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‘Economic and governance reforms do not progress as planned’ in South Africa, warns S&P

Xolisa Phillip
By Xolisa Phillip
27 Nov 2023
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Lacklustre political will and slow movement on policy reforms have entrenched South Africa deep in junk status terrain. This spells disaster for the country’s immediate future growth prospects and signals more pain in citizens’ pockets.

The ANC government is not only piling on misery through a lack of political will and slow action on reforms but is also spreading the contagion in wider society.

In its latest note on South Africa, S&P Global Ratings sounds a subtle and carefully worded alarm on the state of the country.   

The two major takeaways are the rapid decline of per capita growth and the mutually reinforcing relationship between decrepit infrastructure and GDP underperformance.

Last week, S&P released a statement on the country’s sovereign credit metrics, affirming South Africa’s foreign and local currency debt ratings while maintaining a stable outlook.

However, as recently as May 2022, S&P revised the country’s outlook from stable to positive. That effectively means, between May 2022 and November 2023, a mere 18 months, the factors which contributed towards a positive outlook are now responsible for what could be deemed a ratings stalemate.  

On the surface, S&P’s November 2023 statement on South Africa is largely balanced. But, hidden in its subtext, the note sounds a subtle and carefully worded warning about the country being on the fast track of a regressive trajectory and in the slow lane of a progressive economic path.

In short, South Africa is operating on a two-speed downward spiral underscored by political and policy reform inertia, whose consequences are worsening socioeconomic outcomes and conditions. 

Simply put, political stagnation is a drag on implementing policy reforms, and the resultant lags from the latter are stalling SA Inc’s economic engine. 

Instead of positive momentum attuned to clear-cut political will, as well as coherent and agile policy reform implementation, the two propellers of economic forward movement have been misfiring.

Put differently, the country’s economic engine is in idle mode.

In 2011, South Africa generated GDP per capita amounting to $8,900. However, this figure dropped to $5,600 in 2020 and staged a moderate recovery to $6,900 in 2022, as reflected in S&P’s May 2022 note.

Further to the so-called lost decade, South Africa is currently experiencing the costly effects of the unfulfilled promises of the current administration.

In five years, the political pendulum swung briefly in the direction of focused political will and action to resolve South Africa’s multiple crises. But that was short-lived, until after May 2019, when the administration was elected for another five-year term. 

Lack of political will


Where S&P states in its November 2023 note that “reform remains slow”, this could be interpreted as a lack of political will to move the needle forward. It could also be taken to mean the current government has signalled, through slow action, that policy reform resides only on paper.

The slowdown in positive movement is captured in the Quarterly Labour Force Survey (QLFS) and the quarterly GDP data. The recently released QLFS records job losses in manufacturing, mining, transport and utilities, according to Statistics South Africa’s November statement.

In addition, GDP growth continues to undershoot the country’s true capacity and potential. This correlates with South Africa’s electricity supply issues and the problems at its ports and port terminals, where accelerated reforms are supposed to have taken place.

However, since being downgraded to sub-investment grade in March 2017, the current administration has not made haste to dig South Africa out of junk terrain. Rather, it has been engaged in a political holding pattern whereby “[e]conomic and governance reforms do not progress as planned”.  

The adverse and tangible byproduct of all this is that S&P forecasts “per capita growth of 0.5% over the next five years”. That is an unsettling thought.

Already under the present administration stagnation is the norm, and the sovereign credit ratings agency’s projection means more of the same in the next five years.

The suboptimal political will is giving rise to economic misery of unprecedented proportions. The probability of more of the same, or even worse, in the next five years is significant.

The other side of the equation is that the credit ratings agency cites “infrastructure-related pressures on growth” as another constraint and impediment to economic performance. In fact, in S&P’s November 2023 note, the credit ratings agency reflects on “worsening critical infrastructure constraints”.  

Starting in January 2018 to date, on paper, there exists a plethora of programmes designed to curb unemployment and jumpstart job creation. There are undertakings to address the country’s infrastructure problems and plans on how to achieve this. 

There are articulated positions on what reforms must be undertaken urgently to reverse the country’s erratic electricity provision, as well as how to resolve the performance of rail and the ports, to boost economic growth. 

Despite all this effort and work, S&P observes that “[e]conomic and governance reforms do not progress as planned”.

In short, the country is economically regressing and failing to fulfil its potential. DM

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