Confidence and growth in the South African agricultural sector…

Wandile Sihlobo

Paarl, RSA

05 October 2017

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Source: IMF, Barclays Africa, Agbiz Research

Macro perspective: SA vs the global economic growth…

optimistic view regarding business conditions in the country.…

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Global South Africa

“Improved business confidence is the cheapest form

of economic stimulus”

- Larry Summers, American economist and former Chief Economist of the

World Bank.

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Why is business confidence important?…

optimistic view regarding business conditions in the country.…

“At the present juncture, our fundamental problem

is confidence. The BER’s surveys show that the

confidence levels of business and consumers are at

their lowest since the Global Financial Crisis”

- South African Reserve Bank Governor, Lesetja Kganyago, 19 June 2017

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However, in SA, both business and consumer confidence remain depressed…optimistic view regarding business conditions in the country.…

Source: BER, Agbiz Research

SA business and consumer confidence remain depressed…

optimistic view regarding business conditions in the country.…

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Inde

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FNB/BER Consumer Confidence Index (LHS) RMB/BER Business Confidence Index (RHS)

Source: BER, Barclays Africa, Agbiz Research

Why is business confidence important?…

optimistic view regarding business conditions in the country.…

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BER BCI (lhs) Private fixed investment (% y/y)

Source: Agbiz Research

Although still in an expansionary terrain, Agribusinesses’

Confidence is also on a declining trend…optimistic view

regarding business conditions in the country.…

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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*Agbiz/IDC Agribusiness Confidence Index

Source: Statistics South Africa, Agbiz Research

Agbiz/IDC Agribusiness Confidence has proven to be good

directional indicator for agri. GDP growth (but now?)…

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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GDP (Agriculture) (LHS) Agbiz/IDC Agribusiness Confidence Index (RHS)

Source: Statistics South Africa, Agbiz Research

Agbiz/IDC Agribusiness Confidence has proven to be good

directional indicator for agri. GDP growth (but now?)…

• The shift between the “emotional side of agriculture and hard data” can partly be explained by policy uncertainty, particularly Land Reform ahead of the ANC conference…

• The survey respondents from the WC region were also pessimistic due to persistent dryness – this too partly explains the shift between confidence and agricultural GDP growth…

• Implications going forward?

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The Western Cape province is a key contributor to the country’s agricultural economy, but…implications of dryness could be delayed….

Source: Stats SA, Agbiz Research

25%

22%

10%

9%

7%

7%

7%

7%6%

KwaZulu-Natal Western Cape Free State Mpumalanga North West

Limpopo Northern Cape Gauteng Eastern Cape

Source: World Bank

Above all, the agricultural sector could performance well this

year and will provide much needed boost to overall economy

…

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Period 2014 2015 2016 2017* 2018* 2019*

Agricultural

GDP growth

(y-o-y % change)

6.9 -6.1 -7.8 15.0 5.8 2.4

* represents a “forecast”

Source: Agbiz Research

Here are the sub-indices behind the composite ‘Agbiz/IDC Agribusiness Confidence Index’ view – weather is a fundamental driver of the sentiment….g business conditions in

the country.…

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Sub-index

Turnover

Net operating income

Market share of the business

Employment

Capital investment

Volume exports

Economic growth in South Africa

General agricultural conditions

Debtor provision for bad debt

Financing costs

Apart from policy matters, weather remains a primary driver of agribusiness confidence and growth in agriculture –general agricultural conditions sub-index…

13Source: Middelburg Observer

Earlier in the year there were concerns that El Nino could return in 2018…

14Source: Earth Institute, National Oceanic and Atmospheric Administration (US)

However, the most recent estimates show that SA will have a normal summer rainfall…

15Source: Earth Institute, National Oceanic and Atmospheric Administration (US)

The local weather bureau also echoed a similar sentiment…

16Source: South African Weather Service

Unfortunately, the WC remains dry with lower water levels….

17Source: Department of Water and Sanitation, Agbiz Research

Apart from a growth story, drought in the WC could also negatively affect the agricultural labour market…

Source: Stats SA, Agbiz Research

25%

10%

5%8%16%

6%

4%

10%

16%

Western Cape

Eastern Cape

Northern Cape

Free State

KwaZulu Natal

North West

Gauteng

Mpumalanga

Limpopo

Source: Statistics South Africa, Agbiz Research

Apart from a growth story, drought in the WC could also

negatively affect the agricultural labour market…

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0

50

100

150

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WesternCape

EasternCape

NorthernCape

Free State KwaZuluNatal

North West Gauteng Mpumalanga Limpopo

000

jobs

Jan-Mar 2017 Apr-Jun 2017

Source: Statistics South Africa, Agbiz Research

Negative impact will most likely be in field crops, horticulture

and forestry…

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0 100 200 300 400 500 600

Crops and horticulture

Livestock

Mixed farming (crops and livestock)

Animal husbandry

Game farming

Forestry

Aquaculture (fish hatcheries andfish farms)

000 jobs

Apr-Jun 2017 Jan-Mar 2017

Source: Liebenberg and Pardey, Statistics South Africa, Agbiz Research

This could drift SA away from its goal of creating close to a million

jobs in the sector by 2030 (NDP) – a tough target given that jobs

have only been at such levels in the 1960’s…

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200

400

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1 000

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1910's 1920's 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010's

000

job

s

Key takeaways - confidence and growth in SA agricultural

sector…

• Policy uncertainty will remain a key theme ahead of December 2017 ruling party’s conference…

• The weather forecasts paint a positive picture for the upcoming season -- good for summer crops (but winter crop growing areas will remain stressed)…

• In the short term, the agricultural sector will remain on a positive growth path. The effects of the WC drought will be clear in 2018’s growth (GDP) numbers…

On balance – the policy environment is quite uncertain, but Agbiz will continue to engage policy makers in order ensure sustainability of the agricultural sector…

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Farm debt: Land reform developments not only impact farmers, but agribusinesses and financial institutions as well…

23Source: DAFF, Agbiz Research

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20 000

40 000

60 000

80 000

100 000

120 000

140 000

160 000

1980 1985 1990 1995 2000 2005 2010 2015

‘000

Ran

ds

Nominal Real

Risk to Collateral: Land reform, particularly the talks of “expropriation without compensation” (this chart shows SA

agricultural farm debt)…

24Source: DAFF, Agbiz Research

27%

62%

7%

2% 1% 1%Land and Agricultural Bank

Commercial banks

Agricultural cooperatives

Private persons

Other financial institutions

Other debt

South Africa’s total farm debt in 2016

Land and

Agricultural Bank

Commercial banks Agricultural

cooperatives

Private persons Other financial institutions

and other debt

R40 bn R89 bn R10 bn R3 bn R3 bn

– the way to prosperity...

Contact details:

Wandile Sihlobo

Agbiz Agribusiness Research

Email: wandile@agbiz.co.za

Twitter: @WandileSihlobo

www.agbiz.co.za

Disclaimer:

Everything has been done to ensure the accuracy of this information, however, Agbiz takes no responsibility for any losses or damage incurred due to the usage of this information.

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