South Africa is looking scarily similar to Brazil: analyst

Economists and analysts are divided over how bad things in South Africa really are – but most tend to agree that slow growth and political instability are the themes of the day for Africa’s most developed economy.

Managing director of emerging markets and Africa at Deloitte, Martyn Davies has warned that even rockier waters may lie ahead, as South Africa is bearing increasingly striking similarities – in a bad way – to fellow BRICS member, Brazil.

According to Davies, just a few years ago both South Africa and Brazil were considered first-tier emerging market economies personified by their inclusion into the BRICS acronym – however, things have changed, and now only China and India contribute anything to the BRICS system at all, and Russia also falling to the sidelines.

“While China and India’s growth remains very robust – driven increasingly by consumer spending, services and innovation – the economies of Brazil, Russia and South Africa are stuck,” Davies said.

The analyst said that even though Brazil was already well-travelled on the path of economic decline, South Africa was starting to show striking similarities in its own economic journey.

South Africa has just managed to scrape itself out of recession in the second quarter of 2017, and is still expected to show some positive growth (not much than the 0.3% recorded in 2016, though) – but in real terms, the country’s population growth outpaces this by some margin, meaning South Africans are getting poorer.

According to Davies, looking at various economic indicators, there are enough similarities between the two countries to warrant concern.

South Africa and Brazil both rank poorly on global corruption perceptions indices; both have allegations and investigations around their presidents and abusing state companies and resources; both are on a declining ratings path; both are vulnerable with their current account deficits; and both face waning confidence from foreign investors – the list goes on.

“South Africa could potentially follow in Brazil’s economic footsteps, albeit with an approximate two-year time lag,” he said.

“Looking ahead, pressures on South Africa’s sovereign credit rating include very weak real GDP growth; public sector underperformance; twin deficits showing a shortfall both in the fiscus and the current account; waning investor confidence; the continued structural challenges of high unemployment; inequality; and poverty.

“Unless the state can reform itself, provide greater confidence for private capital and create a greater enabling environment for business, further downgrades can be expected,” he said.

The overarching theme in both Brazil and South Africa is that its problems are not economic, they are political – particularly with high levels of corruption, and legal bodies and the courts needing to step in to ensure that each country’s laws are upheld..

“Unless the South African political environment is ‘fixed’ and an essential improvement in governance occurs, the country may well follow in the footsteps of Brazil, a downward spiral of economic contraction and multiple sovereign debt rating downgrades,” Davies said.

“Due to pervasive and damaging control of SOEs – determined most often by ideology rather than pragmatic policy – both Brazil and South Africa suffer from an overbearing state. A crisis in government has led to an economic crisis. Until the politics is fixed, there is little vision for the economy.”

Read: The true value of being South African versus other nationalities in the world

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South Africa is looking scarily similar to Brazil: analyst