South Africa: Obstacles to recovery

The outlook is grim in South Africa. Already struggling for years with lacklustre growth and savaged by a second wave of coronavirus, including a local variant which scientists say is more contagious, the country’s hopes of an economic renaissance are receding ever further. GDP shrank by 7.8% in 2020, falling to $283bn, a far cry from the peak of over $400bn in 2011.

Growth has been impeded for more than a decade by power shortages, mismanagement of state-owned enterprises, corruption, and failure by government to get to grips with the economy’s problems. President Cyril Ramaphosa, who oversees a party riven by factionalism, seems unable to halt the slide. Ballooning debt and a Moody’s downgrade to junk rating will drag on recovery, while risk will abound as the country struggles to access enough vaccines for its 60m population.

“2021 will see a slower recovery than previously expected given a second and third Covid wave and a vaccine rollout pace that is likely to be slow,” writes Peter Attard Montalto, head of capital markets research at Intellidex.

“South Africa is set to still only reform at a moderate pace in 2021. Corruption will slowly be stymied but that will not lead to growth while structural reforms will be ‘two steps forwards, 1.5 steps back’ and not lead to potential growth breaking above 1.5% in the medium run. Hence, we see South Africa requiring an IMF programme (a reform straitjacket) in the coming three years. We have revised 2021 growth down to 3.2% from 4.3%.”

For further information, read our special report on South Africa.