Construction workers wait for work at a road junction in Cape Town in June
Construction workers wait for work at a road junction in Cape Town. South Africa’s economy is now the same size it was in the middle of 2007. © Nic Bothma/EPA/Shutterstock

South Africa’s president Cyril Ramaphosa is facing increased pressure to accelerate reforms of the power and telecoms sectors in the continent’s most industrialised economy after the pandemic erased more than a decade of fragile growth.

The damaging impact of coronavirus on South Africa’s economy was made clear last week after gross domestic product in the second quarter, the height of the lockdown, fell almost a fifth year on year, a plunge so large that the level of real GDP fell to 2007 levels.

“It takes us back 13 years,” said Thabi Leoka, an independent economist. “The post-financial crisis growth has been wiped out. That is 13 years we have to go back, and try to recover.”

The reversal underlines the challenge facing Mr Ramaphosa and his ruling African National Congress as they face renewed calls to undertake reform of an economy where growth rates were stagnating and power blackouts common even before coronavirus struck.

“The contraction was at the worst end of everybody’s expectations . . . it does focus everybody’s minds on the need to implement fundamental structural reforms,” said Martin Kingston, an executive of Business for South Africa, an industry group.

With the pace of recorded infections in the country’s epidemic subsiding at under 1,000 new cases a day, out of just under 650,000 confirmed cases to date, more and more businesses are reopening.

But the scale of the lockdown collapse in GDP meant “now is the time to act quickly and boldly to place South Africa on a rapid growth trajectory . . . we will use this moment of crisis to build a new economy, and unleash South Africa’s true potential,” said Mr Ramaphosa.

Added to the president’s woes is the fact that the hole for South Africa’s public finances is even deeper than in 2007, when the country had a fiscal surplus and investment grade ratings at all three major agencies.

This year the country’s sovereign debt completed its fall into junk status, Moody’s downgraded it in March, and the budget deficit is likely to hit double digits as a percentage of a GDP.

Rampant graft under Jacob Zuma, the former president, had already contributed to what analysts said was a lost decade for investment and jobs. Since Mr Ramaphosa took over the presidency two years ago, he has been trying to turn things round. But even before the pandemic, the South African president had lost credibility after delays to reforms needed to clear blockages in the economy and kickstart investment.

Outside a liquor store in Cape Town, South Africa in August
The South African government faces renewed calls to undertake reform of an economy where growth rates were stagnating and power blackouts common even before coronavirus struck © Dwayne Senior/Bloomberg

Mr Ramaphosa had pledged off more of South Africa’s 4G and 5G spectrum this year to lower data costs, as well as urgently procuring more power supplies to relieve Eskom, the blackout-prone electricity monopoly. Both are seen as major obstacles to investment.

But the spectrum auction has been pushed back to next year and the power procurement will be too late for current blackouts. Analysts said cronies of the ANC want to lock down contracts and ownership stakes before procurement goes forward.

“If you are talking economic recovery, two of the biggest issues are about not having clarity about the spectrum, and not having energy,” said Sithembile Mbete, a political scientist at the University of Pretoria. But they are also “completely mired in politics”, she added.

Peter Attard Montalto, analyst at Intellidex, the South African research group, said that the delay to the release of mobile spectrum was “the perfect example” of what is holding South Africa’s economy back from catching up: “It is technically easy to do, but it speaks to this fundamental lack of capacity and toxic mix of vested interests.”

The failure to prioritise emergency energy supplies to relieve blackouts also shows that the economy “will get used to a slow recovery” as policymakers dither over basic reforms, he said. “There is a lot of gumming up that is going to go on.”

Even with the sharp drop in demand for power during the lockdown, this year has already had more outages than ever before. The rolling blackouts returned in the past week, as multiple breakdowns again struck Eskom’s ageing coal-fired plants.

Investors such as miners, which are particularly reliant on steady power, will question whether South Africa is the right place for investment as they look beyond lockdown to the long term, said Ms Leoka.

“As mining companies and manufacturers are opening up, they can’t do so at the speed they would like to because of the energy problems,” said Ms Leoka. “Miners are not here because of Table Mountain or Kruger Park — they are here because their investment has to make sense. You are competing with other countries.”

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