Financial institution PwC believes that President Cyril Ramaphosa holds the key to unlocking economic growth and investment in South Africa, which it says is set to rebound following several years of economic and political decline.
“The country remains a promising investment destination with a bright future, and retained many strong fundamentals and positive factors for investment in spite of the above-mentioned declines. The country is certainly in a better place now than where it was when previous rating actions took place in late-2017,” a PwC report released on Monday stated.
In the report, titled ‘Investment decisions: Why South Africa, and why now? Forward-looking scenarios for the Ramaphosa Presidency (2018–2022)’, PwC economists forecast a 75% probability of improved economic growth in South Africa over the next five years under his leadership compared with the preceding years.
PwC economist Christie Viljoen noted that similar to other emerging markets, the country had a critical need to attract foreign investment, while driving economic transformation. “At the time of writing this report, the most likely scenario was that President Ramaphosa would be able to make the necessary changes and reforms to help economic growth accelerate to 3% by 2022.”
The PwC report argued that the time was right for investing in South Africa, for both domestic and international investors, as Ramaphosa took leadership of the ruling African National Congress and government.
“There is a high probability that the South African economy will be in a much healthier position over the next five years compared to the start of 2018.”
South Africa experienced a decline in economic and political conditions under the administration of former President Jacob Zuma, but was nonetheless able to hold on to some key strengths.
PwC stated that the country’s citizens, foreign investors and financial markets had welcomed the recent political changes, and that stakeholders were focusing on a more positive outlook for South Africa’s economy and politics.
PwC considered five scenarios under Ramaphosa’s Presidency, noting that these were pathways to different potential future states by 2020. “The scenarios enable the reader to look backwards from 2022 at the potential pathways that South Africa followed in the preceding five years,” Viljoen added.
From a quantitative perspective, the scenarios provide projections for economic growth and the rand exchange rate.
The outlook for gross domestic product (GDP) growth this year was still opaque owing to the uncertainties about how quickly Ramaphosa could implement his reforms, commented Viljoen.
The ‘downside’ and ‘worst-case’ scenarios see little-to-no improvement in job creation and economic growth, respectively, owing to limited reforms after the new administration’s initial successes.
The ‘baseline’ scenario – titled #Ramaprogress – sees more success in job-creating growth, based on notable reforms under the President’s New Deal agenda. This translates into real GDP growth rising to 2% in 2020 and 3% by 2022.
As fiscal dynamics improve, no further downgrades were seen in the sovereign’s credit ratings.
The ‘upside’ and ‘best-case’ scenarios factor in even greater reform success that should accelerate economic growth even further.