Renaissance Capital on what the unrest means for SA’s economic outlook

South Africa has faced a turbulent week as some of the worst riots in its 26-year democracy unfolded, leaving investors and economists grappling with the country's economic outlook. Charles Robertson, the Global Chief Economist at Renaissance Capital in London, weighed in on the situation in a recent interview with CNBC Africa. Robertson admitted to a difficult decision he had to make regarding whether to invest in the South African Rand, which had hit a four-month low, or to divert his investments to more stable markets. His initial assessment led him to believe that investors might start buying the Rand at $14.8, but concerns over prolonged demonstrations in other countries experiencing currency depreciation forced him to reconsider. Despite the trigger being former President Zuma's imprisonment, Robertson underscored that the deeper issues of high unemployment and low economic growth are at the core of South Africa's challenges. He emphasized the importance of addressing these fundamental problems to prevent further unrest. Robertson acknowledged the positive step of a former president being held accountable for legal violations but stressed the need for tangible progress that benefits the population at large to increase faith in the system and avert future crises. He expressed concerns about the government's ability to maintain social cohesion without resorting to fiscal measures that could unsettle markets. Robertson's base case scenario for the Rand by year-end is $14, with bond yields potentially rising to 10%, driven by fears of increased government spending. However, he also outlined a bearish case with a 25% likelihood, where bond yields could soar to 11% and the Rand could weaken to $15 due to heightened uncertainties. In a more optimistic scenario, with a 25% chance, the Rand could strengthen to $13 or even $12.5 by year-end, buoyed by high commodity prices and robust trade figures. Robertson tempered his optimism from the previous week, acknowledging the challenges posed by recent events on South Africa's economic prospects. Reflecting on the government's response to the unrest, Robertson suggested that the apparent inability to quell the violence and maintain law and order could have far-reaching consequences for the country's reputation and stability. He cautioned that restoring confidence in the state's ability to safeguard its citizens would take considerable time and effort. Robertson also commented on President Ramaphosa's assertions that the recent riots were instigated to destabilize the government, highlighting the political tensions within the ruling ANC party. He speculated on the future political dynamics, particularly concerning the potential release of the former president from jail and the implications for ongoing corruption trials. Despite acknowledging the possibility of incitement to violence, Robertson underscored the underlying socioeconomic factors contributing to public discontent, such as rampant unemployment. He emphasized the need to address these root causes to prevent further turmoil and restore stability in South Africa.