Ratings agency S&P Global has published a ‘misery index’, comparing South Africa to other emerging markets on issues such as inflation and job creation.
S&P said that the defining feature of an emerging market economy is its higher growth potential, and that multipliers to GDP growth from investment in infrastructure, transportation, and human capital should be far greater in these economies than among their developed peers.
“Therefore, it’s with concern that we can cite an increasing evidence of secular stagnation across much of emerging market Europe, the Middle East and Africa (EMEA) sovereigns,” it said in a research note on Wednesday (30 March)
“This, more than the near-term shock from a global pandemic, is the key risk for many lower-income emerging market sovereigns in EMEA.”
S&P said that one way to calculate secular stagnation in emerging markets is through a country’s misery index (MI) – the sum of a country’s rate of unemployment and inflation.
“A persistently high MI suggests that formal labour markets are not functioning, which is also a fiscal problem, and that an economy is suffering from a more generalized lack of competitiveness.
“Indeed, limited competitiveness is probably the biggest threat to a buoyant emerging market recovery, outside of Asia, for the next 10 years.
While the pandemic has clearly exacerbated the situation, the trend of rising MIs in emerging markets predates 2020, said S&P.
S&P said that the appearance of South Africa – the third-largest economy on the continent – on the list of top 10 MIs in the EMEA region is unsurprising, given the steady decline in investment/GDP from around 21% in 2015 to 18% in 2019.
This is because the domestic corporate sector has preferred to invest abroad rather than domestically, it said.
“A mature mining sector, a dysfunctional labour market, with unemployment having averaged 28% in the last decade, and considerable impediments to competition, due to high concentration in sectors such as retail and banking, explain the absence of dynamism in the South African economy,” it said.
“Among variables that stand out, South Africa has a weak track record of creating new companies – and the high failure rate of SMEs.”
It added that the country’s subpar growth performance has contributed to its very difficult fiscal predicament, with fiscal flexibility extremely constrained at this point, after the deterioration in the budgetary position (fiscal year 20/21) to close to 16% of GDP.