It’s been a tough year for South Africa. Many are happy to see the end of 2015 but 2016 is likely to be tougher. Doing business in South Africa has become harder and more expensive. With power and water shortages, rising debt and the impact of a weak currency all weighing heavily, South Africa is in for further ratings downgrades.
“If we don’t stabilise the ship, the ratings downgrades will just prove to be a milestone on the way to a full blown solvency crisis. So we need to cut back government expenditure, we need to cut back and improve the investment viability and improve the efficiency of the state and state-owned enterprises.” Chris Hart, Global Market Strategist, Standard Bank
South Africa is also struggling with a stubbornly high unemployment rate. Jobs were lost across every industry this year, but the mining sector was particularly hard hit as commodity prices fell sharply. Over 23 thousand miners lost their jobs this year. That figure may triple in 2016 if Anglo American goes ahead with plans to cut 85 000 jobs globally. 48% of all staff hired by Anglo employees work in South Africa.
“It’s very urgent in South Africa now more than ever to implement reforms, be it skills, investment in economic infrastructure, easing the regulatory burden and supporting small business just to get growth going again in this economy.” Miyelani Maluleke, Macro Economist, Barclays Capital
Growth prospects for 2016 are forecast at just 1.8%. Analysts believe that target may be ambitious.
“I think growth is going to disappoint to the downside, I think it will be closer to 1%. Now as an emerging market that needs to create jobs if you growing at 1%, you’re not making a dent. Over the last three years we’ve actually had GDP on a per capita basis going backwards. So, unfortunately I don’t see any alleviation in terms of some of those headwinds just yet. Mohammed Nalla, Head of Strategic Research, Nedbank Capital
South Africa also suffered a huge knock to it’s reputation after President Jacob Zuma fired well respected finance minister Nhlanhla Nene this month. Nene has since been replaced by Zuma’s old finance minister Pravin Gordhan. But the shuffle caused a massive selloff on the currency.
“The new minister of finance Pravin Gordhan has got an incredibly difficult job. He was the man to do it undoubtedly. But even he is going to find it supremely difficult to claw back the reputation that we had. So, I think that’s going to weigh on the economy. We’re going to see the Rand remaining relatively weak. We’ve already had the US interest rate hike. There’s probably going to be three of four more of those during the course of he year. And it’s likely that we’ll probably get an interest rate hike in South Africa as early as January”Chris Gilmour, Analyst, Absa Investments
South African consumers have already cut back on spending and will cut back further in 2016. Not good news as retail spending accounts for 60% of GDP. With US rates also set to move higher, investors are also likely to move away from South Africa for better returns in the US.
