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South Africa: The long road to recovery

The vast potential of South Africa with its diversified economy, strong institutions and a young population, was restrained over the last decade by a combination of gross mismanagement, policy uncertainty and festering structural challenges, largely due to the administration of Jacob Zuma. Over this 10-year cycle, there was a notable decline in living standards and business confidence, and the South Africa equity market underperformed global emerging markets.

Concluding thoughts:

The conclusions drawn from our on-theground research reinforces our positive view on South Africa, as the foundations for the recovery we predicted are being laid. However, we are under no illusion about the process. The reality is that after 10 years of decline, the revival is likely to be lengthy with several bumps along the way. At the first juncture, we expect political
considerations to make the cyclical uptick develop slowly. The President will balance disparate and competing interests with a view to winning the electoral mandate necessary for the bold reforms which will open the economy and kickstart a job-led economic recovery.

Notably, gross fixed capital formation (a proxy for business confidence and investment) declined to a 10-year low as percentage of GDP in 2017, matching the extent of the fall observed after the global financial crisis of 2007-08. This suggests that the country is near the bottom of its economic cycle. Taking the plans of the companies we met into consideration, gross fixed capital formation will stay depressed over the next 12 months, but we are confident of its recovery over the medium-to long-term.