South Africa is in crisis and heading for disaster: economist

[Nat Quinn]

Efficient Group chief economist Dawie Roodt says South Africa is in crisis and heading for a disaster with rising unemployment and poverty.

Roodt told Radio 702 that South Africa’s economy could not grow faster than 1.5%, and the population is growing at 1.5% as well.

“We have unemployment levels of nearly 50%. We have rising levels of poverty in South Africa,” he said.

“We are heading for a disaster. It is a crisis. We must understand this, and we have to act.”

Roodt said when he speaks to local and international investors, they express their hesitance to build factories or put more money into the country.

The poor-performing government and a lack of a stable electricity supply partly drive negative investor sentiment.

“The only sectors that will work in South Africa are those who can function without electricity, like the service and financial industries,” Roodt said.

However, South Africa needs more investment in sectors like manufacturing which employ many people and can grow exports.

“South Africa’s manufacturing sector is contracting. It is now smaller than it was a year ago,” he said.

The poor economic conditions and high unemployment means 29 million people receive grants and rely on the state for income.

Roodt said the state could no longer afford the grants as the tax base is simply not strong enough to carry it.

The high levels of unemployment, rising poverty, and higher food and energy prices are “a recipe for disaster,” Roodt said.

The World Economic Forum’s (WEF’s) Global Risks Report 2023 also highlighted state collapse, a debt crisis, and the collapse of services and public infrastructure as risks to the country.

It added the cost of living, high unemployment, and poverty as other big risks the country faces.

South African GDP growth under pressure

Jeff Schultz, a senior economist at BNP Paribas South Africa, echoes Roodt’s concerns about economic growth.

While many economists predict 1.1% GDP growth for South Africa, Schultz has a much lower 0.2% GDP growth forecast for 2023.

The bearish outlook is driven by tough global economic conditions and South Africa’s energy supply crunch.

“Our long-held expectation of more acute energy supply challenges continues to materialise,” Schultz said.

“With 4.5 times the number of days of electricity supply cuts as in 2021, 2022 set another unwelcome record – and 2023 looks even worse, we fear.”

BNP Paribas’ estimate of a mere 0.5% short-term potential growth rate reveals an economy that is likely to stall in the absence of helpful global tailwinds and robust commodity prices.

“Faltering labour stock and tepid levels of productivity help to explain South Africa’s recent slump in potential GDP,” he said.

“We believe potential growth will more meaningfully recover towards 1.5% to 2.0% only once the severe energy supply constraints have been removed.”

“Even in our most optimistic scenario, we see that only from 2025 onwards.”

Momentum Investments economist Sanisha Packirisamy is more upbeat than Schultz but still only expects muted growth.

“Growth in South Africa is set to moderate from an expected 2.5% in 2022 to 1.1% this year,” she said.

She said negative political developments, lower growth among SA’s trading partners, electricity outages, and low demand all impact the economy.

South Africa is in crisis and heading for disaster: economist (businesstech.co.za)

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