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    S. Africa Faces Calls for Emergency Economic Plan Amid Worst Slump in 10 Years

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    Economists are urging decisive reforms in South Africa amid falling mining and manufacturing output, lingering political instability, and rising social tensions – as the Rainbow nation finds itself on the verge of a massive recession.

    Kristian Rouz – The South African economy finds itself in the middle of the worst economic slumps since the global recession of 2009 as struggling state-owned monopolies, power disruptions, and political turmoil weigh on business activity, while corruption and international credit rating downgrades continue to ravage the Rainbow nation's investment climate.

    Economists are calling for urgent measures to restore investor confidence in the once-prosperous economy, and decisive reforms to bring Africa's most-industrialised nation back on track to economic expansion.

    According to the latest GDP report by Stats SA, South Africa's economy contracted a sharp 3.2 per cent in the first quarter of 2019. The slump came amid the debt crisis at state-owned utility giant Eskom, which led to nationwide power outages throughout the first quarter – resulting in lower-than-expected output in the manufacturing and mining sectors.

    ​"This is worse than anyone expected, and things went wrong in several sectors," John Ashbourne of London-based Capital Economics said. "It would be difficult to imagine things could stay this bad for two quarters in a row".

    Economists say South Africa is now standing on the verge of a full-blown recession.

    ​In light of disappointing GDP data, one of South Africa's largest commercial lenders, Nedbank, says the Rainbow Nation 'needs a doctor' before private sector enterprises reconsider their business decisions – which are currently aimed at preventing losses rather than seeking growth opportunities.

    Nedbank CEO Mike Brown highlighted the rising unemployment – which has hovered around 30 per cent over the past 25 years — as one of the main risks to the national economy.

    "Unemployment is increasing and the underlying reasons for this are structural – not cyclical. It is a ticking timebomb," Brown said. "This is one of the reasons why we have chosen to reinvest 1.5 per cent of profits in the youth employment scheme to try and change this trajectory – and we need more corporates to do the same."

    ​Separately, Nedbank economists say South African corporate cash reserves are at near their highest in several years due to companies' reluctance to invest amid the unfavourable business climate.

    Experts say many CEOs were planning to boost spending after last year's ouster of former President Jacob Zuma – notorious for high-government corruption – but a subsequent change in political leadership didn't appear to have helped, as many of South Africa's problems remain unsolved.

    ​Poor first-quarter GDP figures also come after the 8 May general election. The vote saw a decline in the popularity of the ruling African National Congress (ANC). However, the election cemented the grip on power by the centre-left government of President Cyril Ramaphosa, who has pledged to advance the controversial land reform, among other things.

    Investors are concerned that Ramaphosa's proposals could undermine property rights and the free market economy in South Africa. Such sentiments are also spreading among South African voters, as indicated by the recent rise in popularity of the Afrikaner-led Freedom Front Plus Party.

    ​However, South Africa is facing tough challenges in the immediate future. Should the second quarter GDP come in negative, the Rainbow nation will be officially in a state of a technical recession – which could trigger further international credit rating downgrades deeper into 'junk' territory.

    "The rand saw its backside, the capital market collapses, and traders, journalists and investors all called each other to try and make heads or tails of the total mess up," Dawie Roodt, chief economist of the Efficient Group, said.

    The IMF recently downgraded South Africa's growth outlook for this year to 1.2 per cent from 1.4 per cent expected previously, while also lowering next year's outlook to 1.5 per cent from 1.7 per cent.

    IMF projections place South Africa among the worst-performing economies in the Sub-Saharan region, and it remains unclear whether the Rainbow nation will find prompt solutions to fix its problems.

     

    Tags:
    economy, recession, South Africa
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