South African Economy: The China Effect
As a member of the “fragile five”, South Africa was hit hard by the global financial vortex that engulfed the markets this week. Its currency was hardest hit, and the Johannesburg stock exchange lost over 7% of its market cap. The global turmoil coincided with a raft of other negative indicators: GDP registered a 1.3% quarter-on-quarter contraction for Q2-2015. The key economic sectors of mining, manufacturing and agriculture registered worrying levels of decline, ranging from 6.7% to 17.7%. After two consecutive quarters of contraction, the manufacturing sector is on the brink of a technical recession. The mining sector has begun job shedding on a large scale. The steel industry – one of the country’s oldest – is struggling to survive against subsidized Chinese imports, believed to be sold at below cost. A last minute deal this week between the government, labor unions and industry is hoping to avoid the near closure of the steel industry and the potential loss of over 40,000 jobs. These mark the culmination of over seven years of the economy’s languishing in policy indecision, self-inflicted political economy crises, and inability to deal with key infrastructural backlogs, most importantly the shortage of energy and more broadly the lack of a credible energy policy. Cases of self-inflicted crises are the damage caused to the tourism industry by the imposition of stringent visa restrictions, agriculture facing uncertainty in relation to the partial expropriation of farms, and the mining sector thrown into additional uncertainty with regard to the Mining and Petroleum Resources Development Act (MPRDA).
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