Financial News

Is South Africa Sinking Like The Other BRICS?

The BRICS emerging market economies are not stuttering with China’s powerhouse growth slowing, Russia in recession and Brazil backsliding under the weight of political intrigue.

That just India and South Africa out of the original BRICS. The Indian economy is riddled with problems, but is benefiting from low oil prices as a large importer of fuel.

And now South Africa is slipping back into performing poorly.

South Africa has long stood as the major economy in the south of the continent, and where Africa goes, many other countries follow due to tight political and economic links.

South Africa once shone as an emerging economy with a strong internal market, good growth and a stable political platform.

Political glue becoming unstuck

But since the glue of the talismanic Nelson Mandela stopped holding the disparate groups together, the country has suffered.

According to Elena Tedesco, a senior analyst at fund manager Hermes, South Africa is suffering under the burden of corruption in the government, high unemployment and the worst levels of HIV on the continent.

To top this, black empowerment initiatives have failed, leaving an imbalance in wealth distribution and left investors lacking confidence that the government will not suddenly nationalise companies, especially those in mining.

“Even locals prefer to send their money overseas,” said Tedesco.

“South Africa is regarded as a social time bomb by many investors, and the uncertainty does not give them confidence that their money is safe.

Toxic mix dragging economy down

“This is damaging the country’s reputation and leaving a lack of inbound funds.2

Tedesco says she has recently visited the country and is concerned upcoming municipal elections are a battleground for the African National Congress party against many rivals, but also factions splitting the party that once dominated the political arena.

“The worry is that South Africa will go the way of Brazil,” Said Tedesco. The toxic mix of political infighting, slowing economic growth and a plunging currency could lead the country along that road unless the government takes some rapid action to regain control of the economy.

There’s still time to put things right and South Africa is not as bad as Brazil…yet.”

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