5 things that will do or destroy South Africa in the next few years

Rating agency Moody’s has predicted that the South African economy will grow by around 1.5% in 2022-23, constrained by a tight labor market, weakening competitiveness and deteriorating infrastructure.

The electricity sector poses the greatest risks to economic growth prospects, with generating capacity already insufficient to cover the needs of the economy, the group said in a research note on Wednesday (May 4).

“The current administration, which came to power in 2018, has introduced some measures to address structural constraints to growth, but the latter remain a challenge. Socio-economic pressures and institutional weaknesses also complicate the government’s efforts to introduce reforms. As a result, growth continued to underperform other emerging market economies, ”she said.

Moody’s noted that the long-term growth prospects will depend on the extent to which the government is able to push forward with its sectoral reforms, particularly those aimed at rehabilitating electricity capacity.

The group identified five key areas of concern and what the government needs to do to address these issues.


country reform

  • Objective of the reform: Allow the restitution and redistribution of land, including through expropriation without compensation, but save the economy by focusing on land that is not exploited or unjustly seized.
  • Credit view: Positive, because it supports social cohesion and growth. But until it is fully implemented to ensure compliance with economic objectives, this is a source of uncertainty.
  • Progress: The first public consultations closed. Expropriation bill drawn up and promulgated on October 9, 2020, which provides for a mandatory and uniform expropriation process, fair and equitable compensation and a possibility of non-compensation in specific cases.

regulation

  • Objective of the reform: Increase competition and remove barriers to operators, particularly in the service sectors (tourism, retail, financial services, network industries).
  • Credit view: Positive, but progress on reforms is difficult to track, both in terms of implementation and effectiveness.
  • Progress: The general measures include a new competition law (February 2019), the modernization of the exchange control regulation (budget 2020), a new business master plan and an initiative to reduce the regulatory burden on SMEs and increase the access to finance. Sectoral measures include a relaxation of the visa regime (e-visas), the granting of new spectrum licenses and measures to encourage competition in the retail sector.

job market

  • Objective of the reform: Promote employment in the public sector and reduce the skills gap by adapting education and training programs.
  • Credit view: Measures not proportionate to the extent of the problem.
  • Progress: Initiatives remain strongly demand-driven and aspiring in terms of the number of jobs to be created (e.g. through the creation of an Employment Summit, tax incentives for high-level young professionals).

Electricity

  • Objective of the reform: Separate Eskom, increase efficiency, switch to greener energies, procure additional electrical capacity.
  • Credit view: Positive, as it would support growth and confidence and reduce potential government liabilities.
  • Progress: Process in progress. Transmission is expected to be unbundled in 2022 as an initial phase. Completed the picture of the independent energy producer.

extraction

  • Objective of the reform: New mining card.
  • Credit view: Neutral, as it provides stability to the mining sector, but it is not a game changer.
  • Progress: Legal actions completed, but pending.

corruption

  • Objective of the reform: Increase trust and improve efficiency in the public sector.
  • Credit view: Positive, although it will take some time to get results.
  • Progress: The Zondo Commission (the judicial commission of inquiry into the state’s arrest allegations) has been dissolved. The Commission is publishing its conclusions in a three-part report. No individual was sentenced.

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