(Photo: Pieter Cloete/Maroela Media)
The latest economic growth figures and a credit upgrade by Fitch Ratings indicate that South Africa is slowly but surely making progress, but experts warn that the country is still far from the growth levels needed to reduce unemployment and poverty.
Statistics South Africa announced that the gross domestic product (GDP) grew by 0.5% on a quarterly basis in the first quarter. The announcement follows shortly after credit rating agency Fitch Ratings raised South Africa’s long-term credit rating from BB- to BB.
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Fitch attributed the upgrade to improved fiscal discipline, the stabilization of public debt and progress on structural reforms.
According to Thys van Zyl, CEO of Everest Advisory Services, the developments are encouraging, but insufficient to solve the country’s economic challenges.
“Although any positive growth should be welcomed, a growth rate of less than 2% remains insufficient for a country facing South Africa’s challenges. At this rate, it will be extremely difficult to significantly reduce unemployment, increase income levels and ease the fiscal pressure on the state,” says Van Zyl.
He believes the credit upgrade is an important sign that international markets are increasingly recognizing the progress being made to stabilize the country’s finances.
(Photo: Pieter Cloete/Maroela Media)
According to Van Zyl, Fitch referred in particular to larger primary budget surpluses, improved debt prospects and reforms in infrastructure, energy and logistics.
“This suggests that policy consistency and fiscal discipline can contribute positively to fiscal outcomes and investor confidence.”
However, he says that the country’s long-term prospects will continue to be determined by economic growth.
“Fitch expects economic growth to remain well below that of comparable emerging markets in the coming years. The message is clear that better fiscal management can not only be relied upon, but that much better economic growth is required.”
Van Zyl says the focus must now shift to the accelerated implementation of reforms that can boost productivity, investments and business confidence.
“The positive impact of reforms in certain sectors is already beginning to become visible, but the process must be accelerated. Infrastructure development, greater regulatory certainty, improved state capacity and stronger private sector investment will be essential if South Africa is to achieve higher levels of growth.”
According to him, the latest credit upgrade should serve as an encouragement, but the more difficult work still lies ahead.
“The good news is that South Africa has proven that progress is possible. The challenge now is to maintain the momentum. If reforms continue and stronger economic growth can be unlocked, South Africa may be better positioned to attract greater investment and also improve its prospects for further credit upgrades.”