South Africa’s need for a new direction


Harry Jones

The S&P shook South Africa on Friday 24th November when it announced the downgrading of South African ratings. The local currency credit rating was demoted from BB+ to BBB-, sending the Rand sliding. However, the currency rallied after Moody’s decision to place the country on review for downgrade. Despite the fact that this still presents a negative outlook for the future of the South African economy, the fact that Moody’s did not actually downgrade the country at the same time as the S&P has been seen as a positive. The country will be under review for a 90-day period before a decision is made on its rating. Following the decision from the S&P, Zuma directed his Finance Minister to identify various concrete measures which could be used to address the economic challenges facing South Africa.

The future is not looking positive for the South African economy. In September, the World Bank cut the growth outlook for 2017 to 0.6% from their previous estimate of 1.1%. Although the estimates for the next few years are slightly more positive, 1.1% and 1.7% in 2018 and 2019 respectively, this would be a poor performance for any economy, let alone a developing one such as South Africa.

South Africa has experienced weak economic growth and high unemployment which has led to a huge amount of poverty in the region. Unemployment has also dampened growth in the consumer sectors. These are not the only reasons for the downgrade, however. The country is also experiencing political and budgetary issues. President Zuma could potentially come under the same problems that Mugabe suffered recently in Zimbabwe. Mugabe’s attempt to put his wife in power was not popular and led to the soft coup, culminating in his resignation. Zuma is pursuing a similar idea and is trying to ease the way for his ex-wife to take power in the 2019 elections. However, the potential for military intervention is a lot lower than in Zimbabwe, and so it would be much harder to settle the dispute. One of the main points that South Africa can learn from Zimbabwe is that disputes are resolved much more easily within the ruling parties than out on the streets.

South Africa has not had a huge amount of luck in recent times. They have attempted to gain a major sporting event in an attempt to boost economic growth. However, they have had numerous setbacks over the years, with failed bids for the 2011, 2015 and 2019 Rugby World Cups. They recently failed to gain the 2023 Rugby World Cup as well suggesting the sport is becoming more and more dominated by money, especially due to the fact that South Africa was initially named as the favourite to host the event in 2023. This has just added to South Africa’s economic woes.

Zuma must now be extremely careful when making plans to deal with the dire economic situation. The country has had a lucky escape with Moody’s decision to only place the country under review. A downgrade from Moody’s could lead to South Africa falling out of the Citi World Global Aggregate Bond Index. This would lead to further outflows from the bond market. Therefore, Zuma’s next steps have the potential to either raise the country to new heights or lead to deeper economic problems. However, Zuma focuses on staying in power rather than using his power to the country’s advantage. Therefore, there could be a need for change in South Africa to prevent further problems down the line.

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