Protest and strike warning for South Africa

Rating agency Fitch said South Africa’s high unemployment rate and inequality pose a risk to the country’s socio-political instability, with frequent strikes and protests.

Fitch recently affirmed South Africa’s long-term foreign-currency issuer default rating (IDR) at BB- with a stable outlook.

The agency said South Africa’s rating is constrained by low real GDP growth, a high level of inequality, a high and rising government debt-to-GDP ratio, and a modest path of fiscal consolidation. 

“Growth is hampered by power shortages that are expected to continue in the near to medium term, although at a lower magnitude than in recent months, and by a struggling logistic sector,” it said. 

However, South Africa’s ratings are supported by a favourable debt structure with long maturities, mostly local-currency-denominated, strong institutions, and a credible monetary policy framework.

Fitch projects stronger GDP growth in 2024 compared to 2023 – up to 0.9% compared to 0.5% – but the economy remains severely troubled by the impact of electricity capacity constraints and the struggling logistics sector.

In particular, Fitch highlighted elevated socio-political risks in South Africa due to the country’s high unemployment rate.

South Africa’s unemployment rate declined moderately to 32.2% in the third quarter of 2023 from a record high of 35.4% in Q4 2021. However, this figure remains much higher than pre-pandemic. 

“The high unemployment rate, in conjunction with an exceptionally high level of income inequality, will continue to constrain fiscal consolidation and pose a risk to socio-political stability, with frequent strikes and protests,” Fitch warned.

The agency said this comes despite government efforts to reform parts of the economy.

In particular, it mentions Operation Vulindlela, which was launched in 2020 and contains 35 priority reforms for the country. The reforms focussed on the energy and logistics sectors.

Some incremental progress with these reforms was recorded in the second half of 2023, but Fitch said their impact will be modest.

“Although the reforms will contribute to a modest increase in real GDP growth in the near to medium term, they are limited in ambition, and we do not think they will significantly enhance South Africa’s low growth potential, which we estimate at 1.2%,” it said.

Fitch’s warning echoes the World Economic Forum’s (WEF) Global Risks Report for 2024. In this report, the WEF highlighted state fragility as one of the five biggest risks South Africa faces in 2024.