South Africa: Risk Assessment

Country Rating1

Rating: A4

Business Climate Rating1

Rating: A4

Risk Assessment2

Very modest recovery in growth expected in 2015

In 2015, South African growth should benefit from a slight recovery in foreign demand, due notably to more buoyant economic activity in the EU. The South African government will continue its investments, particularly in the electricity production and distribution sectors as well as that of transport. Services, particularly financial, as well as construction should remain relatively buoyant.

On the other hand, household debt, rising taxes and the high level of interest rates will continue to affect private demand, which is, however, the main South African growth driver (60% of GDP). The unemployment rate exceeded 26% in Q1 2015 and should remain high, further curbing consumption. Moreover, output in the industrial sector will remain constrained by an erratic electricity supply as well as persistent labor tensions in the mining sector.

The positive impact on inflation from the fall in the price of oil could be more than offset by the rise in public sector prices, particularly fuel and electricity (additional increase of 13% scheduled in July 2015 after that of April), the increase in the price of foodstuffs due to drought, which affected a part of the country at the beginning of the year, as well as by the impact of the rand depreciation. The rate of inflation should therefore come close to the target fixed by the central bank (6%), or even slightly exceed it over 2015. The rise of 25 bps in the interest rate (to 6%), decided at the end of July 2015, should limit the inflationary risk but have a greater effect on growth.

The banking sector has been weakened by the concentration of credit on households that are often highly indebted, as shown by the intervention of the Central Bank in August 2014 to prevent the bankruptcy of African Bank Investments specialized in this type of loan.

Persistence of twin deficits

The budget deficit should continue to widen in 2015, despite the tax consolidation commitments announced by the government, the rise in income tax and the various taxes decided at the beginning of the year. The weak economic growth will affect tax revenue. With regard to expenditure, the agreement reached in May 2015 between the government and the public service unions limits the increase in wages for 2015 to 7%, compared to 15% initially demanded. However, public investment projects risk complicating the control of expenditure, especially because the rise in public debt should increase repayment costs in the budget.

Furthermore, the State should assist certain public entities. The injection in capital granted to the national electricity company Eskom will be financed by the sale of the South African State's stake in Vodacom telecommunications, but the significant financing needs of large public companies could also affect the budget.

The current account balance should benefit from a slight increase in foreign demand. But, whether it concerns China (leading trading partner of South Africa) or the EU, growth in the export markets should remain moderate. The lack of competitiveness in the industry will also continue to curb the increase in exports. However, imports are expected to remain constraint by a weak domestic demand. The increase in the costs of imported goods, linked to the rand depreciation (which lost 7% of its value between January and the end of July 2015) should be offset by the positive impact of the low price of oil on the energy bill, preventing any further deterioration in the current account balance. The rate rise decided by the central bank in July will not prevent the persistent volatility of the exchange rate.

Persistent political tensions and degraded business climate

Despite a comfortable victory in the May 2014 elections, uncertainties continue to affect the country's political and social development. For his new term of office, J. Zuma must deal with the other members of the alliance in power. One of the main unions (NUMSA) has been excluded from the confederation (COSATU) a partner of the coalition with the ANC and the communist party. Furthermore, divergent currents are weakening the ANC and its ability to define, but also to implement, reforms. Then, political tensions are growing with the opposition, as shown by several incidents that occurred in the Parliament, particularly in November 2014, requiring the intervention of the police. The persistent lack of a response to the expectations of the population with regard to tackling unemployment (which exceeds 50% for 15-24 year olds), poverty and corruption, remains a source of social instability.

South Africa has a modern legal system. But the inefficiency of the administration, the lack of skilled workers, crime and corruption weigh on the business climate.


  • Economic and political power
  • Natural resources (gold, platinum, coal, chromium, etc.)
  • Developed services sector (in particular financial)
  • Legal system provides protection for investors


  • Poverty, inequalities, sources of social risks (crime, demonstrations)
  • High level of unemployment and shortages of skilled labour
  • Infrastructure shortcomings (transport, energy)
  • Dependence on volatile foreign capital flows

1Country and Business Climate Ratings courtesy of Coface (10/2015)
2Risk Assessment and methodology courtesy of Coface (10/2015).