5 things that will make or break South Africa in the next few years

Credit rating agency Moody’s has forecast that South Africa’s economy will grow by about 1.5% over 2022-23, constrained by a rigid labour market, weakening competitiveness and decaying infrastructure.

The electricity sector poses the greatest risks to economic growth prospects, with generation capacity already insufficient to cover the economy’s needs, the group said in a research note on Wednesday (4 May).

“The current administration, which came into power in 2018, has introduced some measures to address structural growth constraints, but the latter remains a challenge. Socioeconomic pressures and institutional weaknesses also complicate the government’s efforts to introduce reforms. As a result, growth has continued to underperform other emerging market economies,” it said.

Moody’s noted that the longer-term growth outlook will depend on the extent to which the government is able to advance its sectoral reforms, especially those aimed at rehabilitating electricity capacity.

The group identified five key areas of concern and what the government needs to do to address these issues.


Land reform

  • Reform objective: Allow land restitution and redistribution, including through expropriation without compensation, but spare the economy by focusing on unexploited lands or unrightfully seized lands.
  • Credit view: Positive, because it supports social cohesion and growth. But until fully implemented in a way that ensures respect for the economic objectives, this is a source of uncertainty.
  • Progress: Initial public consultations closed. Expropriation Bill drafted and promulgated on 9 October 2020, mandating a compulsory, uniform expropriation process, just and equitable compensation and a possibility of non-compensation in specific cases.

Regulation

  • Reform objective: Increase competition and remove barriers to entrants, especially in the services sectors (tourism, retail, financial services, network industries).
  • Credit view: Positive, but progress on reforms is difficult to track, both in terms of implementation and effectiveness.
  • Progress: General measures include a new competition bill (February 2019), modernisation of the foreign exchange control regulation (2020 budget), a new industrial master plan and an initiative to reduce the regulatory burden for SMEs, and increase access to financing. Sector-specific measures include an easing of the visa regime (e-Visas), the allocation of new spectrum licenses and measures to encourage competition in the retail sector.

Labour market

  • Reform objective: Boost employment in the public sector and reduce skills mismatch by adapting education and training programmes.
  • Credit view: Measures not commensurate with the scale of the issue.
  • Progress: Initiatives remain very demand-driven and aspirational in terms of the number of jobs to create (e.g. via the creation of a jobs summit, tax incentives to high young professionals).

Electricity

  • Reform objective: Unbundle Eskom, increase efficiency, shift toward greener energies, procure additional electricity capacity.
  • Credit view: Positive, as it would support growth and confidence, and reduce the government’s contingent liabilities.
  • Progress: Process ongoing. Transmission is due to be unbundled in 2022 as an initial step. Independent Power Producer framework completed.

Mining

  • Reform objective: New mining charter.
  • Credit view: Neutral, as it provides stability for the mining sector, but is not a game-changer.
  • Progress: Completed, but pending legal actions.

Corruption

  • Reform objective: Boost confidence and improve efficiency in the public sector.
  • Credit view: Positive, although it will take time to yield results.
  • Progress: The Zondo Commission (the judicial commission of inquiry into allegations of state capture) has been dissolved. The Commission is in the process of publishing its findings in a three-part report. No individual has been convicted.

Read: Ratings agency delivers inflation warning for South Africa

Must Read

Partner Content

Show comments

Trending Now

Follow Us

5 things that will make or break South Africa in the next few years