South Africa has had to navigate a tricky 2015: falling commodity prices, high unemployment and a weaker rand made for a difficult year, leaving a degree of uncertainty over the country’s 2016 outlook.
The country still has a host of appealing competitive advantages however. It remains the continent’s second-largest economy – benefiting from a large manufacturing base, more than $2.5 trillion worth of metal and mineral deposits, and one of the most robust financial sectors in the world.
It also boasts strong investment and trade ties with a range of key emerging and advanced economies.
Change at the top
This was made visible in early December, during a bout of reshuffling at the top of the Ministry of Treasury. President Jacob Zuma removed former minister of finance Nhlanhla Nene, who was initially replaced by David van Rooyen. He handed the reins to Pravin Gordhan, who held the portfolio for five years previously.
The move impacted the markets, temporarily driving up 10-year bond yields by a full percentage point and putting downward pressure on the rand, although it has since stabilised following Gordhan’s re-instalment.
Recent credit ratings action has seemed to echo market sentiment. In early December Fitch lowered the country’s sovereign credit rating to “BBB-”, citing looser fiscal policy and a failure to stabilise the debt-to-GDP ratio. Standard & Poor’s also revised its forecast for South Africa at the beginning of the month, lowering its outlook to negative.
Modest growth, weaker rand
South Africa is still poised to grow over the next 12 months, and at a faster rate than many advanced economies. Its economy is expected to expand by 1.4% in 2016, according to the IMF, higher than France and Italy, although behind that of other major emerging markets.
Growth has been more modest in recent years due to external pressures, including declines in commodity prices and global demand, and the continued fallout of the slowing Chinese economy.
In its effort to encourage growth and help buffer against inflation, the South African Reserve Bank (SARB) raised interest rates twice in 2015, lifting its benchmark rate by 25 basis points in both July and November.
A similar move – which would bring interest rates to 6.5% – is expected in the first quarter of 2016, likely aimed at countering the effect of the recently announced rate hike by the US Federal Reserve.
Inflation remains within the SARB’s target band, at 4.8% in November, with consumer prices up 0.1% month-on-month to their highest level since July. The SARB has managed to effectively keep a lid on price rises, despite the steady depreciation of the rand, which hit record lows in mid-December – a reaction in part to the strengthening US dollar.
Mining sector performance
South Africa’s mining sector also faced an uphill battle in 2015, with prices for key commodities down and production stymied by labour strikes and power shortages.
In mid-December one of the country’s largest miners, Anglo American, announced plans to eliminate more than 50% of its staff and sell off non-core assets in an effort to stem the double-digit decline in its share price.
The energy sector is expected to get a sizeable boost as a host of new renewable energy projects come online.
In April 2015 the minister of energy, Tina Joemat-Pettersson, announced 13 winning bids for the fourth round of the Renewable Energy Independent Power Producer Procurement programme.
Including the fourth round awards, 5 423 MW of projects have been approved in the last four years, resulting in $12.5 billion worth of private investment.
According to Khulu Phasiwe, spokesperson for state-owned utility company Eskom, as of September 2015 the company had concluded power purchase agreements with 30 renewable independent power producers, accounting for 32 projects and up to 1.9 GW of new capacity.
Report issued by the Oxford Business Group – a global publishing, research and consultancy firm, which publishes economic intelligence on the markets of the Africa, Middle East, Asia and Latin America and the Caribbean.
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