SA remains Africa’s most industrialized country and the most attractive destination for foreign investments aimed at Africa.
Yet SA’s economic woes have become a major concern to investors who are currently losing hope on the nations’ economic future.
No doubt the country is slightly more optimistic about economic growth this year, but this will never be possible if the cause of its fall-out isn’t first dealt with.
The International Monetary Fund (IMF) warned on Thursday that SA must urgently reform its state-owned enterprises, reduce policy uncertainty and speed up reforms in order to reduce SA economic woes.
The IMF raised this issue as its major concern as it downgraded its growth outlook for South Africa to 0.1% for 2016 on Thursday, lower than Treasury’s 0.9% forecast.
IMF mission chief for South Africa Laura Papi pointed that the SA economy is greatly affected by China’s economic slowdown, weakening demand for commodities and a tightening global focus.
“The reason why we’re projecting this very slow growth is that the shock from commodity prices is still reverberating throughout the economy,” she said.
“We’re seeing many firms having reduced profitability, not just in the mining sector, but in several other sectors,” she said. “And we’ve seen a lot of retrenchments, unfortunately, so unemployment is actually rising.”
Papi, however, noted that there has been progressing in the dialogue between the government, labor, and business despite the fact that private consumption, which has been driving consumption, has been much weaker too.
She said there were some domestic policy shocks that contributed to the weaker forecast. One of such factors include a higher political uncertainty which she said has affected investor confidence and trade exports
“We’ve had a confluence of shocks on an already weak economy,” she said.
“The leadership changes at Treasury in December really shook investor confidence,” she said, as she referred to President Jacob Zuma’s decision to fire Finance Minister Nhlanhla Nene and then switched his replacement four days later with Pravin Gordhan after pressure from his party.
Explaining further on how Zuma’s decision added to the SA economic woes, Papi said following survey by the Bureau of Economic Research, more than 80% of the firms responding to this survey suggest that the general political environment is a concern.
“We looked at media reports and we constructed a measure of how frequently media reports focus on the issue of policy uncertainty. We are seeing that there is an increase in policy uncertainty, especially towards the latter part of 2015.
“It’s an issue because it affects investor confidence (and) it makes people want to wait when they are uncertain about what’s going to happen. Investors in particular, (who) have large start-up costs, tend to wait and not invest.
In fact, we’ve seen very weak private investment for some time in South Africa,” she added.
Other Causes Of SA Economic Woes
Added to the blame on China, Nenegate and Zuma’s economic policies as the root cause of SA economic woes, “linkages between capital flows, the sovereign, and the financial sector, especially if combined with sovereign credit rating downgrades to speculative” grade are other attributive factors.
Worst still is Britain’s exit from the EU which has further increased risks for SA; the IMF said there are extensive financial linkages between the UK and SA and sizable trade linkages with the EU as a whole.