Perfect storm sweeping through South Africa

 ·25 Apr 2023

While the term ‘polycrisis’ has quickly become a buzzword in global economies, the convergence of different crises in South Africa is nothing short of remarkable, says consultancy, PwC.

The group’s latest economic forecast for the country noted that South Africa is being hit from all sides by various economic disasters – from home-grown crises like load shedding to global troubles like the Russian invasion of Ukraine.

“Some of the emergencies are manifestations of once-in-a-generation risks: the Russian invasion of Ukraine, double-digit inflation in developed economies, and the ripple effects of both the pandemic and the ‘great resignation’. Other factors, like significant cyberattacks and extreme weather events, once seemed rare but are now worryingly familiar,” PwC said.

“The confluence of crises facing local business leaders is nothing short of remarkable.”

PwC noted that there are five broad “megatrends” that are currently disrupting economies around the world. These are climate change, technological disruption, demographic shifts, a fracturing world, and social instability.

These are wide-ranging issues that are rapidly reshaping the business environment. In a South African context, however, they also exacerbate other entrenched issues.

For example, South Africa is facing the negative impacts of climate change on food production, which is currently being shocked by water shortages and rising costs due to load shedding.

Technological disruption is putting pressure on job creation – in a country where the unemployment rate is one of the highest in the world, and the education system is not equipping school leavers with the necessary skills to face a shifting job market.

South Africa also has a growing youth population, shifting the country’s demographics.

“All of these factors, combined with other major challenges like load-shedding and transport infrastructure deterioration, weigh on the country’s economic potential,” PwC said.

The group forecasts that South Africa’s economy will grow by about 0.6% in 2023, currently placing its projections ahead of the South African Reserve Bank (0.2%) and the International Monetary Fund (0.1%) but below National Treasury (0.9%).

PwC said that all five megatrends are structural – they are profound trends, long-term in effect, and “touch everyone on the planet by shaping our world for many years to come”.

However, how they converge and interact makes them the perfect storm for South Africa.

“Each megatrend is exacerbating the social challenges that South Africa faces. Countries like ours will be increasingly struggling with chronically high youth unemployment and underemployment, no matter what level of education these individuals have achieved.

“Furthermore, if economies are unsuccessful in addressing these issues, they will face increasing social unrest.

“Since countries like South Africa, with a low median age, will be struggling to address the youth unemployment crisis, the top talent and most entrepreneurial people will increasingly want to emigrate. This will further weaken the economies of their home countries,” it said.

Based on the historical relationship between economic and employment growth, PwC anticipates that South Africa’s unemployment rate will likely increase from 32.7% by end-2022 to 35.5% by 2030 under its baseline scenario.

This figure could be higher at 37.2% under a downside scenario where real GDP growth slows to just 0.9% per annum, it said.

Read: Looming strikes threaten South Africa’s economy

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