In South Africa, Business Confidence at the lowest

Article published on July 8, 2017
Article published on July 8, 2017

This article has not been vetted by an editor at Paris HQ

In last-ditch attempts to acquire a reputation for national and international justice, South Africa is undertaking rash moves and launching risky reforms.

While there is no guarantee any of them will provide the intended effect, investor’s outlook and economic forecasts are taking a nosedive. 

Since the beginning of the year, problems have been accumulating in South Africa. While some of them are accidental, others are self-induced, and all have amounted to a sizeable obstacle on the nation’s economic road. The country has entered recession over the first semester, and no recovery is in sight -  in fact, many fear the worst is to come. Siseko Njobeni reported: “Sacci said the May 2017 BCI was 1.4 index points higher than 91.8points of May 2016. The figures came a day after Statistics South announced that gross domestic product (GDP) for the first quarter of this year was down 0.7percent, thus pushing the country into technical recession, following a 0.3percent decrease in the last quarter of last year [...]”.  The South African Chamber of Commerce of Industry (SACCI) is considered the voice of business and addresses all matters relative to business operations in the country. The sub-investment grade since the 2nd quarter of 2017 makes it essential that a policy approach be followed that enhances business and investor confidence and promote economic growth. It has become important to consider a workable normative economic approach to the socio-economic challenges of unemployment, poverty and inequality”.

There are several causes for this major downturn. They rank from social to ecological, and from political to judicial.

The South African society never completely finished its social transition since its independence from the United Kingdom in 1961, failing since to achieve a pacified and stable social model. The country’s racial divide is still potent throughout society, with some of the tension expressing itself through one of the highest crime rates in the world. The unstable tension is visible in society, as Quartz Media describes: “The same social and economic disparities between South Africa’s racial populations are present today, and many public spaces like national parks, quaint holiday towns, and pristine beaches remain the playground of upwardly mobile, mainly white South Africans. Vacations and certain leisure activities are also still seen as “white”.  It is therefore visible in the economy also: “This strike has its roots in politics, in inequality, in poverty, in apartheid, and in the Marikana massacre. It’s about the lack of change, a lack of trust, and a lack of something to lose. Workers and their families lived with no money, believing that this was a fight they had to win for the future. It was funded, if you like, by their hope for change. That is really what is needed here, change”, as Stephen Grootes stated after the 2014 platinum mine strikes.

A major resource shortage is also in the process of severely deteriorating South Africa’s economy.  Rising climate temperatures, along with other factors such as increased draw, is making South Africa dangerously dependent upon neighboring countries for its fresh water supplies. Lesotho, the small State embedded within South Africa has significant power over its giant neighbor, as a supplier of the vital fluid, but may be unable to supply it sufficiently in coming years, with potentially devastating consequences, both direct and indirect, on the economy. Bruce Whitfield explains: ”Any significant changes in water quality, availability and price (which is inevitable) will shift entire sectors and their global competitiveness. South African companies are generally not applying sufficient resources to fully understand the extent of this impact on their future business performance.”

Natural resource management are a problem difficult enough to handle, but corrective measures can always be applied by a suitable policy. However, addressing these risks is far more complicated when the problem spills into the arena of international law, precisely what a recent motion by a South African court has caused.

The South African high court has just gone out on a limb and carried a motion which may prove disastrous to the share of global trade which South Africa depends on, as an entrance point to the continent. Despite being technically incompetent on the matter, which is under UN jurisdiction, the local branch of the Port Elizabeth high court acquiesced, to everyone’s surprise, a demand from the Polisario Front to seize the Cherry Blossom, a cargo ship loaded with phosphate from Western Sahara. The Front wishes to pressure Morocco and support its land claims over the desert strip, and emitted a request the High court to seize the ship to strongarm Rabat into evacuating its business operations from Western Sahara. The Polisario front is an armed separatist movement which has been trying to gain sovereign control over Western Sahara since the 1970s. The court’s decision also effectively holds the shipowner hostage in South Africa, where the Cherry Blossom had initially only stopped for refueling.

M. El Khalfi, spokesman for the Moroccan government, described the seizing of an international case by a local court as “contrary to international law”. Regardless of the validity of the Polisario’s claims, and therefore of South Africa’s support, and of the legality of Pretoria’s decision, investors are likely to be driven out of the country. The perspective of having millions of tons of cargo seized as a leverage in international disputes (which are known to remain unresolved for decades - as this one is) is high on the list of deterrents for international investors. New Zealand media RNZ (where the ship was bound) reportedA court in South Africa ruled overnight that the ship would have to stay there while two groups argued for either the cargo or financial compensation. Ballance Agri-Nutrients (the end client - editor’s note) chief executive Mark Wynne said the court's decision was very disappointing. "The determination from the court means the vessel is likely to stay in South Africa for a very long time unless we discharge cargo or pay a bond. That's the next step.”  Few things will send business out of the country in droves bigger than this.

Until today, South Africa has been the economic champion of the continent. But the relative period of stability in Africa has been synonymous with economic expansion. The deep phase of business unrest and worry which has started in South Africa may well be the occasion of new champions taking over.