It has not been a good
year for South Africa. Its currency, the rand, has slid 15 percent against the
dollar because of sluggish growth, stubbornly high inflation and the flight to
safety sparked by the Fed’s announcement in May that it would likely scale back
its $85 billion-a-month stimulus programme before the end of the year.
Unemployment currently stands at 25.6 percent. The economy managed to grow by 3
percent in the second quarter but is projected to slow in the second half of
the year. Ongoing strikes have cost it billions of dollars in lost output and
tainted its image among investors abroad. The three major credit agencies
downgraded its credit rating to Triple B.
The barrage of
downbeat economic news has come from a country until recently considered the
economic powerhouse of the continent and which contributed 40 percent of the
GDP of Sub-Saharan Africa. Yet last week its central bank governor, Gill
Marcus, said that at its current growth rates South Africa risked being
overtaken by Nigeria as Africa’s biggest economy within a decade. Furthermore,
sluggish growth coupled with high inflation, which hit 6.4 percent in August,
mean the central bank is in a tight spot. The sickly growth rate and high
unemployment rate would call for an interest rate cut, but with inflation
already breaching the central bank’s target range of 3 to 6 percent it has
little room for manoeuvre.
To be sure uncertainty
over the Fed’s next policy move has weighed heavily on Africa’s biggest
economy. Given that South Africa relies heavily on foreign capital to finance
its current account deficit, which is around 6 percent of GDP, it was
particularly badly hit when investors pulled their money out of emerging
markets at the prospect of the pool of cheap dollars drying up. In fact, after
the Fed’s surprise announcement that it would not taper in September after all,
the rand picked up a little but still has not lifted itself back to its former
levels.
The economy was been
badly hit by the wave of violent labour unrest in some of the country’s most
important sectors, such as mining and motor manufacturing. The strikes have not
been as long as last year but have definitely not burnished the country’s image
abroad.
To top it all off the
politics has not been that great either. The ruling African National Congress
(ANC) which has been in power since the end of apartheid in 1994 has been
suffering from internal splits, enduring inequality and poverty as well as
corruption. Many young people in South Africa do not feel their living conditions
have improved and feel increasingly disaffected with the ANC. Deputy President
Kgalema Motlanthe called the country’s staggeringly high youth unemployment,
which stands at 50%, a “ticking time bomb.” High levels of youth unemployment
can lead to social unrest and there are fears within the ANC that South Africa
is running the risk of an Arab Spring. If President Jacob Zuma is to win next
year’s election and prove that his party has not failed the country he needs to
step up his game.
