Yearender: South Africa looks to the future despite challenges

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South Africa

The year 2016 will go down in the history books as one of the most difficult years for South Africa, economically and politically.

South Africa continues to experience slow economic growth of less than one percent. The country is still recovering from the effects of the global financial crisis of 2007/8, while shocks such as Brexit and the decline in commodity prices pose new challenges.

The country’s political scene has been turbulent, with increasing infighting and factionalism in the ruling party African National Congress (ANC) and rounds of revolt from opposition parties and the public against President Jacob Zuma.

Through engaging stakeholders in finding practical solutions to these challenges and sustained reform efforts in key industries such as mining, however, experts believe South Africa is still on a “recovery trajectory.”

LACKLUSTER ECONOMY

The mining sector, hosting one of the world’s greatest mineral resource endowments and as a key economic pillar for South Africa, has been among the hardest hit in the past year.

Roger Baxter, CEO of the South African Chamber of Mines, told Xinhua that the mining sector faced very challenging times. He said the mining sector lost R37 billion (2.64 billion U.S. dollars) in 2015 and challenges continued throughout 2016.

“Rand prices of key export commodities have stagnated or declined while domestic cost pressures for mining inputs have risen by staggering rates with the cost of electricity trebling over seven years, the total cost of wages increasing by more than 10 percent per annum over a period of five years and the cost of materials increasing by more than 10 percent per annum over the past five years (the cost of steel alone increased by 12 percent per annum),” Baxter said.

External shocks were also a drag on the mining industry.

“Globally, the mining sector has been under huge pressure. The slowdown in the Chinese economy, anemic growth rates in other regions and exchange rate fluctuations have all contributed to declining demand and prices for most minerals,” Baxter said.

He said next year the mining sector will focus on cost cutting, improving productivity and capital discipline and adjustment in order to ensure its survival.

South Africa must have policy certainty so that investors are comfortable with long-term investments, while more efforts are needed to keep improving investor confidence, he added.

The economist, however, also suggested that the country diversify its economy rather than rely mostly on commodities.

The country experienced inflation during the greater part of the year outside the target range (3-6 percent). The Reserve Bank of South Africa cited higher food prices and currency depreciation.

The Central Bank also said that the wage and salary settlements continued to come in above inflation and productivity gains and high electricity costs.

The inflation will reach 5.5 percent by the end of 2018, the Central Bank predicted.

The country avoided the downgrade to junk status in December when the “Big Three” rating agencies left it one notch above it.

Marketing company Brand South Africa believes South Africa managed to weather the storm in the difficult 2016.

Manusha Pillai, General Manager of Communications for Brand South Africa, said, “Despite global economic headwinds, the economy of the country has also been resilient. The country’s investment ratings have been affirmed by international ratings agencies.”

POLITICAL TURBULENCE

On the political side there continues to be lobbying for the next President of the ANC and country.

President Zuma will end his term in 2019 and the ANC will elect a new leader in 2017. There has been canvassing for the next president in the party and alliance partners.

Rating agencies also stated that political risk is having negative impact on the country’s economy. The Constitutional Court also ruled that President Zuma failed to “uphold, defend and respect” the Constitution by refusing to pay for the non-security upgrades at his private residence. This resulted in the opposition trying to impeach him in Parliament, which failed due to the ruling party’s majority.

The High Court this year also ruled that President Zuma’s 783 corruption and racketeering charges should be reinstated. There was also some drama in Parliament when the opposition Economic Freedom Fighters disrupted President Zuma’s address several times.

South African government also wrote a letter to the UN expressing intention to withdraw from the International Criminal Court. The opposition took the matter to court, saying the Parliament was supposed to deliberate on the issue before making such a decision.

RESILIENCE

Brand South Africa believes all is not lost and South Africa is on the recovery trajectory.

“While South Africa, like many other countries, has endured both domestic and international challenges in the year past, the Nation Brand closes the year on a strong note. In 2016, the South African Nation Brand proved its resilience and tenacity,” Pillai said.

While presenting the Medium-Term Budget Policy Statement, The Minister of Finance Pravin Gordhan said the government expects the economy to grow by 0.5 percent in 2016 and 1.7 percent in 2017.

The Reserve Bank of South Africa said the economy will grow 0.4 percent in 2016 and 1.2 percent in 2017.

The country saw an increase in tourists in the first 6 months this year. There was a 15.4 percent increase in foreign tourist arrivals and 23 percent increase in domestic tourist trips.

The South African Chamber of Mines also said they will work with social partners to improve the economy.

Baxter said, “A key focus area for the industry during 2017 will be to continue to work with all social partners to find practical solutions which will ensure the sustainability and viability of the mining industry. This is a resilient industry that has risen to the challenges many times in the past.”

Brand South Africa is confident 2017 would be better. Pillai said, “Brand South Africa will work with a range of stakeholders like the Department of Trade and Industry and InvestSA to position South Africa as a globally competitive investment destination.”

“South Africa has made strides in improving its global competitiveness for domestic and international audiences. It is expected that these efforts will continue in 2017.” he said. Enditem

Source: Xinhua/NewsGhana.com.gh

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