South Africa’s Long Road Back From Meltdown

JOHANNESBURG (Capital Markets in Africa) —  Even before the pandemic struck, South Africa was in a parlous state.

Jacob Zuma’s disastrous nine-year rule left a toxic legacy of endemic graft, soaring government debt, and evaporating investor confidence. President Cyril Ramaphosa has made only stuttering progress since he succeeded Zuma in 2018, replacing some inept and corrupt officials, but has struggled to ignite economic growth or tackle rampant unemployment. 

The arrival of Covid-19 has compounded South Africa’s problems. Despite a strict lockdown in the two months to May that saw thousands of businesses fold, the virus is still spreading and hospitals are inundated. With part of the populace either unwilling or unable to adhere to social distancing rules, the government reimposed a curfew in July. 

Ramaphosa has shown that he understands the scale of the crisis, announcing a $30 billion package to shore up the economy, support the destitute, and improve the healthcare system. He also hopes to entice private investors to help fund infrastructure projects in a bid to spur growth and create more than 1.8 million jobs over the next decade.

Yet success is far from certain, and South Africa’s fate hangs in the balance. It’s either heading on a long, hard road to recovery, or the risk is of economic collapse. A prevarication is no longer an option.   

By The Numbers
80 months How long South Africa has been stuck in a downward economic cycle, the longest since 1945.
30.1% Unemployment rate in the first quarter, before the lockdown, kicked in.
More Than 1 in 2 South Africa’s share of confirmed coronavirus cases in all of Africa.

Why It Matters
South Africa is the continent’s most industrialized economy and punches above its weight on the international stage as a member of the Group of 20 nations and current holder of the rotating chairmanship of the African Union. Yet now business leaders warn that investor patience is wearing thin and South Africa is at risk of a sovereign debt crisis unless Ramaphosa stays the course. 

Reviving the economy and the government’s finances once the coronavirus is brought under control will likely take years and require unpopular reforms, including trimming the state’s runaway wage bill, reducing debt, and selling or shuttering some state companies.

That’s a red rag to some in the ruling African National Congress, the driving political force that led to the end of apartheid in 1994 and which has dominated South Africa ever since. Ramaphosa’s resolve will be tested by his opponents within the ANC, who are looking to unseat him as party leader in 2022, and by labor unions that form part of the nation’s ruling alliance and played a key role in bringing him to power.

Source: Bloomberg Business News