800
4,000
4,200
4,400
4,600
4,800
Aug-17 Oct-17 Dec-17 Feb-18
R/mtR/mt Wheat (LHS)
White maize (RHS)
Yellow maize (RHS)
11.5
12
12.5
13
13.5
14
14.5
15
50
52
54
56
58
60
62
64
66
68
70
Feb-17 May-17 Aug-17 Nov-17 Feb-18
IndexNEER (LHS) USD/ZAR (RHS)
ABSA | South Africa Morning Sheet
26 February 2018 5
FIGURE 7
Absa exchange rate forecasts (end of period)
NEER USDZAR EURZAR CNYZAR ZARJPY GBPZAR AUDZAR
Monthly
Feb-18 60.71 13.05 15.96 2.04 8.49 18.02 10.20
Mar-18 57.62 13.80 16.84 2.14 8.08 19.04 10.76
Apr-18 57.30 13.86 16.96 2.15 8.06 19.18 10.87
May-18 57.14 13.89 17.03 2.15 8.05 19.25 10.92
Jun-18 56.82 13.95 17.15 2.16 8.03 19.39 11.02
Jul-18 56.64 13.97 17.24 2.17 7.99 19.47 11.09
Aug-18 56.54 13.98 17.28 2.17 7.97 19.51 11.13
Sep-18 56.36 14.00 17.36 2.17 7.93 19.60 11.20
Oct-18 56.11 14.04 17.47 2.18 7.88 19.66 11.23
Nov-18 55.99 14.06 17.52 2.18 7.85 19.68 11.25
Dec-18 0.00 14.10 17.63 2.19 7.80 19.74 11.28
Quarterly
Mar-18 57.62 13.80 16.84 2.14 8.08 19.04 10.76
Jun-18 56.82 13.95 17.15 2.16 8.03 19.39 11.02
Sep-18 56.36 14.00 17.36 2.17 7.93 19.60 11.20
Dec-18 55.75 14.10 17.63 2.19 7.80 19.74 11.28
Mar-19 54.89 14.30 17.88 2.23 7.69 20.08 11.52
Jun-19 54.64 14.40 17.95 2.23 7.66 20.17 11.59
Sep-19 54.43 14.45 18.01 2.24 7.63 20.25 11.65
Dec-19 53.71 14.50 18.27 2.28 7.52 20.59 11.89
Mar-20 53.12 14.75 18.50 2.29 7.39 20.85 11.86
Jun-20 52.94 14.86 18.56 2.29 7.35 20.91 11.85
Sep-20 52.80 14.90 18.62 2.29 7.32 20.98 11.85
Dec-20 52.35 14.96 18.85 2.30 7.19 21.24 11.82
Annual
Dec-18 55.75 14.10 17.63 2.19 7.80 19.74 11.28
Dec-19 53.71 14.50 18.27 2.28 7.52 20.59 11.89
Dec-20 52.35 14.96 18.85 2.30 7.19 21.24 11.82
Dec-21 50.45 15.43 19.75 2.38 6.97 21.61 12.35
Dec-22 49.01 16.00 20.00 2.46 6.88 23.84 12.32
Source: Bloomberg, Absa Research
ABSA | South Africa Morning Sheet
26 February 2018 6
FIGURE 8
Absa exchange rate forecast (period average)
USDZAR EURZAR CNYZAR ZARJPY GBPZAR AUDZAR
Monthly
Feb-18 12.87 15.96 2.04 8.49 18.02 10.20
Mar-18 13.43 16.40 2.09 8.28 18.53 10.48
Apr-18 13.83 16.90 2.14 8.07 19.11 10.81
May-18 13.87 16.99 2.15 8.06 19.21 10.89
Jun-18 13.92 17.09 2.16 8.04 19.32 10.97
Jul-18 13.96 17.20 2.16 8.01 19.43 11.05
Aug-18 13.97 17.26 2.17 7.98 19.49 11.11
Sep-18 13.99 17.32 2.17 7.95 19.56 11.16
Oct-18 14.02 17.41 2.17 7.90 19.63 11.22
Nov-18 14.05 17.49 2.18 7.86 19.67 11.24
Dec-18 14.08 17.57 2.18 7.83 19.71 11.26
Quarterly
Mar-18 12.87 15.74 2.01 8.59 17.76 10.05
Jun-18 13.87 16.99 2.15 8.06 19.21 10.89
Sep-18 13.97 17.26 2.17 7.98 19.49 11.11
Dec-18 14.05 17.49 2.18 7.86 19.67 11.24
Mar-19 14.20 17.75 2.21 7.74 19.91 11.40
Jun-19 14.35 17.92 2.23 7.67 20.12 11.55
Sep-19 14.43 17.98 2.24 7.65 20.21 11.62
Dec-19 14.48 18.14 2.26 7.57 20.42 11.77
Mar-20 14.63 18.39 2.29 7.45 20.72 11.88
Jun-20 14.80 18.53 2.29 7.37 20.88 11.86
Sep-20 14.88 18.59 2.29 7.34 20.95 11.85
Dec-20 14.93 18.73 2.30 7.25 21.11 11.83
Annual
Dec-18 13.24 16.24 2.04 8.42 18.23 10.47
Dec-19 14.30 17.95 2.23 7.66 20.17 11.59
Dec-20 14.73 18.56 2.29 7.35 20.91 11.85
Dec-21 15.19 19.30 2.34 7.08 21.42 12.08
Dec-22 15.72 19.88 2.42 6.92 22.72 12.33
Source: Bloomberg, Absa Research
ABSA | South Africa Morning Sheet
26 February 2018 7
FIGURE 9
Detailed CPI inflation forecasts
Date CPI index CPI % y/y Core CPI index Core CPI % y/y Food CPI index Food CPI % y/y Brent, $/bbl* Brent R/bbl
Jan-17 100.6 6.6 100.3 5.5 101.6 11.4 55.4 752
Feb-17 101.7 6.3 101.4 5.2 102.3 9.9 56.0 740
Mar-17 102.3 6.1 102.1 4.9 102.8 8.7 52.6 680
Apr-17 102.4 5.3 102.3 4.8 102.8 6.7 53.8 725
May-17 102.7 5.4 102.4 4.8 103.3 6.9 51.4 682
Jun-17 102.9 5.1 102.8 4.8 103.3 6.9 47.6 614
Jul-17 103.2 4.6 103.3 4.7 103.6 6.8 49.1 646
Aug-17 103.3 4.8 103.4 4.6 103.4 5.7 51.9 687
Sep-17 103.8 5.1 103.8 4.6 103.3 5.5 55.5 729
Oct-17 104.1 4.8 103.9 4.5 104.0 5.3 57.6 789
Nov-17 104.2 4.6 103.9 4.4 104.4 5.2 62.7 884
Dec-17 104.7 4.7 104.2 4.2 104.8 4.8 64.4 846
Jan-18 105.0 4.4 104.4 4.1 106.2 4.5 62.7 796
Feb-18F 105.7 3.9 105.5 4.0 106.4 4.0 60.3 791
Mar-18F 106.7 4.3 106.6 4.4 107.1 4.1 58.0 784
Apr-18F 107.1 4.6 106.9 4.5 107.5 4.6 57.3 793
May-18F 107.4 4.6 107.1 4.6 108.1 4.6 56.7 786
Jun-18F 107.7 4.7 107.6 4.6 108.0 4.5 56.0 779
Jul-18F 108.4 5.1 108.1 4.7 108.2 4.4 56.5 789
Aug-18F 108.7 5.2 108.4 4.8 108.5 5.0 57.0 796
Sep-18F 109.1 5.1 108.8 4.8 109.0 5.5 57.5 804
Oct-18F 109.4 5.1 109.0 4.9 109.9 5.7 57.7 808
Nov-18F 109.6 5.2 109.1 5.0 110.4 5.8 57.8 813
Dec-18F 109.9 5.0 109.4 5.0 110.5 5.4 58.0 816
Jan-19F 110.5 5.3 109.9 5.2 112.1 5.5 59.0 835
Feb-19F 111.4 5.4 111.0 5.2 112.3 5.5 60.0 853
Mar-19F 112.5 5.5 112.2 5.2 113.0 5.5 61.0 872
Apr-19F 113.0 5.4 112.5 5.2 113.5 5.5 61.2 878
May-19F 113.2 5.4 112.7 5.2 114.1 5.5 61.5 884
Jun-19F 113.6 5.5 113.2 5.2 113.9 5.5 61.8 890
Jul-19F 114.4 5.5 113.8 5.2 114.2 5.5 62.0 894
Aug-19F 114.7 5.5 114.0 5.2 114.6 5.5 62.2 898
Sep-19F 115.1 5.5 114.5 5.2 115.0 5.5 62.4 902
Oct-19F 115.5 5.5 114.7 5.2 116.0 5.5 62.6 905
Nov-19F 115.7 5.5 114.8 5.2 116.5 5.5 62.7 908
Dec-19F 115.9 5.5 115.1 5.2 116.6 5.5 62.8 911
Quarterly averages
Q1 17 101.5 6.3 101.3 5.2 102.2 10.0 54.7 724
Q2 17 102.7 5.3 102.5 4.8 103.1 6.9 50.9 674
Q3 17F 103.4 4.8 103.5 4.6 103.4 6.0 52.2 687
Q4 17F 104.3 4.7 104.0 4.4 104.4 5.1 61.6 840
Q1 18F 105.8 4.2 105.5 4.2 106.6 4.2 60.3 791
Q2 18F 107.4 4.6 107.2 4.6 107.9 4.6 56.7 786
Q3 18F 108.7 5.1 108.4 4.8 108.6 5.0 57.0 796
Q4 18F 109.7 5.1 109.2 5.0 110.3 5.6 57.8 812
Q1 19F 111.5 5.4 111.0 5.2 112.5 5.5 60.0 853
Q2 19F 113.3 5.4 112.8 5.2 113.8 5.5 61.5 884
Q3 19F 114.8 5.5 114.1 5.2 114.6 5.5 62.2 898
Q4 19F 115.7 5.5 114.9 5.2 116.4 5.5 62.7 908
Annual averages
2013 82.9 5.8 83.5 5.2 77.3 5.7 108.7 1051
2014 88.0 6.1 88.1 5.6 83.1 7.6 99.8 1080
2015 92.0 4.6 93.0 5.5 87.4 5.1 52.7 666
2016 97.8 6.3 98.2 5.6 96.6 10.5 44.2 646
2017F 103.0 5.3 102.8 4.7 103.3 6.9 54.8 731
2018F 107.9 4.8 107.6 4.6 108.3 4.9 58.0 796
2019F 113.8 5.5 113.2 5.2 114.3 5.5 61.6 886
Note: * Crude oil price assumptions embedded into our inflation forecasts are based on Bloomberg consensus forecasts for Brent. Source: Absa Research, Bloomberg
ABSA | South Africa Morning Sheet
26 February 2018 8
FIGURE 10
Main macroeconomic variables in South Africa
2017 2018 2019
2016 2017F 2018F 2019F 2020F 2021F Q3 Q4F Q1F Q2F Q3F Q4F Q1F Q2F Q3F Q4F
Output (% q/q saar)
Real GDP 2.0 1.5 1.1 1.0 1.2 1.2 1.7 2.1 2.5 2.6 0.3 0.9 1.4 1.7 1.9 1.9
Real GDP (%y/y) 1.0 1.4 1.8 1.4 1.2 1.1 1.3 1.6 1.9 2.2 0.3 0.9 1.4 1.7 1.9 1.9
Private consumption 2.6 0.8 0.8 0.8 0.9 1.1 1.2 2.5 2.7 3.2 0.8 1.3 1.3 1.7 2.0 1.9
Public consumption -0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 2.0 0.3 0.4 0.5 0.5 0.5
Investment 4.3 -0.1 0.9 1.5 1.8 2.1 2.5 3.3 3.4 4.5 -3.9 0.2 1.3 2.7 3.2 3.3
Exports -10.3 3.8 3.4 2.7 4.3 1.9 2.4 1.2 1.9 0.4 -0.1 0.8 2.2 2.1 1.7 1.8
Imports -13.7 3.2 2.2 2.4 3.8 2.4 1.4 2.2 1.9 1.5 -3.7 1.9 1.1 2.2 2.1 1.9
Prices (% y/y)
CPI inflation 4.8 4.7 4.2 4.6 5.1 5.1 5.4 5.4 5.5 5.5 6.3 5.3 4.8 5.5 5.5 5.7
Core CPI inflation 4.6 4.4 4.2 4.6 4.8 5.0 5.2 5.2 5.2 5.2 5.6 4.7 4.6 5.2 5.4 5.6
PPI inflation 4.3 4.9 4.9 5.0 5.2 5.0 4.6 5.3 5.2 5.2 7.1 4.8 5.0 5.1 5.4 5.1
External and government accounts (% of GDP)
Current account -2.3 -1.4 -2.1 -2.2 -2.2 -2.6 -2.8 -2.8 -2.8 -3.1 -3.3 -2.0 -2.3 -2.9 -3.3 -3.7
Consolidated fiscal balance* n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a -3.3 -4.3 -3.3 -3.2 -3.0 -2.9
Consolidated primary balance* n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.0 -0.8 0.4 0.6 0.9 1.0
Government debt* n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 50.7 54.2 56.4 57.5 58.5 59.4
Interest rates (% eop)
Repurchase rate 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 7.00 6.75 6.75 6.75 6.75 6.75
Prime rate 10.25 10.25 10.25 10.25 10.25 10.25 10.25 10.25 10.25 10.25 10.50 10.25 10.25 10.25 10.25 10.25
Note:*For fiscal year commencing 1 April.
Source: SARB, National Treasury, Stats SA, Thomson Reuters, Absa Research
Analyst Certification
We, Miyelani Maluleke and Peter Worthington, hereby certify (1) that the views expressed in this research report accurately reflect our personal views
about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or
indirectly related to the specific recommendations or views expressed in this research report.
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transactions or other matters addressed herein. Accordingly, you should seek advice based on your particular circumstances from an independent tax
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