Three Finance Ministers in a Week – What’s Going On in South Africa?
14 December, 2015
After the Rate Rise: Why Are Emerging Markets Up When Everybody Said They Would Go Down?
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It is hard to find an economist with a positive view on South Africa at the moment. Long-standing homegrown problems have teamed up with unstoppable external shocks to create an environment with very little room for short-term optimism.
“We are at a particularly difficult juncture,” says Peter Worthington, senior economist at Barclays in South Africa. “There are a number of domestic and international factors impacting on us negatively.”
Domestically, these vary from drought – “not much the government can do about that” – to electricity shortages, “which are of our own making but cannot be fixed overnight,” says Worthington. One could add unemployment, twin deficits and a moribund political environment to the list.
“Then globally, we are going into a brand new era,” Worthington says. “Nobody knows how coming out of quantitative easing in the world’s most important economy is going to play out. But we can say for sure that, combined with a China slowdown, it will not be good for commodity prices and it will not be good for countries that have high financing requirements, which we do, and which are heavily reliant on commodity prices, which we are.”
The mood is best summed up when Goolam Ballim, chief economist and global head of research at Standard Bank in Johannesburg, is asked if there is any scope for a positive view on the South African economy. After a pause, he responds with a plaintive and almost painful: “No.” Indeed, Ballim has been proven right: three years ago, at a time when consensus held that South African growth would begin accelerating and keep a heady pace for years ahead, he suggested that the country was “in a state of perennial malaise”, and would find itself locked on a low-growth path of at best 2% a year. He described an economy that “is not recessionary but zombie-like: no discernible accelerating pulse, but some level of forward momentum.” Since then, his thesis has proven accurate, but with if anything greater vulnerability because of the subsequent slow-down in China and problems at home. He describes a “wilting political economy, with exceedingly low levels and business and consumer confidence translating into halting spending and limited new fixed investment.”
