South Africa, one month after the elections, records a timid economic recovery
One month after the general election, South Africa is experiencing a timid economic recovery, which investors around the world are looking forward to with interest and (lukewarm) hope. In May, trading conditions, although weak, improved and the market expects economic conditions and business climate to rise in the short to medium term.
According to the South African Chamber of Commerce and Industry (SACCI) Trade Activity Index of May, published last week, trade activity improved and the index rose to 41 points, compared to 37 in April. It is now up to Ramaphosa to try to relaunch the economy of a country that is in a serious slowdown and restore confidence in the new generations, despite the fact that the premises are not the best.
The political framework of the country
Although the African National Congress (ANC) won with 57.5% of the vote, the party recorded the lowest electoral victory since the end of apartheid, while opposition parties on both the far left and the far right have grown substantially.
Another significant trend is the voter turnout, which has dropped to 65%, the lowest ever in a South African election.
Surprisingly, more than 6 million young people, about half of those in the 18-30 age group, did not register to vote. According to the press, this electoral disillusionment is mainly due to the government’s inability to cope with two growing scourges in recent years: corruption and youth unemployment.
President Cyril Ramaphosa has inherited a nation tainted by a decade of corruption, low growth and an uncertain international role. A nation that only 25 years ago was Africa’s undisputed beacon of hope under Nelson Mandela. In many ways, Ramaphosa’s credentials are impeccable. The question, therefore, is not so much whether he has the skills to successfully tackle South Africa’s malaise, but whether he will be able to overcome existing barriers and discontent to meet the demands of voters, through job creation and capitalising on the Fourth Industrial Revolution, the reconstruction of the country’s energy sector and the promotion of foreign and domestic investment.
The three (main) challenges of Ramaphosa
1. Job creation
Faced with an official unemployment rate of 27.5%, Ramaphosa held an employment summit in 2018, after which it announced that 275,000 jobs per year would be created thanks to the initiatives and agreements created at the summit.
Investing in an effective labour market information system to reduce search costs for the unemployed, improve job matching and offer job placement assistance can help solve the country’s skills mismatch problems. Especially in high-impact sectors, such as agriculture and production, companies can do much to reduce the hardship of unemployment.
2. Energy
Last year, the government signed contracts with 27 independent energy producers for a total of $4.5 billion with the aim of adding energy capacity to the national grid within the next five years. Eskom, a state-owned energy services company, still accounts for more than 90% of the country’s electricity generation capacity and was recently forced to begin load-shedding due to technical failures at two power plants. Eskom’s inability to provide sufficient electricity poses a major obstacle to economic growth, and is the number one concern of investors.
Improvements in electricity supply can reduce unequal access to education and jobs and thus have a significant impact on the growth of social cohesion and state confidence. Eskom and other state-controlled companies must be held responsible for job creation, energy supply and the continued exploration of alternative energy sources.A higher division in resource control and vertical responsibility will increase the country’s energy sector and contribute to the overall promotion of growth, employment and state accountability.
3. The fourth industrial revolution
South Africa is the innovation leader of the fourth industrial revolution on the African continent, but more can certainly be done. Currently, South Africa uses tax incentives, among other measures, to stimulate private sector research and development. In addition to major legislative and policy reforms, South Africa needs to document and encourage the dissemination of best practices from major metropolitan areas to local governments, and to introduce e-government measures to reduce costs and bureaucracy, improve public services and stimulate the growth of information and communication technologies.
The objectives to be achieved
Ramaphosa has set the goal of attracting $100 billion in investment over the next five years. This ambitious target underlines South Africa’s willingness to compete globally to attract investment and the significant growth in investment in South Africa from 2017 to 2018 – 166 percent to a total of $5.3 billion – shows some initial successes.
The government estimates investment needs of 4 billion South African rand ($280 million) annually for the next five years for water and sanitation rehabilitation and the next seven years for electricity. The new South African government has a difficult road to achieve investment, employment and growth targets, as well as meeting voter demands for improved service delivery and the fight against corruption. The creation of a programme of shared objectives between government, labour and the private sector will be essential to advance the Ramaphosa presidential agenda, the objectives of the ANC-led parliament and the country’s return to the forefront of African politics, the economy and social reforms.
