South Africa is on a path of wealth destruction – but there is a silver lining

All did not go according to plan for team South Africa at the World Economic Forum in Davos, as analysts criticised the delegation for failing to introduce much-needed reforms.

This is the view of Francois Stofberg, an economist at the Efficient Group, who said that the country has lost its investor credibility because of poor governance, a lack of discipline, and corruption, mostly caused by state capture in recent decades.

“To improve, South Africa needs to visibly show progress in prosecuting those responsible for corruption, and also visibly improve the ability of state-owned enterprises to deliver their services,” he said.

“Another crucial deliverable is campaign finance transparency. Until South Africa addresses these issues, corruption will continue to be perceived as being too high, disincentivising investors, which in turn reduces our ability to grow the economy sustainably.”

Apart from reluctant investors, Stofberg said that load shedding, and the government’s expected cut in spending will put further pressure on economic growth and job creation in South Africa.

“GDP should only grow around 0.8% and unemployment will most likely increase towards 31%. Debt to GDP is expected to reach 64%.

“Luckily, inflation will most likely hover around 4.2% as interest rates are cut by at least another 0.25%. This eases some of the buying power pressures on households.”

Stofberg said that much of South Africa’s economic future now depends on the upcoming budget speech and state of the nation address.

“How the government’s story shifts from a wealth destructive one, towards a wealth creation one, will determine how long the ongoing recession will be.

“It should, however, be noted that as the developed world slows down, and companies in South Africa finally start showing decent profit growth, we expect that our local markets will soar in the next 24 months.”

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South Africa is on a path of wealth destruction – but there is a silver lining