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Three reasons why SA has gone into recession

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Africa’s most industrialized economy is now in recession. South Africa recorded a 0.7 percent dip in GDP between January and March, which followed on from a 0.3 percent shrink in the last quarter of 2016. It is the first time since the global financial crisis in 2009 that South Africa has recorded two consecutive quarters of negative economic growth.

The country is not alone in Africa: Nigeria, a major oil producer and fellow African powerhouse, slipped into recession in 2016 after major falls in oil production and a global drop in commodity prices.

Here’s three factors that contributed to South Africa’s economic downturn:

Massive Unemployment:

In its statement on Tuesday, South Africa’s statistics agency said that the economy’s contraction was largely due to slowdowns in manufacturing and trade, while agriculture performed well. South Africa recently announced that unemployment had increased to 27.7 percent in the first quarter of 2017— the highest rate in 14 years —with jobs in agriculture and trade falling, while manufacturing jobs increased.

South Africa has long battled with a high unemployment rate of around a quarter of the population. The problem has affected the black and colored populations—the term “colored” refers to people of mixed racial heritage in South Africa—far more than the white population, a legacy of the policy of racial segregation and oppression of non-whites, known as apartheid, that existed for more than 40 years until the election of Nelson Mandela in 1994. South Africa’s 2011 census showed that unemployment among black South Africans was 35.7 percent, and 22.4 percent among colored people; among whites, the rate was just 6 percent.

The Finance Minister Merry-Go-Round:

Since President Jacob Zuma came to power in 2009, South Africa has gone through five finance ministers. Prior to Zuma’s presidency, it took 25 years to get through the same number of treasurers. In one hectic week in December 2015, the country had three occupants of the post: Zuma fired Nhlanhla Nene without explanation on December 9, replacing him with the little-known and inexperienced David van Rooyen; the latter was quietly removed four days later in favor of Pravin Gordhan.

Zuma sparked widespread criticism, including from within his own party, when he fired Gordhan in March. The president did not explain Gordhan’s removal, but the finance minister had opposed him on several issues—including the political influence of the Guptas, a wealthy business family with close ties to Zuma. Gordhan’s sacking caused several major ratings agencies to downgrade South Africa’s credit rating to junk status, making it harder for the country to borrow money on international markets.

Zuma’s Woes:

For many in South Africa, the country’s economic woes fall squarely on Zuma’s shoulders. Save SA, a pro-democracy activist group formed in 2016, dubbed Zuma the “Recession President” and said there was “No way Zuma’s recent actions could have stimulated economic growth in any way.” The opposition Democratic Alliance accused Zuma and the governing African National Congress of allowing “the state to be captured for the benefit of a small group of connected individuals.”

Zuma has encountered numerous scandals during his time in office. Chief among these was the country’s highest court finding in 2016 that the president had violated the constitution by using 246 million rand ($23 million at the time) of state money to renovate his residence in Nkandla, under the guise of ‘security’ upgrades with the addition of a swimming pool and amphitheater. More recently, Zuma has come under scrutiny for his ties with the Guptas: A huge email leak purported to show that Gupta-owned companies have swayed the government in awarding infrastructure and business contracts worth hundreds of millions of dollars.


 

Source

Newsweek

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