South Africa is Sinking Into Troubled Times

Market Trends - 24/02/2016

The economy of South Africa has noticeably decelerated ever since ex-President Nelson Mandela left office and was replaced by the current President Jacob Zuma. The tumultuous switching of several political offices alongside weather patterns that have resulted in severe droughts have caused a plunge in the price of commodities and the value of the South African Rand, pushing the nation’s economy into the doldrums.


The International Monetary Fund, the World Bank and the South African Reserve Bank have forecasted a slowdown in global economic growth over the coming years. In their recent statements, South Africa’s mention included an expectation of a -0.70% slide over the current year after having originally been forecast at 1.30%, as 2017 and 2018 are adjusted downwards as well. This year, the country’s feeble Rand dropped to a value of 17.7620 against the greenback after a period of economic instability that resulted in the replacement of the finance minister. The South African Reserve Bank has gradually raised interest rates in order to prop up the Rand and prevent inflation which has made food increasingly difficult to obtain, and is expected to raise them even more over the year.


The Rand pared some of its losses at the start of the year as the new finance minister, Pravin Gordhan, and President Zuma acknowledged the challenges and vowed to fix the country’s declining financial credit rating. The finance minister is expected to announce the eagerly awaited budget changes later on in the day, where economists can expect strict austerity measures. The minister will likely announce spending limits over the next three years and privatization of some state-owned companies. Taxation is also predicted to rise for corporations as well as personal income tax and the value added tax that has been kept untouched for more than 20 years. The rise in standalone VAT by 100 basis points is expected to raise approximately 15 billion Rands which can be put into measures designed to aid the economy. The austerity measures must be implemented gradually so as to avoid protests and prevent damage to the economy.

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