South Africa's leaders are facing impending disaster
South Africa is on the brink of collapse. After years of corruption, mismanagement and poor investment, the fruits of the once-promising country have turned rancid. As the country’s leaders grapple with the impending disaster on their hands, tensions are boiling over. On January 10, Tito Mboweni, the finance minister, launched a series of tweets underscoring the gravity of the situation: “If you cannot effect deep structural economic reforms, then game over! Stay as you are and you are downgraded to Junck [sic] Status!! The consequences are dire. Your choice.”
The ANC’s bruising internal battles have stymied critical reforms to jumpstart the economy, prompting outbursts of frustration from officials like the finance minister Tito Mboweni. Yet while the short-term consequences are readily obvious to many, the long-term reckoning that South Africa will face is less clear
While his direct audience was unclear, the message was clear. More than a decade of worsening economic indicators has wreaked havoc on the African giant. From eye-popping unemployment of over 29 per cent to stupefying levels of violent crime, South Africa is sinking ever further into the muck.
To complicate matters, the country’s once-reliable and cheap electricity has become the single biggest threat to the economy. Eskom, the state power utility, has struggled to keep the lights on for many months, as one plant breakdown after another have made the electrical grid woefully expensive and unstable.
Eskom authorities have turned to enacting forced blackouts to prevent total system collapse, hitting the economy as businesses and households alike have scrambled for more expensive back-up options like diesel generators – or risk staying in the dark. In December, Eskom was forced to shed so much power from the grid that even vital mining operations in the country were temporarily halted, impacting the country’s most critical sector.
Amid the blackouts, Pretoria has thrown billions of dollars at the problem, but to little avail. This is because constructing new plants and improving the existing decrepit infrastructure will take several years, meaning that South Africa’s fight to keep the lights on will continue to harm the economy for the foreseeable future. The consequences will be felt well beyond the electrical sector as Moody’s Financial Services, the last of the big three credit agencies to not downgrade South Africa to junk status, will review its position in November. It is likely that Moody’s will downgrade.
This will force fund managers with investment-grade mandates to dump their South African assets and make others rethink their own positions in the country, worsening already high investment outflows from the country.
Eskom’s electricity woes have sucked up several billions of dollars and significant government attention. Much of this money has been financed by debt, which will increase the burden on the country’s taxpayers in the years ahead as the true costs of debt repayment come due. Indeed, significant resources that could have helped address the myriad systemic problems afflicting the country have gone to the putting out of the massive fire that is Eskom.
Yet South Africa’s infrastructure is eroding across the board, from roads and bridges to rail and the water system. In fact, historic level droughts in 2019 have been exacerbated by the crumbling water infrastructure, meaning that deadly future water crises will be ever more likely.
But as Rome burns, South Africa’s long ruling African National Congress is as divided as ever. The party’s deep factions are largely split between the reform wing headed by President Cyril Ramaphosa and the populist wing once led by his predecessor, Jacob Zuma. The problem for Mr Ramaphosa and his allies is that they hold only a tenuous grip over the party, despite being the reason why the ANC avoided historic defeat in the 2019 general elections after years of disastrous Zuma rule.
Indeed, the Zuma wing is much to blame for the appalling situation South Africa finds itself in, having spent much of the past decade looting instead of leading. Nevertheless, they have retained key positions in the current government and devote much of their time toward undermining economic reform and finding ways to unseat Mr Ramaphosa.
The ANC’s bruising internal battles have stymied critical reforms to jumpstart the economy, prompting outbursts of frustration from officials like the finance minister Mr Mboweni. Yet while the short-term consequences are readily obvious to many, the long-term reckoning that South Africa will face is less clear. First and foremost, the country’s lacklustre economy, wracked by recession in recent quarters, is set for only tepid grow for the foreseeable future.
This will make it ever harder for Pretoria to rid itself of a potential debt trap it has gotten itself into, as ever more money will need to service ballooning debt instead of new roads, the health or education sectors, law enforcement, etc. To make matters worse, the terrible and stubborn unemployment situation will underscore for millions of impoverished South Africans operating in the dangerous black-market economy that the country is one of “haves” and “have nots”. Violent crime will only worsen as millions more are obligated to eke out a bleak existence despite seeing wealth around them.
Consequently, the ever-worsening crime, weak economic growth and collapsing infrastructure will drive up the costs of living and doing business in South Africa. For the country’s high-net worth and skilled individuals, this will prove intolerable. In fact, signs already suggest that emigration of the country’s most productive members has jumped in recent years and data suggests most will never return. This will rob South Africa of its best and brightest, likely disproportionately hurting key sectors of the future like high tech, science and medicine. It will also mean ever-greater budgetary shortfalls as the richest and most mobile of South African society departs for sunnier – and safer – shores.
For a country that started with such promise following the end of the apartheid in 1994, South Africa finds itself in a sorry mess. But as political infighting and Eskom’s woes continue, the chances of South Africa halting its rot will become ever more difficult in the years ahead.
Stephen Rakowski is a sub-Saharan Africa analyst at geopolitical risk consultancy Stratfor, focused on security, political and economic trends across the continent
Updated: January 26, 2020 03:59 PM