Pre-VAT frenzy likely push behind 100 million transactions record

Cape Town - The improvement in the number of transactions in South Africa in March to more than 100 million for the first time ever, could be due to consumers making purchases ahead of the VAT increase on April 1, Mike Schüssler, chief economist of Economists.co.za told Fin24 on Wednesday.

He commented on the findings of the latest BankservAfrica Economic Transaction Index (BETI). In his view, the BETI indicates that the second longest downward phase of the SA business cycle - since about December 2013 - seems to be coming to an end.

The improvement in the BETI year-on-year (y/y) and month-on-month (m/m) indicates that an upturn in SA's economic cycle is imminent. At the same time, the exact date of the start of a new "upward phase" for SA is not clear yet and will not be clear for some time, Schüssler said.

Growth in the value of transactions could also indicate an economic recovery being underway, according to the BETI report. In March, the value of transactions recorded by the BETI increased by 3.4% on a y/y basis.

"Overall, the BETI is showing some positive underlying improvement in the SA economy,” said Schüssler. He cautioned, however, that the impact of the 1% VAT increase on April 1 on businesses and consumers may impact transaction data in April.

• READ: VAT-free wish list: Consumers speak out
  

The BETI has shown positive upward movement since July 2017 and increased above the 3% level since December 2017. The number of transactions have increased by more than 6% y/y for nine months in a row now. Over the last three months the number of transactions grew by more than 9%. On a m/m basis, the BETI increased 0.4% and 0.3% on a quarter-on-quarter basis.
 
"I am more optimistic, but with an element of caution," Schüssler told Fin24. "At least consumer and business confidence are up from what it was and there is an underlying element of hopeful positivity about the ability of President Cyril Ramaphosa and Minister of Public Enterprises Pravin Gordhan to fix a lot of things."

At the same time consumers and businesses are still a bit "sore", in his view, due to the 1% VAT increase and seeing inflation "eating up" much of the personal tax reductions. That makes people still cautious about spending.

• READ: Car buyers dive in to dodge tax hikes

To Schüssler the growth in the number of transactions shows that more people are becoming active in the SA economy. It does, however, not mean that each part of the economy will be great. The drought still makes an impact in the Western Cape, for instance.

"But overall the economy is at least starting to pick up its head and has done so for a few months in a row and that is positive. It does not mean every month every sector will be positive. The economy is like a big ship, which takes time to turn and get going again," he said.

In his view, the two factors which could turn his cautious optimism into worry, would be if governance and corruption at state-owned enterprises (SOEs) are not fixed and if civil servants get pay increases much higher than inflation. These could impact the way ratings agencies look at the country.

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