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Deep down: South Africa’s Economy in Recession

South Africa’s economy has twice slipped into recession since Ramaphosa took office in February 2018, highlighting the challenges he faces in trying to undo the misrule and graft that characterized his predecessor Jacob Zuma’s nine-year tenure.

The Gross domestic product shrank an annualised 1.4% in the last quarter of 2019, and expanded just 0.2% for the full year, the slowest pace since the global financial crisis, the national statistics agency said on Tuesday.

South Africa’s president Ramaphosa says Q4 contraction shows “underlying weakness”. He added at a news conference that the data showed Africa’s most industrialised economy needed to sharpen its focus on reforms. Ramaphosa said his government was engaging with public sector unions over plans to contain the wage bill and that unions’ concerns were understandable.

Growth in Africa’s most advanced economy has floundered in recent years amid power shortages and falling business and consumer confidence, with unemployment at its highest in more than a decade and living costs also rising.

Nationwide power blackouts in South Africa are blamed for the larger than expected decline in the fourth quarter.
Eskom, generator of about 95% of the nation’s electricity, implemented the widest blackouts yet in December to prevent the grid from collapsing.

The state-owned power utility, Eskom, has been unable to meet demand and has had to implement rotating cuts in electricity to residences, factories, mines and businesses.

South Africa’s ease of doing business ranking, however, has slipped in the last few years, but it remains one of the Top 10 easiest operating environments in Africa.The current socio-political landscape is also not conducive to attracting investment.

Weak agriculture output and transport were the main drags on growth in the last quarter, StatsSA said, followed by construction, mining and manufacturing, which outweighed positive contributions from finance and government spending.

South Africa’s economy grew by just 0.2% in 2019 and 0.8% in 2018, according to the official statistics.

Seven out of 10 of the country’s sectors contracted in the fourth quarter, including agriculture, which dropped by 7.6%, manufacturing, which dropped 1.8%, and transport, which declined 7.2%.

South Africa’s economic growth forecast for 2020 has been cut to 0.9%.

While the International Monetary Fund cut its forecast for Nigeria’s 2020 growth to 2% from 2.5% last month due to lower oil prices, South Africa’s GDP is forecast to expand only 0.8%.

In February 2020, Rand declined as much as 0.7% to trade above 15 per dollar for the first time in a week. Yields on benchmark 2030 government bonds rose four basis points to 8.9%.

Also, the recent released data showed that the South Africa’s Rand weakened while stocks edged higher.

The economic policy in South Africa has focused on controlling inflation while empowering a broader economic base; however, the country faces structural constraints that also limit economic growth, such as skills shortages, declining global competitiveness, and frequent work stoppages due to strike action.

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