South Africa’s Increasing Economic Uncertainty

When looking at risks across some of the larger emerging markets nations, South Africa stands out, with a number of analysts and rating agencies increasingly ringing alarm bells. Here are some key risk factors to consider:

1. The recent labor strikes, particularly in the mining sector, have been devastating to the nation’s economy. And more strikes are on the way.

VoA: – A strike by 220,000 engineers and metalworkers has dealt major blow to South Africa’s economy. 

The labor dispute has been marked by violent clashes between police and striking workers and reports of looting and intimidation by union members. 

The strike comes just a week after settlement of a five-month-long strike by platinum workers. The walkout cost three main platinum mining firms $2.25 billion in lost revenue

General Motors South Africa halted operations last week because a strike at the parts supplier paralyzed it production (see story). Unions are becoming increasingly militant, with communist-based rhetoric often sounding like what we had heard in Zimbabwe. “Wealth redistribution” language is catching on.
 

2. The nation’s debt levels – both private and public – are rising faster than it peers. With weak currency, this problem is expected to only worsen in the nearterm.
 

Source: Fitch Ratings

3. Simultaneously banks are tightening credit in fear of rising defaults, as the consumer comes under pressure.
 

Source: Barclays Capital

4. The consumer situation has not been helped by rising inflation, which is a direct result of the South Africa’s currency depreciating over 30% during the past two years. Inflation has exacerbated demands for higher wages, leading to some of the labor strikes we see today.

 

5. The nation’s unemployment rate (officially at 25%) has worsened, and some are calling the current labor situation a “ticking bomb”.