South Africa’s economic turbulence will continue as the country is poised to post just under one percent of economic growth in 2016.
This will further affect the country’s fight against triple challenges of poverty, inequality and unemployment.
Among others, low commodity prices, heightened financial market volatility, and diminished consumer and business confidence weigh on the outlook.
According to the National Treasury, South Africa’s GDP growth has now fallen behind the rate of population increase, resulting in declining per capita incomes.
“In other words, the average South African is becoming poorer.”
Finance Minister Pravin Gordhan warned, as he presented his 2016 budget speech, that growth rates of below one percent fall short of what the country needs to create employment and reduce poverty and inequality.
[Read S.A Finance Minister Pravin Gordhan's 2016 Budget Speech here:
“The Treasury currently expects growth in the South African economy to be just 0.9 per cent this year, after 1.3 per cent in 2015.”
The Treasury added that, this lower rate of economic growth reduce government revenue, undermining the state’s ability to sustain spending on core social and economic programmes.
Gordhan who is serving his second stint as finance minister after President Jacob Zuma summarily fired Nhlanhla Nene as the exchequer last December is highly regarded for fiscal discipline and financial prudence. But as the economy navigates both domestic and global challenges, there are fewer chances he will save the situation.
Gordhan warned that Africa’s second largest economy was struggling to grow at the rate that allowed more people to be lifted above poverty lines.
“Our economy is not growing fast enough to raise employment or improve average incomes. Investment growth must be substantially scaled up,” he added.
Zuma’s firing of Nene last December sent shock waves in the markets, driving the local currency into a free fall.
The rand is yet to fully recover from Zuma’s controversial decision. He has been struggling to give a convincing reason why he fired Nene other than the much far-fetched reason of nomination to the BRICS bank.
Nene, who resigned from parliament, recently said he was still waiting to hear of the nomination. It seems like it was just a red herring.
Gordhan also warned that policy uncertainty was a major concern.
“[The economy] also reflects policy uncertainty, the effect of protracted labour disputes on business confidence, electricity supply constraints and regulatory barriers to investment. This reflects both depressed global conditions and the impact of the drought.”
South Africa, like many of her regional peers, is facing the most severe drought in the 21st century the country has seen. With a weaker rand, the export bill will further strain the economy. Gordhan however says all hope is not lost in the agriculture sector.
“While overall agricultural output has declined under severe drought conditions, there has been strong growth in several export products including nuts and berries, grapes and both deciduous and citrus fruits,” he said.
Gordhan added that, regardless of harsh economic conditions, consumers are still spending which give some rays of hope.
“Retail trade data for the last quarter of 2015 indicate growth of over 4 per cent in real terms, signalling that consumer spending remains buoyant despite declining confidence.”
After casting a dark outlook he had few words of hope.
“We are resilient, we are committed, and we are resourceful. We know how to turn adversity into opportunity.”
Gordhan summed up his speech by quoting the founding father of the Rainbow Nation, Nelson Mandela.
“I am fundamentally an optimist. Whether that comes from nature or nurture I cannot say. Part of being optimistic is keeping one’s head pointed toward the sun, one’s feet moving forward. There were many dark moments when my faith in humanity was sorely tested, but I would not and could not give myself up to despair. That way lays defeat and death.”