Zero growth predicted for South African economy amid uncertainties

Global Business

Zero growth predicted for South African economy amid uncertainties 2

One in every four South Africans is unemployed. Foreign investment into the country has declined and the economy is widely expected to contract this year. Apart from global shocks, South Africa is also dealing with political uncertainty. In the most recent development, the Finance Minister could face charges over a special unit that he ran during his time as head of the country’s Revenue Services.

CCTV’s Sumitra Nydoo reports.Follow Sumitra Nydoo on Twitter @sumitranydoo

The last 18 months have been rough for the South African economy. Slow Chinese demand, a commodities slump, and the worst drought in decades and sharp currency declines all culminating in a Reserve Bank forecast of zero growth for 2016.

“South Africa has run out of many of the normal growth options. It’s not easy for South Africa to stimulate now through say cutting interest rates or to rely on government expenditure to drive the economy, or to expect that government can be the employer of last resort. These initiatives have been tried and they haven’t led to a sustained improvement in overall growth,” Stanlib’s Chief Economist, Kevin Lings said.

Despite running a tight fiscal ship, the country’s debt-to-GDP ratio is over 40 percent. The economy lost almost half a million jobs in the first half of this year taking the unemployment rate close to 27 percent.

“You have unemployment because of slow growth because sectors cannot employ more people because it just doesn’t make sense; it puts the economy further into decline. So, that’s the number one risk. The other risk is that, without growth, it also impacts on the bigger picture, so households are also struggling in many ways and if you don’t have an income growth, then you also start to see the expenditure side of GDP remain stunted,” Argon Asset Management Economist, Thabi Leoka said.

South Africa is running out of options to turn this economy around despite increased efforts between government and the private sector in the last few months.

“We have a great and well diversified corporate sector that’s in a good financial position but is lacking in confidence and the key to unlocking South Africa’s growth is to inspire business confidence to get the business community to invest more into South Africa,” Lings said.

“We need to focus on skills development, education and exports. And we need to maybe have policies where we do not export raw material, we only export finished goods, rather than exporting raw material and importing finished goods,” Leoka said.

South Africa’s economy remains vulnerable to global and domestic shocks. So far the impact of Brexit has been muted and in part worked in South Africa’s favor, as investors went back to emerging markets lifting the Rand. But the currency has fallen again on worries the Finance Minister could be arrested.

Pravin Gordhan has a strong track record having safely steered South Africa away from recession during the 2008 global financial crisis and he’s managed to keep the ratings agencies from downgrading South Africa to junk. It’s uncertain whether he will attend the G20 meeting in China. A real blow to the entire continent, as South Africa is the only African member of the G20.

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