‘South Africa the black sheep of the emerging economies’

South Africa lacks the kind of comprehensive growth strategy that its peers have implemented to boost their economies, Ravi Bhatia, director and lead analyst at S&P Global Ratings, said this week.

Speaking at a financial conference on navigating global shocks in Johannesburg, Bhatia said: “We have seen that in other countries that we go to, where they have a growth plan, and they look at unicorn companies in their economies and how to push them forward. In South Africa, it has been more about ‘fix it’, with Eskom and Transnet, and not really a comprehensive strategy for growth, and a lot of missed opportunities as well.”

He said the missed opportunities included the chance to sell more minerals during the commodity price boom.

After years of constraints in the rail and energy sectors, the government introduced structural reforms that have paved the way for third-party players on Transnet’s freight rail network, while Eskom has been unbundled into distribution, transmission and generation units to improve power generation.

S&P Global Ratings on May 29 retained South Africa’s long-term foreign currency sovereign credit rating at BB and its local currency rating at BB+. It kept the outlook at positive. In November last year, the agency upgraded South Africa’s credit rating for the first time in 16 years after the third year of primary surpluses and as the Operation Vulindlela reform programme gained momentum.

It said GDP growth will likely be 1.2% in 2026 and average 1.7% over 2027-2029, amid reforms to electricity and other sectors to support growth.

Bhatia said South Africa was an “outlier” in terms of its sluggish economy. “What is striking about South Africa compared to peers is how little it grows,” he said.

What is striking about South Africa compared to peers is how little it grows

—  Ravi Bhatia

The South African Reserve Bank last week resumed its tightening of monetary policy, hiking rates 25 basis points to 7% as producer price inflation soared in April to 4.8% from 2.3% the previous month due to the conflict in the Gulf and the strangling of oil supplies.

Bhatia warned that consumers should brace themselves for further pain from the effects of the war, but S&P was happy to see that the Bank had acted quickly.

“Basically South Africa is a consumer-led economy. We are going to see high interest rates. It is going to dampen consumer demand slightly, that is affecting our growth story,” he said.

Also speaking at the conference, economist Iraj Abedian, CEO of Pan African Investment & Research, said the regulatory environment impeded economic growth, and municipalities had become the largest and most visible obstacles to growth.

“They are racking up debt, they are racking up debt to Eskom. They are not paying for their rental offices.” He criticised the National Treasury for not intervening to arrest the paralysis in municipalities.

In a presentation on municipalities, Danelee Masia, chief economist at Deutsche Bank, said she was encouraged by the Treasury’s municipal debt relief programme, which requires struggling municipalities to pay bills consistently or sign agreements allowing Eskom to take over revenue collection.

“Currently it is a hotchpotch of collections and no checks and balances in place. Converting municipalities into some kind of trading systems where you can lose your licence, I think that is exciting, it is going to be interesting to see how we implement it. This is going to be an interesting one,” she said.