On 27 March 2018, S&P Global Ratings raised South Africa’s gross domestic product (GDP) growth forecast to 2%, from 1%. This optimistic forecast is in part due to increased confidence of local and foreign investors after the country’s leadership change, but also an increased demand for goods, a stronger Rand and lower than expected inflation. Senior S&P economist, Tatiana Lysenko emphasizes that a renewed confidence in business in South Africa, together with an increase in incomes due to lower inflation, will prove positive for household spending.
However Lysenko warns that continued growth will be stunted by what she terms, structural challenges. These challenges include poor management within state-owned enterprises (SOEs) and a rigid labour market where employers are unable to negotiate higher wages for their employees and the unemployed are unable to easily enter employment. Due to these challenges, it is expected that the country’s debt rating will not be upgraded by the time the next review occurs in May 2018.
While the next review, whose results will be published on 25 May, may not provide a ratings upgrade, S&P does forecast a greater GDP growth of 2.1% in 2019. Growth of 2% may be a welcome increase, but according to S&P, this is not enough to increase wages and reduce high levels of unemployment.
President Cyril Ramaphosa has begun to tackle the country’s structural challenges through reform at SOEs including Eskom, South African Airways (SAA), as well as a commission of enquiry into state capture at all SOEs. As these reforms processes are still new, the country has yet to see any progress or improvements.
The country is in a better position in terms of economic growth, but is yet to experience a ratings upgrade. With increased investor confidence and suitable Business Insurance in place, entrepreneurs and businesses must be encouraged to continue their work in the country.