South Africa’s social unrest risk scares investors

PwC senior economist Xhanti Payi said the high risk of social unrest in South Africa is making investors hesitant to invest in the country.

Payi’s comments come after Momentum warned that spending cuts would weigh on South Africa’s fragile social fabric and increase the risk of social unrest. 

Herman van Papendorp, head of investment research and asset allocation at Momentum Investments, warned of severe consequences linked to spending cuts.

Real government spending in per capita terms in South Africa has stagnated over the past decade.

“Proposed austerity measures are likely to weigh more heavily on the country’s fragile social fabric,” he said.

“This risks an elevation in service delivery protests in the medium to longer term, in our opinion.”

Payi said South Africa has the fourth highest risk of social unrest globally due to the country’s high unemployment rate and inequality.

He said investors are noticing this and have seen the destruction caused by previous social unrest, like the 2021 July riots or the Cape Town taxi strike earlier this year.

The risk of social unrest will likely also increase as the country approaches an election year in 2024.

Payi said that, ahead of the elections, there will likely be increased instability again “as people start to express their unhappiness given the economic conditions they find themselves in”.

Youth unemployment, in particular, presents a significant risk in South Africa. 

Earlier this year, the United Nations Development Programme (UNDP) warned that South Africa’s high unemployment rate, particularly among its youth, is a “ticking time bomb” that could result in social unrest.

The Spectator Index’s 2023 youth unemployment rate list revealed that South Africa has the worst youth unemployment among all included countries.

South Africa has over 10 million young people aged 15 to 24 years, and of these, only 2.5 million were in the labour force, either employed or unemployed.

The largest share, 7.7 million, of this group of young people are those out of the labour force.

Payi agreed with this, saying the biggest risk of social unrest comes when the youth gives in to despair and gives up hope of finding a job due to a lack of skills.

This highlights the need to upskill South Africa’s youth to give them access to the economy.