When Jacob Zuma stepped down from his Presidency earlier this year, South Africa’s economy was expected to experience a revival. Cyril Ramaphosa, Zuma’s then-deputy, was assigned the task of steering the country out of what was an already shaky situation. Last year South Africa was downgraded to “junk” status by a major credit rating firm. The Rand was losing value and investor confidence.
Even with these events, Ramaphosa promised major economic reforms to re-gain trust in one of Africa’s largest economies, and made economic reform a top priority.
With South Africa currently in recession, the new President finds himself in the same unfavourable situation as his predecessor. According to a report released by its central statistics office, South Africa’s Gross Domestic Product (GDP) fell by 0.7% in the second quarter of 2018, following a 2.6% contraction in the previous quarter. This puts the country in its second recession in just under a decade, the first being under Zuma’s government following the financial crisis of 2009. The report shows that declines in agriculture, transport and retail are the major causes of the decline, with the agricultural sector being hit the hardest.
On the day the news was announced, the value of the Rand fell by over 2%. The news came as a shock, Bloomberg actually predicted a 0.6% growth. The price of government bonds also fell. Manufacturing dropped to the lowest level in a year, the Purchasing Managers’ Index (PMI) dropped from 51.4 in July to 43.4 in August. The index measures activity in the manufacturing sector and is an indicator of how production numbers will progress over time. A figure below 50 indicates contraction in the sector.
The news of the recession drags South Africa into what has become a wave of worrying news for emerging economies, following the Turkish Lira crisis & the turmoil of the Argentine Peso. Ramaphosa is under intense scrutiny, and what he and his Cabinet do from this moment will determine if the initial euphoria of his arrival was well-placed.
Ramaphosa therefore faces the same challenge as Zuma, and all eyes will be on him to see if he can pull South Africa out of this situation. His initial promise to grow the economy by 3% looks bleak now, and investors and other stakeholders will be keeping a close eye. Personally, I had wondered how South Africa would fare post-Zuma, he had become that familiar. Faced with a recession, President Ramaphosa faces the ultimate challenge.
*** Note from the editor: this is an edited article, originally written by Wengo Kaluba for his blog Wenguss Khan**
Featured image| Cyril Ramaphosa | Government SA | flickr
The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of The Best of Africa.
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