South Africa: Risk Assessment

Country Rating1

Rating: A3

Business Climate Rating1

Rating: A3

Risk Assessment2

Confirmed slowdown in growth in 2012

South African growth will remain modest for the whole of 2012. After growth of 3.2% in Q2, the prospects for HY2 are sluggish. Consumption, the main growth engine, remains constrained by high unemployment (25%), household debt (76% of disposable income) and the erosion of disposable income under the combined effect of the slowdown in the increase in wages and the acceleration of inflation. Investment by public companies in the transport and electricity sectors continues. But investment by private companies is suffering from production overcapacities and uncertainty in the change in demand. The recession in Western Europe, the leading partner of South Africa (22% of exports, 1/3 of those manufactured goods) is affecting manufacturing output. The mining sector has greatly contributed to the increase in GDP in Q2 due to the recovery in production after the strikes in the previous months. But production, already hampered by the lack of investment, will be further affected by the Marikana events. The rise in prices of food products (accentuated by the summer drought) as well as energy tariffs and services are exerting upward pressure on prices. The trend towards depreciation of the rand is increasing these inflationary pressures. The central bank reduced its key rate in July by ½ point (to 5%), for the first time since November 2010. Since the rate of inflation is close to its high "target" (6%), monetary policy should remain unchanged by the end of 2012.


Worsening of the budget deficit and deterioration in the current account balance

Fiscal revenue is lower than expected due to the economic slowdown, whereas the growth stimulus measures, as well as capital expenditure (infrastructure, combating insecurity and inequality) have been maintained. Consequently, the budget deficit will widen in 2012/13. Public debt remains manageable (40% of GDP), but is continuing to grow. The trade balance is deteriorating. Imports of manufactured goods are increasing while exports are suffering from contraction in European demand and the fall in commodity prices. Furthermore, tourism revenue does not offset the payment of services to foreign companies (mining) and retrocession of customs duties to Member States of the Customs Union (SACU). Direct investment is low in relation to GDP, but portfolio investments are attracted by the rate differential with advanced countries (carry trade), making these flows very volatile. The rand depreciated by nearly 10% between February and August 2012. The uncertainties relating to the social (recent events in the mines, very high unemployment, etc.) and political (elections in December of the leader of the ANC) situation, as well as the international economic context, continue to exert downward pressure. However, the maintenance of high prices of commodities (gold) limits the risk of a too sharp depreciation.


Rise in social tensions

The election of J. Zuma in 2009 and the promises of the ruling coalition (ANC, Communist Party and trade unions) have raised hopes. The persistence of high unemployment and inequality, the mixed results of the BEE (Black Economic Empowerment) intended to favour the integration of the black population in the economy, has led to disappointment and resentment. Social problems are increasing. Following the Marikana mine dispute, which in summer set the striking miners claiming wage increases against the police and led to the death of nearly fifty persons, the strikes spread to other mines and other sectors (transports). These events have also weakened the ANC, with the return onto the scene of J. Malema, an emblematic left-wing figure On the other hand, the volatility of the rand exchange rate has increased. Capitalisation of banks is satisfactory and asset quality is improving. The banking system is not very vulnerable to foreign exchange risk. excluded in April from the ANC, and the COSATU, union confederation member of the coalition in power for which the main component is the National Union of Miners (NUM) greatly contested by the Marikana miners. Tensions risk intensifying as the elections approach for the presidency of the ANC in December. Maintaining Jacob Zuma at the head of the party, considered as certain a few months ago, now seems more uncertain. South Africa has a well-developed legal system, but the inefficient government, social instability, under-qualified workforce, criminality and corruption are handicaps for the business climate.


  • Economic and political influence in Africa and at the international level
  •  Rich in natural resources (gold, platinum, coal, chromium, etc)
  •  Well developed services sector (particularly financial)
  •  Control over public sector expenditure and external debt
  •  Protective legislative environment for investors


  •  Poverty, inequalities are sources of social risk (crime, demonstrations)
  •  High unemployment and shortage of qualified workforce
  •  Production hampered by a lack of investment, deficiencies in transport and energy infrastructures
  •  Vulnerability to commodity prices
  •  Sensitivity to the European economic climate, as well as competition from Asia
  •  Dependence on volatile foreign capital inflows
  •  Corruption

1Country and Business Climate Ratings courtesy of Coface (12/2013)
2Risk Assessment and methodology courtesy of Coface (12/2013).