In March 2018, in the wake of President Cyril Ramaphosa’s appointment as the head of state, PwC SA published a report entitled “Investment decisions: Why South Africa, and why now?”. Our research examined potential scenarios for the Ramaphosa presidency (2018–2022) and predicted five economic outcomes that could develop under the new president. So, which scenario has materialised?
Many interpreted President Ramaphosa’s appointment as the sun emerging from the dark clouds that troubled the Rainbow Nation’s economy and politics. The new leader of the African National Congress (ANC) campaigned for the party presidency in 2017 with an economic recovery plan based on his deep understanding of labour, business and politics. #Ramaphoria was born and consumer confidence spiked to the highest level since the Bureau for Economic Research (BER) started its current confidence series in 1982.
“The wheels of change are moving now, and they are going to start speeding up,” was the president’s pledge at the World Economic Forum (WEF) in Davos, Switzerland, in January 2018. Our baseline (most probable) scenario for progress under the new administration was encouraging. Here are the key factors envisioned for the ‘#Ramaprogress’ scenario back then:
In the two years since President Ramaphosa’s emphatic statement in Davos, there has certainly been a lot of turning of the wheels of change, as envisioned by this baseline scenario. Developments include finalisation of the new Mining Charter, resizing the cabinet, launch of the Youth Employment Service, two presidential investment summits, South Africa’s signing of the African Continental Free Trade Agreement (AfCFTA), and the removal of the birth certificate requirement for travel.
Failure to impress
However, failures and points of inaction have been all too numerous. These include deterioration in fiscal dynamics and sovereign ratings, an increase in economic, political and policy uncertainty, rising levels of gender-based violence, slow progress in resolving the land reform and expropriation issue, no high-level state capture prosecutions, worsening bilateral ties due to xenophobic violence, continued increase in irregular public-sector expenditure, and the deepening of financial and governance troubles at SOEs.
Unsurprisingly, the public is not impressed. Consumer confidence in the outlook for the economy has fallen back into negative territory alongside elevated economic, political and policy uncertainty. This is certainly not the scenario that President Ramaphosa was envisioning two years down the line when he won the ANC leadership race at Nasrec in December 2017.
Figure 1: Declining business confidence amidst rising uncertainty
The baseline scenario has clearly failed to materialise. Instead, our downside scenario - ‘Coming up short’ – is playing out. Economic growth has been disappointing and real GDP per capita growth — a measure of each citizen’s share of the economy — declined for a fifth consecutive year in 2019. Business confidence dropped to a 20-year low, unemployment climbed to the highest level since 2003, and the economy stretched a downward business cycle to the longest since records started in 1945.
Our downside scenario sounds all too familiar in the present tense. Here are the key factors of this scenario, which we outlined in March 2018:
In March 2018, we assigned a 20% probability to the ‘Coming up short’ downside scenario being realised over the ensuing five years. This has now increased to 50% and currently the most likely outcome.
On a positive note, South Africa has (so far) avoided a worst-case scenario, which PwC referred to as a ‘Mouldy mess’. In this scenario, economic growth potential is below 1%, multiple ratings downgrades follow, a messy coalition government would have taken control after the 2019 elections, and the rand deteriorates significantly. Apart from the coalition government element, the other factors in this scenario remain real risks that need urgent action in 2020 if South Africa is to get anywhere near the ‘#Ramaprogress’ trends that sounded so promising less than two years ago.
By Lullu Krugel, Chief Economist Strategy& PwC, and Dr Christie Viljoen, Strategy& PwC Economist
Senior Manager, Media Relations, PwC South Africa
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