Economic Giant #2 follows Nigeria and also climbs out of Recession

Africa’s second largest economy, South Africa, this week also managed to climb out of recession, following Nigeria.

However, both their recovery is seen as fragile. This was highlighted in South Africa this week as the SA Chamber of Commerce and Industry Business Confidence Index fell to its lowest level since 1985. Political uncertainty, high unemployment, poverty and junk status are inhibitors to local growth. Ruben Nizard, an economist at credit insurer Coface, said: “Exposed to internal and external headwinds, Nigeria and South Africa’s economic woes are not over; the recovery is still fragile.” The return to growth in sub-Saharan Africa’s two biggest economies could prove short-lived, he said.

“Prospects for the South African economy are still bleak. A high cost base and uncertainty surrounding the introduction of a new Mining Charter could weigh on the mining sector, which has been crucial in the rainbow nation’s return to positive growth,” Nizard said. South Africa, the continent’s second largest economy, saw contraction in its economy in the last quarter of last year and the first quarter of this year, which meant the local economy had entered recession – two consecutive quarters of negative growth. However, Stats SA this week reported that the local economy had expanded 2.5% quarter on quarter in the second quarter, largely due to a maize crop of 16.4 million tons and a soya bean crop of 1.3 million tons after a devastating drought last year.

The agriculture, forestry and fishing industry increased by 33.6% quarter on quarter. Research firm NKC African Economics said real economic output in the second quarter grew by a mere 0.5% compared with the second quarter of last year, and provided “a clue that all is not well”. The second quarter’s figures mean that, since the start of 2014 until the end of June, South Africa has had five quarters that have seen contractions in growth. John Ashbourne, African economist for Capital Economics, said: “We believe that a combination of a strong agriculture recovery and better performances from consumer-facing sectors will take headline growth to 1.5% over 2017 as a whole.”

However, Mamello Matikinca, FNB senior economist, said the bank was forecasting growth at less than 1% this year. Investec is forecasting growth this year of 0.5% compared with 0.3% last year. “We expect that lower inflation and interest rates will support consumers,” Ashbourne said.

However, in a bad sign for the growth of the economy, Stats SA reported this week that gross fixed capital formation, which is key for the long-term health of any economy, decreased by 2.6%. Janine Myburgh, president of the Cape Chamber, said that, in the long term, the country had to deal with fundamental problems such as corruption, which was draining South Africa of the resources needed for investment and job creation. “We also have to deal with the gross mismanagement of the state-owned enterprises and get our municipalities into shape,” Myburgh said.

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