South Africa policy cracks complicate economic plans

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.