South Africa – Economy in Recession

arbe_large700

As most economic sectors contract many point finger of blame at corruption within the ruling party. 

According to data from Statistics South Africa, the country as slipped into recession for the first time in eight years, largely due to weak manufacturing and trade sectors. In the first three months of 2017 the economy contracted by 0.7%.

The trade, accommodation and catering sectors were the worst performing, contracting by around 5.9%, while manufacturing contracted by 3.7%. The value of the South African Rand (R) also dropped by around 1%.

Standard Chartered Bank’s Chief Africa Economist Razia Khan said the data showed weakness where it was not expected; the country had been predicted to have relatively high growth rates. Nonetheless, Joe de Beer, Deputy Director General of Statistics South Africa, said, “We can now pronounce that the economy is in recession.”

South Africa’s economy showed marginal positive growth for 2016, although it then contracted in the fourth quarter. The only sectors to have made a positive contribution to output growth in the country have been mining and agriculture, reported the Conversation Africa.

“The slowdown in first quarter was due to much worse results from usually stable consumer-facing sectors that had been the key drivers of growth in recent years,” Capital Economics Africa economist John Ashbourne said.

Political instability, high unemployment and credit ratings downgrades have hit business and consumer confidence, while government bonds have also weakened.

6376144913_29fbb6af21_o
President Jacob Zuma – CC 2011.

Pressure on President Jacob Zuma, including from within his African National Congress (ANC) party, has risen since a controversial cabinet reshuffle in March that led to downgrades of South Africa to ‘junk’ status by ratings agencies S&P Global Ratings and Fitch.

“Our economy is now in tatters as a direct result of an ANC government which is corrupt to the core and has no plan for our economy,” Mmusi Maimane, the leader of the opposition Democratic Alliance (DA) said, reported the Premium Times.

The concern is that South Africa needs strong economic growth to help reduce unemployment levels, which currently stand at more than 27%.

In a statement, the Government of South Africa said that the current growth rate, if sustained, will lead to a further decline in GDP per capita, risking the sustainability of our fiscal framework and undermining the delivery of social services.

The government added that the Minister of Finance Malusi Gigaba would be seeking a meeting with business leaders to discuss ways of working together to achieve inclusive economic growth.

Find out more in the Africa Research Bulletin:

SOUTH AFRICA: Credit Downgrades Deepen Turmoil
Economic, Financial & Technical Series
Vol. 54, Issue. 3, Pp. 21637B–21639B

SOUTH AFRICA: Anti-Immigrant Protests
Economic, Financial & Technical Series
Vol. 54, Issue. 2, Pp. 21596A–21598C

SOUTH AFRICA: Growth Falls
Economic, Financial & Technical Series
Vol. 54, Issue. 2, Pp. 21605B–21606A

Subscribe to the Africa Research Bulletin today. 

Mozambique – Secret Debts

arbe_large700

International financial support for the national budget is suspended after revelations that the government failed to disclose substantial debts.

Recent findings have revealed that the government of Armando Guebuza, who was President from 2005-2015, managed to take on more than US$2 billion in secret debts, prompting an economic crisis in the country. The Group of 14 (G14) support donors suspended their contributions on May 4th and the International Monetary Fund (IMF) has also stated that it will not release any more funds aside from standby credit.

Following these decisions the Economic and Finance Minister Adriano Maleiane on May 4th announced the first cuts including a hiring freeze, although Maleiane guaranteed that health and education would not be affected. Total donor support amounts to $467m annually, around 12% of the state budget.

The debts were caused by at least three parastatal loans to companies in 2013, including the Mozambique Tuna Company (EMATUM) for $850m, Proindicus for maritime security at $622m and the Mozambique Asset Management (MAM) for $535m. In total an estimated $321m in debt repayments will be due in 2017, adding to other government debt; it is widely feared that there are further unrevealed debts.

The government has also admitted to secret loans to the Ministry of the Interior, including $221m between 2009-2014 for armoured vehicles and riot police equipment used in fighting against the Renamo rebel group, reported Mozambique News Reports.

Armando_Guebuza,_President_of_Mozambique_(cropped)

Ex-President Armando Guebuza

The Mozambican Debt Group (GMD) has claimed that the debt levels in the country are unsustainable, despite government claims to the contrary. In 2015 debt had reached 39.9% of Gross Domestic Product (GDP), just 0.1% away from unsustainable levels above 40%, although the figures were calculated before these recent revelations. According to reports from state-owned AIM the debt now stood at 69% of GDP, although rating agency Fitch put the amount higher at 83% of GDP with the possibility of rising to over 100% by 2017.

The GMD warned that this level of debt would have adverse impacts of the poorest strata of the population, leading to a substantial reduction in public funds.

Prime Minister Carlos Agostinho do Rosario had flown to Washington, United States, to meet the IMF Managing Director Christine Lagarde to confess the secret loans. An IMF statement read, “following a meeting held earlier this week…a technical team led by the Vice-Minister of Finance, Ms. Isaltina Lucas, worked intensively with the IMF Mozambique staff team.”

“Looking ahead, the Fund and Mozambique will continue to work together constructively to evaluate the macroeconomic implications of this disclosure of information and identify steps to consolidate financial stability, debt sustainability and enhance governance and oversight of public enterprises,” reported AllAfrica.

Workers have stated that they do not want to be forced to pay for the commercial debts, said General Secretary of the Organisation of Mozambican Workers Union (OTM) Alexandre Munguambe, speaking during May Day celebrations, reported AIM.

Already counted as one of the ten poorest countries in the world, Mozambique has been hit hard by falling commodity prices, ongoing drought and a recent flare up in violence between the ruling Frelimo party and the Renamo rebel group; these further debt burdens on the economy are likely to place increasing strain on the poorest and most vulnerable segments of the population.

Find out more in the Africa Research Bulletin:

MOZAMBIQUE – EU: Budgetary Support
Economic, Financial & Technical Series
Vol.53, Issue.1, Pp.21129A.

MOZAMBIQUE: Budget 2016
Economic, Financial & Technical Series
Vol.52, Issue.12, Pp.21102c-21103A.

Mozambique – Interest Rates Raised (Free to Read)
Economic, Financial & Technical Series
Vol.52, Issue.11, Pp.21070C.

Subscribe to the Africa Research Bulletin today.