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South Africa’s economy is in a crisis, with its growth forecast for 2016 dropping from 1.7% to .9%. Making matters worse, the rand, South Africa's national currency, has depreciated by 30% over the last 18 months. Currently, the government is taking many different measures to stop the country from entering into recession and to please the rating agencies who are threatening to downgrade South Africa's debt to junk status. Both of these could have dramatic effects on the country and its relationship with foreign investors.
One of the major reasons for the economic crisis in South Africa is that the country has been hit hard by the fall in global commodity prices. There has also recently been downward pressure on Eurozone growth, causing money to flow out of emerging markets such as South Africa, Russia, Turkey, and Brazil.
South Africa’s finance minister, Pravin Gordhan, needs to reassure investors of South Africa, as well as pave the way for structural reform in the country. There has been a collapse in international confidence recently, leading to a possible downgrade to junk status. South Africa's debt being classified as junk status would cause a higher cost of borrowing as well as prevent further investments in the country. The question of many foreign businesses, investors, rating agencies, and the public is whether Gordhan can rehabilitate South Africa’s injured international credibility. Gordhan needs to input regulations that will encourage business growth, including foreign and domestic. South Africa's government needs to address the high regulatory compliance costs that businesses face and the red tape that businesses encounter related to registration, taxation, labor legislation, and the bid and offer process. These costs and the red tape are putting a constraint on business growth, discouraging both economic growth and job creation. Not only does South Africa need foreign business investment but it also needs entrepreneurial growth, with its level of workers involved in entrepreneurial activity lower than similar countries.
Lastly, South Africa's foreign policy needs an overhaul. It needs to aspire for a greater balance in its relations with its trade and investment partners. Foreign policy needs to focus on growing the economy, including the infiltration of South African business into Africa. Things need to change if South Africa wants to get out of this economic crisis and be on a pathway to growth once again.
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