South Africa's Failing Economy: Outlooks for 2020

South Africa's 2019 budget speech revealed that the rate of borrowing by consumers is on the up, due primarily to a weakening economy and the national power provider, Eskom, constantly needing bail-outs. The economy grew just 0,5% in 2019, with growth expected to be between 1% and 1.5% in 2020. With proposed government reforms that will make it cheaper and easier to do business in South Africa in the pipeline, the question is whether these reforms will be implemented quickly enough to gain any meaningful traction.

The ratings agencies have, of late, indicated that investing in South Africa is becoming increasingly risky, with Fitch and Standard & Poor's giving the long-term foreign-currency government bonds a BB+ rating. Moody's has given these bonds a Baa3 rating, a moderate credit risk investment grade. Should Moody's lower this rating as well, South Africa's economy will likely quickly descend into junk status.

Much of these issues stem from so-called "state capture", which is essentially systematic political corruption through which private individuals and institutions influence and manipulate the government's decision making processes for their own financial or political gain. South Africa's economy has been decimated by former president Jacob Zuma's (and certain of his allies) dealings with the infamous Gupta family, who have since fled the country. Investor confidence has plummeted, state institutions are failing, and the people of South Africa are ultimately the ones suffering the most. Numerous inquiries have been opened into the alleged state capture, with none yielding any significant results. It is unfortunate, and indeed very sad, that a few individuals have taken a prosperous, thriving country full of potential, and turned it into a haven for corruption, fraud and other illicit activities.

Until the implications of state capture have been sorted out, South Africa is unlikely to experience any meaningful growth. This is likely to take years, and officials are not even certain of the extent of the illegal activities conducted by Zuma and his cronies. 2020 will be another year of slow growth, if any, and the outlook is not overly positive. However, it remains a country with great potential and friendly people, and can undoubtedly recover from this setback.