South Africa in the economic crisis

Economic growth in South Africa was only 0.8% last year, well below original expectations. In the first quarter of 2019 there was even a new setback in growth, the overall economy fell by 0.8% compared with the final quarter of 2018, and the unemployment rate reached almost 28%, its highest level since summer 2017. President Cyril Ramaphosa, a reform-minded and balancing president, has not yet managed to lead his country out of the economic mode of crisis.

South Africa’s economic misery is largely due to structural causes that can hardly be resolved in the short term. These include the excessive number of unproductive state-owned companies, including Eskom, which recently hit the headlines due to rotating power cuts. But serious shortcomings in the education system, too many regulations that hamper growth and a frightening level of corruption also hamper employment growth and economic progress.

Despite all the grievances, Ramaphosa managed to win the parliamentary elections in May with unexpectedly good results for the ruling ANC party. This has given him a personal trust and authority bonus. Nevertheless, he can be expected to implement his reform and growth agenda only in a „slimmed-down“ form and with a lot of patience. For in the party Ramaphosa faces a powerful and populist left wing that is still loyal to its predecessor Jacob Zuma. The representatives of this wing are also most heavily burdened with corruption allegations, which explains their aversion to reform. Many of them fear losing their „benefices“ under Ramaphosa. But even the trade unions do not agree with all Ramaphosa’s plans and continue to demand job security for those who already have a well-paid job.

Because of the resistance to his original reform plans, Ramaphosa has also switched to a strategy of small steps. This also means that he will initially forego the planned partial privatisation of the electricity giant Eskom in favour of new subsidies. Such a policy, however, only postpones the settlement of this enterprise and costs the state a lot of money. Against the backdrop of sluggish reform progress, economic growth is likely to remain subdued this year and next. We estimate it at 1.0% and 1.3%, respectively.

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