Why Africa’s Second Biggest Economy is Losing Steam

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Overview

The presence of the fastest growing economies in Africa serves as fodder for the rising African narrative. However, over the past few decades, and especially in the last year, the second-largest economy in Africa, South Africa, has faced many challenges and recovery is uncertain at this point.

South Africa is renowned for its issues regarding inequality, poverty, corruption, and civil unrest, especially in the face of a Covid-19 pandemic and third wave of infections, with rumours that the country may yet face a fourth wave.

The South African economy has, in the last five years, been driven by a combination of international and domestic factors surrounding low and weak economic growth, continuing high unemployment levels, lower commodity prices, higher consumable prices, lower investment levels, greater household dependency on credit and loans, and several issues with policy uncertainty.

While new incentives are being announced by the South African government, many have resulted in the reinforcement of structural weaknesses in the South African economy. Because of this, it has been impossible to reduce the high levels of poverty and inequality, hallmarking the legacy of apartheid in the country says Louis Schoeman from SA Shares.co.za

There are millions of poor people who are facing food insecurity and the government’s empty initiatives and promises are doing little to alleviate the poverty level in South Africa.

 

South Africa is losing steam in economic recovery and challenge resolution

As a result of experience, there is a high risk that future endeavours of the government may not be successful. Statistically speaking, the economy of South Africa only grew 2.78% between 1993 and 2017, with the unemployment rate has risen to 32.6% in the first quarter of 2021 as a result of the Covid-19 pandemic and impacts that were felt across all industries.

The factors surrounding South Africa which are deterring full recovery are:

  • South Africa is a middle-income nation that has some highly developed sectors, for instance, South Africa’s stock exchange, the JSE, which is the largest in Africa and the top 20 worldwide. Other successful sectors also include mining and manufacturing.
  • Poverty in South Africa is rooted in economic disparities, with much of the nation’s wealth concentrated in the hands of only a few.
  • Between 60% – 65% of the wealth in South Africa is concentrated in the hands of the wealthiest 10% of the country.
  • South Africa faces many crises associated with unbalanced trade, disinvestment, and debt which were issues even before the Covid-19 pandemic.
  • There is consistent fear that South Africa will lose more investment potential as a result of the violence, civil unrest, and the potential for riots which can be triggered by the smallest thing at any given time.
  • There is very little belief in the South African justice sentence and the ability of South Africa to reinforce and maintain the rule of law.

 

Can South Africa be saved, and how?

In the moment of crisis in which South Africa finds itself, the country must adopt decisive action. Acceleration of growth in South Africa will not be enough to address the challenges of poverty and inequality.

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A pro-growth policy is necessary for which employment subsidies, basic income grants, and other social interventions to address poverty can be implemented, improving the prospects for upward mobility.

This will require a move away from some pro-austerity fiscal policies, some tax increases on higher-income earners, and a nimbler, more result-orientated and efficient public sector.

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