Falling commodity prices and a brake on economic growth globally, particularly in China, affected many nations, but the developing world has been hit especially hard. Nowhere is that more true than in Africa. Even those countries with the most advanced infrastructure, such as South Africa, have undergone some tough years.
Business and government leaders throughout the nation, which seems to alternate with Nigeria as the continent’s best economic performer, had hoped that 2017 would see a turnaround in the country’s fortunes. To be sure, there are likely to be some economic gains, but with growth projections standing at around 1 percent or a little better, few will be celebrating.
Pretoria saw the national economy shrink in the last quarter of 2016, which was the country’s worst performance since the recession of 2009. Economic growth was reported at 0.3 percent last year, which didn’t even match the already-anemic forecasts of 0.5 percent and 0.4 percent of the Treasury and the South African Reserve Bank, respectively.
Apparently, hope springs eternal in some economists. Some contend, against some pretty steep odds, that 2017 will be an improvement. For instance, John Ashbourne of Capital Economics says the worst is behind the country, and Azar Jammine of Econometrix believes the economic cycle has “bottomed out.” Things are on the upswing, in their view.
But multinationals not turned off by what Ernst & Young says is the worst economic growth in the region in more than 20 years, are still likely to be reluctant to pour money into South Africa given the unsteadiness of the government, particularly of the office of President Jacob Zuma. Calls for his resignation over numerous allegations of corruption are intensifying. Tens of thousands marched in the streets in April, not to celebrate the president’s 75th birthday, but to figuratively demand his head. And it’s not just the man and woman in the streets who have had enough of Zuma. Business leaders, both domestic and international, have been highly critical of some of his decisions.
Finger-pointing certainly comes from the opposition Democratic Alliance and others, but more and more members of the president’s own African National Congress want him to resign.
Interestingly, Zuma’s ex-wife, Nkosazana Dlamini-Zuma, has just stepped down as chairperson of the African Union Commission, a multinational body based in Addis Ababa, Ethiopia. A number of supporters urge her to run for the South African presidency.
Among other things that have riled his critics, Zuma fired finance minister Pravin Gordhan, which did nothing to boost confidence in potential investors from outside the country who might have been expected to bring jobs to the country.
To make matters worse, Standard & Poor’s had already rated the country’s sovereign debt at BBB-, just above junk status, and Moody’s had served notice on potential investors of the risk of operating in South Africa.
The substandard economic performance and political uncertainty notwithstanding, South Africa remains for all intents and purposes the richest country in Africa. While its GDP has slipped behind Nigeria’s — an estimated $353bn vs. $569bn — South Africa’s per capita income stands at just over $11,000. Nigeria, by far the largest country in Africa by population, registers per capita income of only $2,700.
That has made South Africa, for all its problems, a magnet for illegal immigrants, many from surrounding countries, such as Zimbabwe, Malawi and Namibia, but also from countries as far away as Nigeria. Given that income disparity in South Africa “is already the worst in the word,” says Elizabeth McKay, the U.S. Acting Deputy Chief of Mission, it’s no wonder that many of the tensions and outbreaks of violence over immigration familiar to residents of Europe and the U.S. play out every day in South Africa. Anger at Nigerians, who have arrived in huge numbers, has been particularly intense; enough so, that the respective governments have made some rather harsh statements about the other.
To ease unemployment, which stubbornly remains around 26 percent, President Zuma promises “radical economic transformation,” but many of his strongest critics come from within his own ranks. They perceive a large gap between promise and reality. The Black Business Council, for instance, feels the amount of money set aside for businesses run by Africans is woefully insufficient. Others felt that Gordhan, before he was dismissed, was lukewarm on the economic transformation initiative to begin with.
He already had been criticized for presiding over a ministry that proposed cutting back on tax and other economic incentives to attract investment — and hence, jobs — to the country. The nation’s resource package of 20bn rand a year (about $1.5bn) doesn’t even match what the State of Louisiana spent to bring Sasol, the Johannesburg-based energy and chemical company, to its bayou country, says Geoffrey Shadrack, the U.S. Embassy’s economic officer.
He notes that the country probably has half the billionaires of Africa, but that hasn’t translated into jobs for the masses, some 17 million of whom receive “social grants” of some kind. Chronic under-education is a major obstacle to foreign direct investment, he says, given that so few South Africans have completed college. Nor has training in the trades progressed as hoped. A mere 2 percent of those in technical and vocational education qualify in the minimum three years; only a third graduate, according to Johannesburg-based newspaper Business Day.
Fortunately, the automotive industry is a bright spot in the country. BMW, Mercedes, Toyota, Ford and others manufacture and export from South Africa, but that vertical can hardly be expected to put a major dent in the country’s jobless rate by itself.
The outlook for mining and manufacturing growth remains somewhat fragile, but agriculture should experience a rebound. It remains to be seen how that affects the jobs picture, however. Taken as a whole, the country’s economic growth forecast is expected to be in excess of only 1 percent, says Shadrack. That’s an improvement over recent years, but it remains below population growth.
The good news for investors is that South Africa is on the way back, but the climb is likely to be arduous for a while longer.
Government of South Africa
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