South Africa Narrowly Avoids Recession

It was close, but the latest South African economic results have delivered small growth which has meant the country is not quite dipping into recession. However the promises by the government of reinvigorating the economy seem to be fairly empty at this point.

There is no doubt that the South African economy has struggled over the last couple of years. There have been numerous problems – strikes in many sectors, low confidence from investors and of course the numerous power shortages that have been experienced throughout the country. These issues have led to the President, Jacob Zuma making economic growth one of his priorities when he led the ANC to victory in May.

South African Economic Clouds

The idea was to introduce a series of measures intended to give the economy a big boost or ‘jump start’. The latest figures suggest that this hasn’t happened yet though with only a very small growth being recorded and some important sectors still shrinking.

Manufacturing is still shrinking which is one of the biggest concerns, where as what growth that has been achieved has been led by transport and government spending. There was some good news in the agricultural sector due to some good harvests.

Many economists are predicting that growth will continue, the problem is that the level is not high enough to help the economy recover overall. South Africa has many problems, specifically structural ones like education, transport and energy issues. These problems are costly to rectify and need high levels of growth to finance improvements steadily over the next decade or so. South Africa is the most developed country in the continent, yet it still suffers from high levels of unemployment, poverty and inequalities. These are all factors which can cause unrest and more social problems within the society, again which can spiral into issues that will hold back growth – the platinum miner’s strike is one such example.

President Zuma has pledged to achieve levels of growth in excess of 5 % by 2019, although there has been little detail behind this promise. The signs are worrying, already this year African Bank Investments, an unsecured loan provider, has collapsed. Indeed without the central bank intervention, it would have ceased to exist. Rising inflation and slow economic growth is of course a dangerous combination and one that is particularly difficult to solve using monetary policy. The central bank has been forced to raise interest rates again which is obviously not going to help growth and investment either.

There are some bright signs however, significant investment has been made in the telecoms sector allowing the possibility of expanding employment and opportunities in the digital sector. Things aren’t perfect but many digital based companies using tools like a fast vpn service and remote hosting in order to expand their business internationally. South Africa has a high number of technology literate graduates produced by it’s Universities.

There are many who remain optimistic about the prospects for the South Africa. Africa itself, is cited as one of the biggest economic opportunities in the world, particularly with regards to technology and telecoms based businesses. There’s no doubt that South Africa has a flexible workforce and overall a robust financial system to hopefully benefit from these opportunities.

Charles Mackintosh
Ninja Proxy Guy