South Africa—Energy crisis raises economic, social and political risks
World Risk Developments March 2023
After real GDP contracted more than expected in Q4 2022, South Africa’s economy is now smaller than pre-COVID-19 levels. The South African Reserve Bank forecasts economic growth will fall from 2% in 2022 to 0.3% in 2023, rising to just 0.7% in 2024 and 1% in 2025, lagging well behind population growth.
The bleak economic outlook reflects ailing power infrastructure. Electricity outages have occurred every day so far this year, after record power was shed from the grid in 2022 (Chart). President Ramaphosa has declared a national state of disaster calling the energy crisis ‘an existential threat to the economy and the social fabric of our country’. However, renewed efforts to shore up state utility Eskom are unlikely to restore stable supply this year. Additional economic headwinds stem from transport bottlenecks, weak local governance, endemic crime and corruption and high government debt. The economic outlook is also at risk from a global trade slowdown and any renewed downward pressure on the exchange rate that fuels inflation. South Africa was grey listed by the Financial Action Task Force this month, potentially eroding efficiency and raising transaction and compliance costs for the economy.
South Africa is the most unequal country in the world, according to the World Bank, and a third of South Africans are unemployed. In this context, weaker delivery of public services and rising poverty will increase the risk of further social unrest. Indeed, a weeklong strike by the National Education, Health and Allied Workers’ Union was held this month. Economic woes may also cost the ruling African National Congress its majority in 2024 polls, increasing political uncertainty in Africa’s most developed economy and Australia’s largest African export market.