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In South Africa, green shoots hide tangled roots

Encouraged by the green shoots of economic recovery at home in the first half of 2021, South Africa’s President Cyril Ramaphosa could not resist turning into a salesman at the G7 Summit in the Cornish resort of Carbis Bay in June, which he attended as a guest of the British Prime Minister, Boris Johnson. 

His delegation sang the praises of a strong rand, rising commodity prices – including gold steadying at $1,882 per ounce in early June – a record trade surplus, and steady output growth in mining, financial services and manufacturing. 

“Gatherings such as the G7,” Ramaphosa stated, “are an opportunity to promote our country as a destination in which to invest and do business, and as a partner for development.” 

Britain's Prime Minister Boris Johnson (L) aand South Africa's President Cyril Ramaphosa (R).
Britain’s prime minister, Boris Johnson poses with President Ramaphosa during an official welcome during the G7 summit in June.

Ramaphosa is convinced that his government’s economic recovery and reconstruction policies are starting to bear “tangible results to resolve challenges that have long hindered our economic growth”. 

This is not surprising given that his current mantra  is “optimism is the foundation of progress, and hope is the companion of development.” 

The catch is that the current upswing is a cyclical blip created by a perfect storm of a strong currency – therefore, cheaper imports, and high commodity prices – before a reversion to the norm because of weak underlying economic fundamentals and painstakingly slow structural reforms. The risks of further Covid-related restrictions persist.

First the ‘good’ news and then the reality check. S&P and Fitch Ratings both affirmed South Africa’s long-term foreign and local currency debt ratings at ‘BB-’ and ‘BB’ in May, albeit still below investment grade but avoiding a downgrade. 

Stats South Africa confirmed that GDP increased at an annualised rate of 4.6% for Q1 2021, boosted by a robust contribution from the mining sector of 18.1%, and from finance, real estate and business of 7.4%. This growth trajectory is expected to continue through to Q2 2021.

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