Expert says South Africa not becoming the “next Zimbabwe”

Despite rising unemployment, low growth, and mounting electricity, water and infrastructure issues, South Africa is not at risk of following the path of countries like Venezuela and Zimbabwe, says Dr Francois Stofberg, economist and managing director of private clients at Efficient Group.

Sentiment towards and within South Africa has seemingly hit an all-time low, with foreign investors bailing on the country at a rapid rate, while the government seems incapable of resolving all the problems that keep cropping up.

Every day, it seems like there is a new crack that’s showing on the wall – and South Africa has run out of Polyfilla to smooth it over.

Load shedding and the prevailing energy crisis have decimated South Africa’s economy. While work is underway to improve things – with 2024 looking to be a much better year for power generation – any solutions will take time and require everything to go smoothly politically. For now, it’s already too late, and the damage has been done.

Businesses have closed or redirected all investments into mitigating the power crisis. Jobs have been lost, driving unemployment to record highs. Entire industries have been crippled – and South Africa’s reputation as a business destination has been left in tatters.

The power crisis drives higher costs along the supply chain, keeping inflation high despite reversals elsewhere in the world. The Reserve Bank has responded in kind by hiking rates, pushing up debt costs for a population that is already heavily indebted.

Risk experts are sounding the alarm on growing social unrest. People with the means – and sadly, the skills – have already jumped ship or are going out the door.

Meanwhile, the government is dithering and shooting itself in the foot with various political missteps – particularly around foreign policy – creating even more uncertainty.

CEOs, investors and other experts have all thrown up red flags about the country becoming a failed state.

Stofberg said that it’s under these conditions that investors are increasingly starting to question which direction South Africa is heading next.

“Over the last couple of years, we were often asked by both local and global investors if South Africa will become the next Zimbabwe or Venezuela. Today, this question seems more relevant than ever ,” he said.

“Still, the answer remains an unequivocal no.”

The economist argues that even as bad as things have become, five specific forces in South Africa work together, like reinforced concrete, to keep the country from “falling into the abyss”.

A functioning democracy

“Our democracy might be unhealthy, owing to decades of corruption, state capture, as well as unaccountable and weak leaders, but South Africans still love their democracy and still believe in their individual freedom,” Stofberg said.

“This, in turn, protects our freedom and private property rights. Because our democracy is functional, we can, by means of our vote, change things, which is why every single vote matters. This is not the case in many other struggling emerging economies.”

Freedom of speech

Before President Cyril Ramaphosa took office, when corruption was at its peak, freedom of speech was under constant attack. Now, the media is, once again, able to name and shame, as well as bring to light all of the shortcomings and corruption within the South African economy, Stofberg said.

“In this way, we can get rid of bad apples and push our economy towards a new trajectory. In many other struggling emerging economies, this is not the case.”

This week saw a massive victory for freedom of speech and media freedom in particular after the country’s courts set aside former president Jacob Zuma’s attempt to silence a journalist and national prosecutor from doing work on his corruption trial.

Rule of law

Although Stofberg admits that rule of law is under severe strain in South Africa, he said that citizens are still able to take someone to court to fight for justice, even if that someone is a state-owned enterprise or a friend of a person of interest.

“This is not something that happens in most other struggling emerging economies. Our rule of law still helps to protect individuals and their property,” he said.

Unfortunately, the rule of law breaks down at the enforcement level, that is, at policing.

“But this, in turn, creates opportunities in private security,” he said.

“Because of poor policing and the strain that our rule of law is under, it is becoming increasingly important for citizens to self-regulate and to not be part of the problem: Do not pay bribes, do not drive in the yellow lane, things like that.”

An independent central bank

Although recent decisions taken by the South African Reserve Bank left many experts and consumers in shock, their independence means that corrupt officials cannot simply print money as they please.

“We might not agree with their zealot-like ideology, where an extra percentage point of inflation is the worst thing that can happen to our economy. But their ruthlessness has worked out well for our economy in the past,” Stofberg said.

There have been several attempts by the governing ANC to remove the Reserve Bank’s independence – however, so far, these plans have not come to fruition.

A strong and liquid financial market

“Because everyone’s fortune is somehow connected to our financial markets, bad policy translates into unhappy voters, which puts the squeeze on a dysfunctional ruling party,” Stofberg said.

“Liquid markets mean that we can borrow in South African rand, which is also not something most other developing countries can do.”

A report from think-tank the Centre for Development and Enterprise (CDE) this week detailed how the national government, under the ANC, has doggedly followed strategies for the last 15 years that have tanked South Africa’s economy.

It is no surprise that the party has increasingly lost voter support over the same period.

Stofberg said that the ruling party has failed South Africa, “but these five forces work together like reinforced concrete to keep the South African economy on the right side of history”.

“At the heart of these five forces is the individual. An individual that must take responsibility for their own life by voting, by self-regulating, and by creating opportunity and wealth,” he said.

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