This was a rather confusing interview. Brad Gillis emphasised to Gugu and I in our CNBC Africa studio that banking transactions have closely tracked GDP growth. And said he was delighted the February figure reflected a 1.2% growth rate. Erm, 1.2% might sound OK but it’s that’s a long, long way from the 2.7% that Finance Minister Pravin Gordhan is forecasting for this year’s GDP growth. As you’ll read from the transcript, Brad was nonplussed when challenged – at least it’s positive, he countered. – AH Â
To watch this CNBC Power Lunch video click here
GUGULETHU MFUPHI:  South Africa has been under a lot of economic pressure this year; despite the strain, we could still expect a future growth. Joining us now to explain this to us is Brad Gillis. Heâs the Chief Executive for regulated products at Bankserv Africa. Brad thanks so much for coming in. Just looking at the report you published today, it does seem as though the outlook is not too good, but February was a very different month regarding economic growth in South Africa.
BRAD GILLIS:  Yes, it was indeed. The February number was a one-point-two percent positive shift. Six months beforehand was the last time it moved to that levelâŚin fact, slightly higher and quarter-on-quarter one-point-seven percent. Now, what it isâŚletâs call it a ânow factorâ of how the market is moving, particularly at the consumer level with things like debit orders and cheques as well â theyâre still around â and some of the utility payments. We these into a measure, put it into a big mixture, and then monitor it month-on-month, quarter-on-quarter and it has shown a positive trend, which I donât know with the current economic climate and things that are happening in terms of strikes and power outages as you referred to earlier. Whether they can sustain themselvesâŚI guess thatâs up to the market itself.
GUGULETHU MFUPHI: Â There is a global factor, I understand.
BRAD GILLIS:  Yes, from our perspective weâre monitoring the South African market, and what the impact is from a global perspective. That would obviously filter into that behaviour as well.
GUGULETHU MFUPHI:  How dire is the situation going forward? Is the glass really that empty?
BRAD GILLIS:  Well obviously, what we do is we manufacture these results out of the information, which is solid statistical information, coming out of the banks. We then use economists to help us forecast and of course, because of the challenges on the macro side with regard to things like strikes and power outages, itâs certainly not boding well for the future. I would therefore be surprised if we can sustain the one-point-two percent that weâve shown for February.
GUGULETHU MFUPHI: Â What does this mean for the average businessman out there in South Africa?
BRAD GILLIS:  Well, I guess itâs around whether the consumerâs going to be prepared to spend at least some of his hard-earned money in their stores â in the retailers themselves. Whether or not that will sustain itself, remains to be seen. It is generally a flat environment, as opposed to something, which is going to show a huge growth. It just shows though, that there might be some resilience in our market, more so than perhaps the media has portrayed over the last few months.
ALEC HOGG: Whatâs with the media, though? Weâre getting Business Confidence Index that is turning down. We have Consumer Confidence Index showing the same thing. How accurate is this index?
BRAD GILLIS:  Well, itâs based on 640 billion Rands worth of movement over the last month, which is about 80 million transactions. That was relative to last year where we did a 600 billion rand movement in the same period â last year â and that was 77 million transactions. What we do is we measure those and we create an index, which ultimately shows movement, and itâs tracked quite closely to GDP over the last ten years. Because of that, we feel that itâs an indicator. Itâs not an absolute.
ALEC HOGG:Â So your transactions reflect economic activity.
BRAD GILLIS: Â Thatâs correct.
ALEC HOGG: Thatâs interesting because many of your transactions, no doubt, would also be in the informal market, which is not being tracked by other indicators. Is that the secret here?
BRAD GILLIS:  Of course, you will have those two economies and we will only see the formal economy in that, which is banks, because that is what we do. We talk about a third of the economy being processed through this type of environment â our environment/Banks of Africa. Clearly, the informal we wouldnât see, and thatâs the main thrust of the banks â to obviously include the informal market, particularly the thing around cash displacement so that we can also see whatâs happening in the market at a more holistic level.
ALEC HOGG:Â I would have thought that the informal economy actually does participate, because you get your Capitec bank card and you would use that.
BRAD GILLIS:  Absolutely. Capitec Bank has in the past â and certainly, recently â shown significant growth, but they are obviously then brought into formal financial payment system/banking system, which we would then monitor.
ALEC HOGG:Â You say itâs only a third of the economy.
BRAD GILLIS: Â Well, thatâs the estimate from the economists â yes.
ALEC HOGG:Â Explain that.
BRAD GILLIS:  The actual movement we see â the 640 billion â is estimated to be around a third of the economyâs movement for that particularâŚ
ALEC HOGG:Â So two-thirds is cash based.
BRAD GILLIS:  No, what happens of course is that we only see the low value payments. The high value payments, the corporate payments above five million, would go through the Central Banking system.
GUGULETHU MFUPHI:  You mentioned Capitec. That has been included in your index rather recently. Have they shown a significant increase in numbers of South African consumers moving away from the informal to the more formal banking sector?
BRAD GILLIS: Â Obviously, the bank themselves are very conservative around their own market share and I would probably not want to divulge their market share, but it has been a good run for them over the last ten years.
ALEC HOGG: So weâre actually seeing here the volatility, if you like, in the economy, or the way that people are transacting. If they transact more, itâs a good indicator of where the economy is going. How closely did it track last year? We were all confused. We were expecting â what was it â three percent, it came down to two-point-six, then it came down to two percent and eventually we ended up at one-point-nine. Did you know it was one-point-nine?
BRAD GILLIS:  We tracked it pretty closely. In August last year, we were at three percent on our Betty. We thought it was a little bit noisy because the year before was plagued by some strikes – the fundamental facts are that these transactions did go through our systems â some wildcat strikes and things like that â so we were a little nervous of that three-point-one and it has literally come off down to the numbers youâve suggested. This particular uptick weâd therefore need to be cautious about, but the point is the underlying fundamental facts are that these transactions did go through our systems â by value and by volume.
ALEC HOGG:Â So what economic growth is it telling us is happening right now â one-point-two?
BRAD GILLIS: Â Itâs an indicator of one-point-two, yes.
ALEC HOGG: So itâs downâŚitâs down badly. Pravin was talking about two-point-seven for this year, so weâre a long way behind.
BRAD GILLIS: Â If we look at what the Bettyâs telling us, we are.
GUGULETHU MFUPHI: Â Does this just motivate the fact that we might still see a revision downwards of economic growth in South Africa?
BRAD GILLIS:  I guess the Bettyâs just one factor. The important thing is they are factual numbers that we see flowing through our economy. They would obviously want to put in a mix of âwhat is happening at the gross level?â and obviously, whatâs happening through the Central Bank by virtue of the high value payments and process.
ALEC HOGG: Brad, if you have an indicator that tracks things very carefullyâŚif youâre sitting in Gill Marcusâ shoes at the Reserve Bank, you will be watching this indicator in the same way as youâve said that it does over the years, show us. If weâre at one-point-two percent in the first quarter, weâre in trouble. Our Finance Minister is telling us weâll hit two-point-seven/nearly three percent this year, but some of the other indicators weâve had on this program are consistent with yours, that weâre actually undershooting quite badly.
BRAD GILLIS: Â I guess they have to take all their data into account, and draw their own conclusions.
GUGULETHU MFUPHI: Â Well, does the potential rise in interest rates also play a role in this?
BRAD GILLIS:  Of course, it would clearly have an impact on consumer behaviour. Debit orders are, by their very nature, (1) discretionary, if youâre talking about things like insurance and of course, if you have home loans youâre going to pick up the challenges and the squeeze on the disposable income. The consumer therefore, may well find that they canât afford all the debit orders and all the payments that theyâve previously paid.
ALEC HOGG: You started off by saying to us âthings arenât so badâ. In fact, I say to you, your figures tell me things arenât so good.
BRAD GILLIS:  Luckily, itâs above positive. Iâm well aware of the fact that above positive is positive, but probably not enough positive.
