The latest official data showing South Africa’s economy contracted in the first quarter of this year is the latest dampener to the optimism triggered by President Cyril Ramaphosa’s swearing-in to replace Jacob Zuma in February.
Critics are still giving Ramaphosa leeway to turn around an economy that stagnated under Zuma’s watch, amid allegations of corruption involving senior government officials including the former president himself, and top executives in state-owned companies.
But the euphoria that greeted former businessman Ramaphosa’s rise to the top job has waned somewhat as South Africans grapple with an increase in value-added tax, a sharp rise in fuel prices this week that will drive transport costs higher, and news that the economy shrank 2.2 percent in the first three months of 2018, dragged down by the agriculture, mining and manufacturing sectors.
“Disappointing GDP figures for the first quarter of 2018 show that ‘Ramaphoria’ has not yet impacted the real economy,” Citadel chief economist Maarten Ackerman said.
“Weak Q1 growth will definitely put the 2018 growth targets outlined in February’s budget speech under strain, and could result in National Treasury’s fiscal targets being missed,” Ackerman added. “Missing these targets would then place South Africa at increased risk again of further credit rating downgrades.”
The National Treasury February forecast economic growth of 1.5 percent for 2018, only slightly up from about one percent last year. The country has also lost its investment grade credit rating with Fitch and S&P globals over concerns about its commitment to fiscal prudence, although Moody’s still rates it above “junk” status.
Weak economic growth has failed to dent unemployment, which remains stubbornly high at about 27 percent of the labour force.
The economy is effectively standing still since 2008, when it fell into a recession during a global financial crisis, said Cannon Asset Managers CE Dr Adrian Saville, noting that South Africa’s population growth rate, at 1.5 percent, exceeded economic growth.
“Thus, on a per capita basis, South Africa is heading backwards. In fact, if we look at the past decade, we see that income per capita has run flat from 2008 to date,” Saville said.
“For all intents and purpose, South African households have endured a lost decade. South Africa is in a very low growth setting, and seems trapped here.”
On Thursday, the Presidency said Ramaphosa would travel to Canada to participate in the G7 leaders’ summit outreach on June 9 as part of his drive to attract investment to grow the economy, create jobs and address poverty and inequality in South Africa.
“The focus of the G7 outreach meeting on Healthy, Productive and Resilient Oceans and Seas, Coasts and Communities is in line with the goals outlined in South Africa’s National Development Plan and speaks to the country’s efforts to stimulate economic growth and job creation,” the Presidency said.
It added that President Ramaphosa would be accompanied by a business delegation from South Africa and would engage with investors and business people in Toronto.