South Africa policy cracks complicate economic plans

Abstract

Subject South African reform dillemmas. Significance The rand dropped to eight-month lows last week amid conflicting signals from the ruling ANC on changing the mandate of the South African Reserve Bank (SARB). This followed news of the worst first-quarter economic decline in a decade. Renewed question marks have been raised over President Cyril Ramaphosa’s ability to gain consensus on economic policy and to provide the policy certainty that investors desperately seek. Impacts The 27.6% unemployment rate (over 50% for young people) will likely edge higher, providing fertile ground for social protest and crime. Weakness in the rand could re-ignite concerns about inflation, making an interest rate cut less likely this year despite weak growth. The government's reluctance to put South African Airways into business rescue may force it to try to bring in a strategic equity partner.