South Africa Country Risk Report Q2 2019
Growth will accelerate slightly in 2019 and 2020 after very sluggish expansion in 2018. Elevated unemployment and sluggish credit growth will weigh on private consumption, while fiscal consolidation limits government spending. Elevated policy uncertainty and a poor operating environment will act as a continued headwind to investment.
We expect South Africa's fiscal deficit to rise in 2019, reflecting increased government spending in an election year, but narrow in the longer term, though at a slower pace than anticipated by the government.
President Cyril Ramaphosa has made a concerted effort to balance between meeting the demands of his domestic constituents and maintaining sufficiently business-friendly policy to encourage foreign investment. However, this will prove increasingly difficult in the run-up to elections scheduled for May 2019.
Thereafter much will depend on the outturn of the elections. A substantial win for the ruling party – with its overall share of the vote rising from the 2014 vote – would arguably give Ramaphosa a personal mandate, and act as a tailwind for more rapid reform, and thus stronger private-sector investment. A less obvious endorsement would mean that the stringent reforms necessary for a genuine improvement in parastatal operations – including substantial retrenchments, asset sales and potentially privatisation – would be deferred at least into the medium term, with a negative impact on South Africa's overall growth prospects.
Should we see the trade war between the US and China accelerate, this would result in significantly more market 'risk off', placing even more substantial down-ward pressure on the exchange rate.
SOE debt remains a continued challenge for the government. Policymakers have insisted that they will not take on SEO debt, notably from Eskom. It is possible that the government will in fact decide to bail out Eskom, and but doing so without forcing structural reforms at the company would significantly undermine investor sentiment and could send borrowing costs sharply higher in the near term.South Africa Country Risk
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