South Africa’s economy shows signs of life

South Africa’s gradual structural reforms are breathing life into the economy, but aren’t sufficient to lift the growth rate to the government’s 3.5% target, according to Moody’s Ratings.

Africa’s largest economy has grown less than 1% annually for more than a decade, hamstrung by dilapidated infrastructure, electricity shortages, logistics bottlenecks, crime and corruption.

A coalition government formed after the African National Congress lost its majority in last year’s national elections has prioritized reforms as it seeks to spur growth to as much as 3.5% by 2030. 

“We don’t see in our baseline that the current reform progress to date — and our expectation of how reforms will progress — will be sufficient to raise economic potential beyond 2%,” Evan Wohlmann, Vice President – Senior Credit Officer at Moody’s, said in an online briefing on Tuesday. 

A study conducted by Investec Wealth & Investment International found that the economy is at least 37% smaller than it would have been had it tracked its emerging-market peers and sustained annual growth of 4.5% since 2010. 

Moody’s expects South Africa’s output to expand by 1% this year and 1.6% in 2026. 

The malaise is likely to impact the government’s efforts to manage its finances, Wohlmann said.

“In our view it will be challenging for South Africa to achieve a meaningful decline in general government debt without significantly higher economic growth than is forecast under our baseline,” he said.