By Toby Shapshak
Once the largest economy on the continent, South Africa’s domestic and political issues have seen it fall to third place behind Nigeria and Egypt, KPMG has warned, using data from the International Monetary Fund (IMF ).
Even though South Africa remains the “continent’s most developed economy, and has a more diversified economic base than the Egyptian economy… its fall from first and now second place amongst the continent’s giants is of great concern,”KPMG Financial Risk Manager Christie Viljoen said, adding “especially as this development is largely attributed to weakness in the rand that, in turn, has largely been as a result of domestic issues”.
“South Africa has been known as the continent’s second-largest economy since Nigeria rebased its gross domestic product (GDP) data in early 2014. However, the IMF World Economic Outlook (WEO) released in mid-April provided more sobering GDP statistics for South Africa. Not only did the multilateral organisation suggest that the South African economy would grow by a mere 0.6% this year, but also that the country is now only the third-largest economy on the continent behind Nigeria and new silver medalist Egypt,” Viljoen said.
“Nigeria’s rebasing exercise some two years ago revealed that the oil-dependent economy was almost twice as big as previously thought. The country’s National Bureau of Statistics (NBS) ensured greater measurement of the informal sector, the inclusion of 46 industries from a previous 33, as well as methodological changes to measuring service sector activity with the rebasing.”
“Backward adjustments to GDP indicated that Nigerian GDP in US dollar terms surpassed its South African equivalent in 2011. By the end of 2015, Nigeria’s GDP was measured at $490 billion compared to South Africa’s estimate of $313 billion,” Viljoen added.
In February is was announced that South Africa attracted the largest amount of start-up funding ($54.5-million) and was the most favoured destination (36%), according to the African Tech Startups Funding Report 2015. This placed it ahead of Nigeria, the continent’s populace country with 170-million people, with $49.4-million, or 24% in investments, and Kenya with $47.3-million (14.4%).
This followed the unexpected firing of finance minister Nhlanhla Nene on 9 December 2015, which saw more than $6,6 billion (R100 billion) wiped off government pensions. This was revealed this week by Daniel Matjila, the CEO of state’s pension investment arm, the Public Investment Corporation (PIC), in response to questions in Parliament.
South African President Jacob Zuma’s firing of Nene – who he replaced with a little-known backbencher Des van Rooyen for three days before reappointing Nene’s highly-respected predecessor Pravin Gordhan – plunged the currency into free fall and wiped off an estimated $66,5 billion (R171 billion) from the country’s stock exchange.
South Africa’s economy has been sluggish as foreign investment has dried up amidst concerns about corruption in the administration of the fourth post-Apartheid president Zuma, who himself has recently found to have breached the country’s constitution over his handling of a $16 million (R246 million) upgrade to his personal home in Nkandla, in the eastern KwaZulu-Natal province.
Additionally, a High Court in Pretoria, the country’s capital, found last month that the decision to drop 783 corruption charges against Zuma in 2009 before he became president was “irrational”. The country’s National Prosecuting Authority (NPA) has been directed to review whether these charges should be reinstated.
Moody’s said “the country is at a turning point after several years of falling growth” and expect that the well-regarded Gordhan’s budget and fiscal planning “will likely stabalise and eventually reduce the general government debt metrics”.
But figures released by Statistics South Africa showed that unemployment rose to 26.7 percent in the first quarter of 2016 – from 24.5 percent in the fourth quarter of 2015. This is the highest level since the state’s statistic agency’s labour force survey began in 2008.
KPMG‘s Viljoen said “South Africa recorded a decline in the US dollar value of its economy during 2012-15 because of slowing real growth (in local currency terms) as well as a depreciation in the value of the rand. The South African currency weakened from an average of R8.20/$ during 2012 to an average of R12.74/$ in 2015 – that is a depreciation of more than 50%. As a result, the nominal US dollar value of South Africa’s GDP declined by an average of almost 7% [per annum] over the past four years.”
Shapshak is editor-in-chief and publisher of Stuff magazine. Based in Johannesburg, his TED talk on innovation in Africa has had more than 1.4m views.