Down but Not Out

ChinAfrica - - Opinion -

AF­TER the two rat­ing agen­cies down­grad­ing South Africa, the ques­tion now is how this down­grade is likely to im­pact the econ­omy. This mat­ters as South Africa is one of Africa’s largest economies, ac­count­ing for one fifth of Sub-sa­ha­ran Africa’s GDP. In ad­di­tion, more than one fifth of Africa’s to­tal FDI stock is in South Africa. South Africa is China’s largest trad­ing part­ner, as well as the largest mar­ket for goods in Africa, pur­chas­ing 15 per­cent of all of China’s ex­ports to the con­ti­nent in 2016.

Down­grade in­flu­ence The down­grade de­ci­sion fol­lowed the cabi­net reshuf­fle on March 31 by South African Pres­i­dent Ja­cob Zuma changes were made to 10 of the coun­try’s 35 min­istries, in­clud­ing en­ergy, po­lice and tourism; five min­is­ters lost their jobs while five oth­ers have been given new port­fo­lios. The ca­nary in the coal mine was the re­moval of Fi­nance Min­is­ter Pravin Gord­han, re­placed by Malusi Gi­gaba. Gord­han was viewed as a safe pair of hands and a spear­head for im­ple­ment­ing the nec­es­sary eco­nomic pol­icy to un­lock South Africa’s struc­tural con­straints to growth.

At the very least, the down­grade sug­gests that S&P, for in­stance, be­lieves that the like­li­hood of progress in deal­ing with a check­list of items in­clud­ing the fi­nal­iza­tion of la­bor and min­ing re­forms, the adop­tion of more ag­gres­sive fis­cal con­sol­i­da­tion mea­sures ex­pected to sta­bi­lize gov­ern­ment debt faster, and main­tain­ing broad po­lit­i­cal in­sti­tu­tional sta­bil­ity and macroe­co­nomic pol­icy con­ti­nu­ity, amongst oth­ers, has been re­duced.

At a max­i­mum, the down­grade boldly as­sumes that the cabi­net reshuf­fle will not be re­versed and that the new trea­sury ap­pointees will al­low fis­cal slip­page, es­pe­cially with re­spect to pro­vid­ing in­creased sup­port for state-owned en­ter­prises in gen­eral and Eskom in par­tic­u­lar, with­out any im­prove­ment in their gov­er­nance. It also as­sumes that fis­cal pol­icy will be in­creas­ingly neg­a­tive for growth.

To be fair, the down­grade it­self has been com­ing for some time. In­deed, by S&P’S method­ol­ogy, South Africa’s econ­omy was al­ready in non­in­vest­ment grade in 2016, based on growth and growth pro­jec­tions alone. In­vest­ment grade re­quires per-capita GDP growth of 1 per­cent - which means with South African pop­u­la­tion growth of 1.6 per­cent, growth must be 2.6 per­cent. In­stead South Africa has seen growth slip to an av­er­age of just 1.7 per­cent an­nu­ally in the past three years and an ut­terly pal­try 0.12 per­cent last year. That is ma­te­ri­ally lower than the 10-year av­er­age trend growth through 2013 of 3.5 per­cent. Wor­ry­ingly, the years prior to the 2008

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.