Why has South Africa's economy stopped growing?


The World Bank announced today that they have reduced South Africa’s growth forecast for 2013 from 3.2 per cent to 2.5 per cent.

This follows poor results released earlier in the week which show that GDP growth for the first 3 months of 2013 slowed to 0.9 per cent.

The slowdown has a number of possible causes including the uncertainly caused by recent mine strikes and labour market disputes.

The World Bank said “firms are delaying investment and hiring decisions within the country until there is a rebound in private investment and household spending”.

Last week, the South African Reserve Bank decided to keep interest rates at 5.0 per cent. Their ability to reduce rates is of course limited by rising inflation which is linked to Rand weakness.

The South African Rand has depreciated by 16 per cent against the US dollar since the end of 2012 and reached a four year low of R9.84/US$ earlier this week.

This trend is also reflected in the valuation of local companies. In US dollar terms, the JSE all share index is down 5.7 per cent this year (between 31 Dec 2012 and 29 May 2013). This is alarming as most major worldwide exchanges are up significantly this year in US dollar terms: the MSCI world index is up 11 per cent and the Dow is up 17 per cent.

South Africa has a number of underlying issues that could impact on growth going forward. A recent report from WealthInsight highlighted the following major risks in the country:

  • Unemployment rates in South Africa exceed 24 per cent, which is well above the emerging market average. This is partly due to a relatively high degree of labour market rigidity with trade unions having a strong presence in the country. The apartheid government has also created a large pool of poorly educated people, contributing to widespread skill mismatches.
  • The ANC government’s close relationship with Robert Mugabe, the Zimbabwean president, is a concern both from an ethical and economic point of view. It is estimated that over four million Zimbabwean refugees have come into South Africa since the Zimbabwean crisis began in 1999.
  • Government corruption is a growing problem. This is likely to continue as the ANC’s dominance makes it difficult for other political parties to challenge ANC officials.
  • A relatively high crime rate, which deters foreign investors and tourists.
  • The HIV epidemic – it is estimated that 21.5 per cent of the adult population is HIV positive, which equates to over five million people. This places significant strain on South Africa’s long-term prospects, both from a social and economic point of view.
Photograph: Getty Images

Andrew Amoils is a writer for WealthInsight

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How the shadow cabinet forced Jeremy Corbyn not to change Labour policy on Syria air strikes

Frontbenchers made it clear that they "would not leave the room" until the leader backed down. 

Jeremy Corbyn had been forced to back down once before the start of today's shadow cabinet meeting on Syria, offering Labour MPs a free vote on air strikes against Isis. By the end of the two-hour gathering, he had backed down twice.

At the start of the meeting, Corbyn's office briefed the Guardian that while a free would be held, party policy would be changed to oppose military action - an attempt to claim partial victory. But shadow cabinet members, led by Andy Burnham, argued that this was "unacceptable" and an attempt to divide MPs from members. Burnham, who is not persuaded by the case for air strikes, warned that colleagues who voted against the party's proposed position would become targets for abuse, undermining the principle of a free vote.

Jon Ashworth, the shadow minister without portfolio and NEC member, said that Labour's policy remained the motion passed by this year's conference, which was open to competing interpretations (though most believe the tests it set for military action have been met). Party policy could not be changed without going through a similarly formal process, he argued. In advance of the meeting, Labour released a poll of members (based on an "initial sample" of 1,900) showing that 75 per cent opposed intervention. 

When Corbyn's team suggested that the issue be resolved after the meeting, those present made it clear that they "would not leave the room" until the Labour leader had backed down. By the end, only Corbyn allies Diane Abbott and Jon Trickett argued that party policy should be changed to oppose military action. John McDonnell, who has long argued for a free vote, took a more "conciliatory" approach, I'm told. It was when Hilary Benn said that he would be prepared to speak from the backbenches in the Syria debate, in order to avoid opposing party policy, that Corbyn realised he would have to give way. The Labour leader and the shadow foreign secretary will now advocate opposing positions from the frontbench when MPs meet, with Corbyn opening and Benn closing. 

The meeting had begun with members, including some who reject military action, complaining about the "discorteous" and "deplorable" manner in which the issue had been handled. As I reported last week, there was outrage when Corbyn wrote to MPs opposing air strikes without first informing the shadow cabinet (I'm told that my account of that meeting was also raised). There was anger today when, at 2:07pm, seven minutes after the meeting began, some members received an update on their phones from the Guardian revealing that a free vote would be held but that party policy would be changed to oppose military action. This "farcical moment", in the words of one present (Corbyn is said to have been unaware of the briefing), only hardened shadow cabinet members' resolve to force their leader to back down - and he did. 

In a statement released following the meeting, a Corbyn spokesperson confirmed that a free vote would be held but made no reference to party policy: 

"Today's Shadow Cabinet agreed to back Jeremy Corbyn's recommendation of a free vote on the Government's proposal to authorise UK bombing in Syria.   

"The Shadow Cabinet decided to support the call for David Cameron to step back from the rush to war and hold a full two day debate in the House of Commons on such a crucial national decision.  

"Shadow Cabinet members agreed to call David Cameron to account on the unanswered questions raised by his case for bombing: including how it would accelerate a negotiated settlement of the Syrian civil war; what ground troops would take territory evacuated by ISIS; military co-ordination and strategy; the refugee crisis and the imperative to cut-off of supplies to ISIS."

George Eaton is political editor of the New Statesman.