South Africa is likely to see increased social unrest and violence in the coming months, even if the economy has proven remarkably resilient in the face load shedding.
German financial service provider Allianz has released its first Country Risk Atlas, based on a proprietary risk ratings model revised every quarter with the latest economic developments and the group’s data on global insolvencies and the business environment.
“The Country Risk Atlas provides comprehensive analysis and insights into the economic, political, business environment and sustainability factors that influence trends in non-payment risk for companies at a macroeconomic level,” said Ana Boata, Head of Economic Research at Allianz Trade.
The group has upgraded 21 risk ratings in 2023, including South Africa, while only downgrading four. These upgraded countries highlighted their resilience in the face of global shocks, the group said.
This is a significant improvement from 2022, when only eight country risk ratings were upgraded, and 17 were downgraded.
The global risk of non-payment for companies in 2023 is currently just above 2 (medium risk), while South Africa stands at 3 (sensitive).
Strengths and weaknesses
Allianz said that South Africa’s strengths lie in its economic performance despite the impact of load shedding – which was named the biggest risk to the country in the group’s Risk Barometer 2024.
The group expects modest GDP growth this year. That said, its expectation of 1.4% is higher than the 1% pencilled in by Deloitte Africa, Investec, the Nedbank Group Economic Unit and the International Monetary Fund.
It said that the output in the energy-intensive mining and manufacturing sectors is likely to stay close to pre-pandemic levels due to the “increased availability of electricity, some electoral spending, tourist inflows and resilient internal demand”.
In addition, fiscal consolidation efforts, disciplined salary increases and increased tax collections are helping to stabilise the government debt ratio.
“South Africa also demonstrates external resilience to shocks, with abundant international reserves, a flexible exchange rate, and limited external debt in foreign currency,” the group said.
However, South Africa has several weaknesses that could impact its risk rating, including the lack of electricity hindering growth for businesses, industries and households.
It also warned that there will be a rise in social unrest and violent events during the electoral period.
It said that the increase in violent uprisings and the growing disputes between political elites would further weigh on state legitimacy, the ANC’s capability to defuse dissent and the predictability and efficacy of government action.
“The leading party clearly lost positions in the local elections held in November 2022, when support for the ANC crucially fell below the 50% benchmark,” the group said.
“For now, it is difficult to see a strong contender, and even if the party loses the absolute majority in the upcoming election, it is likely to remain the largest in parliament, way ahead of its closest rival and able to continue to govern with the support of a junior coalition partner.”
Despite fiscal improvements, South Africa also ranks poorly in public debt sustainability risk due to the short-term absorption of revenues for debt repayment and elevated sovereign bond yields.
“The state’s limited ability to conduct effective policy is compounded by demographic pressures, competition between groups and unions in countering government action, inequality heightened by the crises of recent years and, more recently, inflation.”