The best and worst case scenarios for South Africa right now – and how likely they are

 ·13 Mar 2023

South Africa has been hit with the perfect storm of bad news in the past week, with the ongoing energy crisis, poor GDP data, declining business confidence and a current account deficit in negative territory all emerging against the backdrop of material risk-off sentiment in global financial markets.

It is no surprise then that the rand has taken a beating in the same period, weakening to R18.74 against the dollar at one point, before recovering at the start of the week to around R18.20.

According to Investec chief economist Annabel Bishop, the rand is heavily undervalued due to high-risk aversion in global financial markets and particularly negative investor sentiment against South Africa on its worsening growth outlook as its productive capacity deteriorates.

“Against the euro and pound, the domestic currency is also heavily undervalued and running poorly against the crosses, near the bottom of the Bloomberg EM currency ranker on an annual comparison,” she said.

The downward pressure on the rand stemmed from the disappointing Q4 GDP numbers (a 1.3% contraction vs market expectations of -0.4%), which provided evidence of the devastating impact of relentless load-shedding on the economy, and the unexpected downgrade of South Africa’s credit ratings outlook by S&P Global.

S&P Global made a voluntary outlook review, changing South Africa’s outlook to stable, from positive before. This brings S&P in line with other major rating firms, Moody’s and Fitch, on South Africa’s economic prospects.

“South Africa’s worsening electricity crisis came at a poor time against the backdrop of material risk-off sentiment in global financial markets, while load shedding also adds to the cost environment, with SA’s inflation still high, weakening the rand,” Bishop said.

“All the rating agencies have evinced concern over SA’s weakening economic growth outlook, with Moody’s recently having said that the country’s longest-ever stretch of power cuts is credit negative.”

Bishop said that rating agencies are taking a wait and see approach to South Africa’s electricity crisis, with any slow repair to the electricity crisis increasing the downgrade risk.

Economists at the Bureau for Economic Research (BER) said that a downgrade is unlikely at this stage, but even without the imminent threat, the local economy is in trouble. Even if South Africa managed to avoid a technical recession, the country’s growth prospects are extremely limited and are unlikely to exceed 0.5% for 2023, the BER said.

Investec said that the increased risk of a downgrade and lower growth prospects have impacted its economic scenarios for South Africa.

A notable change across all scenarios is that South Africa has been greylisted by the Financial Action Task Force (FATF), which means the scenarios are now contingent on how long the country remains on the list.

Note: The key changes to the scenarios are italicised.

Extreme upside

  • Probability: 1%
  • Rand movement: Strong first quarter, averaging R16.60, moving to R15.90 by Q2, R15.50 by Q3 and R15.00 by Q4.
  • Conditions: 
    • Strong economic growth (3% to 5% in 2023, then 5% to 7% in 2024)
    • Good governance with growth-creating reforms
    • Strong property rights, no nationalisation or land expropriation without compensation
    • High business confidence and investment growth
    • Fiscal consolidation drives debt to low ratios
    • Subdued inflation
    • Favourable weather conditions
    • Quick transition to renewables from fossil fuels
    • Strong global growth
    • Risk-on environment
    • Commodity boom
    • Rapid upgrades of credit ratings to investment grade
    • Very short greylisting


  • Probability: 1% (down from 4%)
  • Rand movement: Strong first quarter, averaging R17.00, moving to R17.20 by Q2, R17.40 by Q3 and R16.90 by Q4.
  • Conditions:
    • Economic growth averages 3.3% over five years, lifting to 5.0% by period end
    • Rising confidence and investment levels
    • Structural constraints eroded
    • Global growth strong
    • Risk-on markets
    • Strong property rights, no nationalisation or land expropriation without compensation
    • Low domestic inflation
    • Favourable weather
    • Increased privatisation
    • Credit rating upgrades
    • Substantial transition to renewable energy from fossil fuels
    • Greylisted for less than 18 months
    • Credit rating upgrades on fiscal consolidation
    • Lower borrowings


  • Probability: 48%
  • Rand movement: First quarter averaging R17.80, moving to R18.40 by Q2, R18.60 by Q3 and down to R17.80 by Q4.
  • Conditions:
    • Modest economic growth of 1.9% average over five years, lifting to 3.0% by the end period
    • Neutral to positive risk sentiment in global markets
    • Fiscal consolidation in South Africa leading to positive sentiment
    • Likely credit rating upgrades
    • Stable rand, which strengthens
    • Inflation impacted by weather patterns – via food price inflation
    • Slow move away from fossil fuels
    • Russia/Ukraine conflict eases and does not exacerbate
    • Little expropriation without compensation
    • Temporary greylisting
    • Debt-to-GDP stabilisation leading to positive outlooks
    • Credit rating upgrades

Lite downside

  • Probability: 40% (up from 36%)
  • Rand movement: Weak first quarter, averaging R18.00, moving to R18.90 by Q2, R19.00 by Q3 and R18.60 by Q4.
  • Conditions:
    • Weak GDP growth of 0.9% average over five years
    • Swing toward left-leaning policies
    • Depressed business confidence
    • Substantial load shedding and water shedding
    • Very weak rail capacity
    • Civil and political unrest
    • Little investment growth
    • Recession
    • Some expropriation of private sector property without compensation
    • High inflation
    • Unfavourable weather conditions
    • Marked rand weakness
    • Little transition to renewables away from fossil fuels
    • Lengthy greylisted
    • Increased state borrowings
    • Risk of credit rating downgrades then happens at a later point

Severe downside

  • Probability: 10% (down from 11%)
  • Rand movement: Weak first quarter, averaging R18.70, moving to R19.30 by Q2, R19.70 by Q3 and R20.00 by Q4.
  • Conditions:
    • Lengthy global recession and global financial crisis
    • ANC/EFF coalition in 2024
    • Widespread, severe load shedding
    • Severe political and civil unrest
    • Increased government borrowing from wide sources
    • Failure to transition to renewables from fossil fuels
    • Very high inflation
    • Very adverse weather conditions
    • Severe rand weakness
    • Expropriation of private property without compensation
    • Blacklisted
    • Credit rating downgrades (B rating, eventually to CCC)
    • Increased risk of default
    • Sinking deeper into a debt trap

Read: South Africa is in trouble

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