Meanwhile, the OECD reported on Monday that South African needs structural reforms to revive economic growth.
“Building stronger and more inclusive growth will require bold action from policymakers,” OECD Secretary-General Angel Gurría said in a press release.
“Ensuring a better future for all South Africans will require increased access to higher education, a stronger and fairer labour market, deeper participation in regional markets and a regulatory framework that fosters entrepreneurship and allows small businesses to thrive
The credit agency Fitch Ratings also weighed in on South Africa last Wednesday, criticizing the new economic growth plan unveiled by the government’s minister of finance, Malusi Gigaba, earlier in July.
“The South African government’s newly announced Inclusive Growth Action Plan is unlikely to significantly boost economic growth prospects,” the agency said in a press release.
“Most initiatives focus on state-owned enterprises governance, containing pressure on public finances, and boosting black economic empowerment and addressing inequality, which would only have an indirect impact on growth prospects.”
Fitch Ratings reduced its outlook for South Africa’s 2017 GDP growth to 0.6 percent from 1.2 percent in June. That was after cutting South Africa’s credit rating to junk in April following President Jacob Zuma’s surprise decision to fire the respected finance minister Pravin Gordhan.
However, some investors are still choosing to invest in the region. Renaissance Capital’s weekly report in equity fund flows found the South African MSCI index to be the top performer among global emerging markets. Assets under management grew by 5.9 percent in the week to July 19, compared to 2.9 percent from emerging markets as a whole. In fact, South African shares are doing very well; the iShares MSCI South Africa exchange traded fund has returned 9.74 percent over 1 year and closed on Friday with a net asset value of $60.70, not far off its 52-week high of $62.09. The broad recovery in commodities this year has boosted South African miners.
Despite this performance, risk analysis company Verisk Maplecroft warns the region is becoming less attractive as an investment destination and says the economic outlook for the next ten years is looking bleak, according to their core drivers report published earlier this month.
“Economic growth will remain sluggish, causing unemployment to rise and compounding problems associated with inequality. Meanwhile, pressure from unions to protect jobs will fuel strikes, reducing the productivity of key sectors,” the Verisk Maplecroft report said.
The key risk for investors, according to the report, is political instability. The ruling African National Congress will appoint its next leader in December this year. The choice of leader, who will likely take over as president once Zuma steps down, will determine whether the ANC continues to move towards the left or adopt a pro-business stance.
“Zuma’s administration has progressively reduced investors’ confidence in the government’s ability to manage the country’s structural problems and investment’s contribution to GDP will fall.”
Verisk Maplecroft warns the economy will continue to underperform and be stuck with a bad credit rating until a pro-business administration takes over.