This is according to Prof Danie Meyer, lecturer and researcher within the North-West University’s (NWU’s) Faculty of Economic and Management Sciences in Vanderbijlpark. At the eye of the storm you will find continued low economic growth, lowered investment ratings, diminishing levels of investment confidence, political instability and a growing incidence of corruption and policy uncertainty.
A full-blown economic recession
In addition to these negative factors, Prof Meyer says that the latest unemployment data indicates an overall unemployment rate of 27,7%, and a youth unemployment rate of 55,9%, which is now the highest in the world. An unbelievable 3,3 million youths are currently not working or attending any kind of education. These economic indicators, if not urgently addressed, could result in a revolution.
The National Development Plan (NDP) of 2012 prescribes growth rates of at least 3% per annum, but in recent years, the country experienced relatively low growth rates. The last two quarters even realised negative growth rates, indicating a formal recession. Research furthermore indicates that political instability has a significant negative impact on economic growth as currently being experienced in countries such as South Africa, Brazil and Venezuela.
A downgrade to junk status
In recent months global ratings agencies have down-graded South Africa in accordance with the government’s ability to repay loans in both local and international currencies to junk status or below investment status, leading to instability or increased risk for investors. This resulted in less foreign direct investment (FDI), lack of local investment and lowered attraction of the country for investors.
Ratings agencies base their decisions on several aspects, including:
- The institutional efficiency of the government.
- Government’s ability to adapt to internal and external shocks through effective policy implementation (such as policy to promote growth).
- An analysis of the local economy in terms of growth predictions, diversity and stability.
- External factors such as exchange rates and debt.
- The fiscal situation in the country, for example the level of government debt as percentage of gross domestic product (GDP) and the effectiveness of the tax collection process.
- The country’s ability to ensure monetary stability for sustained growth.
Taking into account the above aspects, Prof Meyer believes that a turn-around strategy could be successfully facilitated. Economic development can only be achieved by means of structural change and this change, according to Prof Meyer, should be radical to prevent disillusioned members of society such as the unemployed youth.
Prof Danie Meyer
