Africa-Press – South-Africa. The firing of Finance Minister Nhlanhla Nene on 8 December 2015 marked the beginning of what many have termed a “lost decade” for South Africa.
This decade has seen an average annual economic growth rate of 0.8%, the government’s debt as a share of GDP rise to over 77%, and debt-servicing costs cross R1 billion a day.
Some analysts point to earlier moments when describing South Africa’s lost decade, such as the state’s last full budget surplus in 2007/08, the 2010 FIFA World Cup, or the election of Jacob Zuma as president on 9 May 2009.
Symmetry chief investment strategist Izak Odendaal explained that the firing of Nene and his replacement with Des van Rooyen was the moment when alarm bells really began to ring.
“It was the moment when both local and international investors realised, without doubt, that something was fundamentally wrong,” Odendaal said.
Odendaal admitted that some of what went wrong in South Africa throughout the lost decade was due to global factors, such as volatile commodity prices, a strong dollar, capital outflows from emerging markets, and the pandemic.
“However, this was severely compounded by bad policy choices, deteriorating governance, rising systemic corruption, and the hollowing out of institutions meant to check the abuse of power,” he said.
“This cast a long shadow over financial markets and the broader economy suffered in tow. In that regard, the ten-year anniversary of ‘Nenegate ‘ is significant and provides a marker to date the lost decade.”
This event had one positive in that it signalled the beginning of the end for President Zuma and the era of State Capture.
“When he fired Finance Minister Nene for resisting the looting of the fiscus on 8 December 2015, the market reaction was fierce,” Odendaal said.
“Bond prices crashed, causing a spike in government borrowing costs, and the rand slumped. Zuma was forced to backtrack on the appointment of Des van Rooyen as Nene’s replacement.”
Odendaal said the so-called “bond vigilantes” played as big a role as any other group to undermine Zuma’s power and remove him from office.
South Africa was not only downgraded by ratings agencies after Nenegate, but it was also instantly downgraded by the markets and started trading at a discount to its peer countries.
A very distinct gap opened after Nenegate that persisted for the subsequent decade. Covid hit South Africa particularly hard, and the gap widened again in 2022, even as reforms were underway.
The consequence of earlier mismanagement, notably loadshedding, a logistics crisis and elevated government debt levels, proved to be persistent.
Source: Symmetry’s Izak Odendaal
From zero to hero
South Africa appears to have turned the corner on this lost decade, with significant reform of key economic sectors and improved state finances driving improved fundamentals.
Reforms in the electricity and logistics sectors, which focus on increasing private participation in these sectors, have borne fruit and are beginning to drive an economic recovery.
South Africa has not experienced severe load-shedding since early 2024, and the performance of Transnet’s ports has stabilised and begun to improve.
The private sector is also set to play a much larger role in logistics, with companies set to operate key rail corridors and specific terminals at South African ports.
This is expected to increase efficiency and unlock billions in investment from the private sector, which is sitting on a R1.8 trillion cash pile.
These reforms have been coupled with fiscal consolidation, which is a painful process of raising tax revenue and limiting government spending.
This process is beginning to bear fruit, with the government on course to post its third consecutive primary budget surplus in the current financial year.
Odendaal said this is not a turning point in fiscal policy, but a turning point in investor perception of South Africa as a country with runaway debt.
South Africa is set to record a wider primary budget surplus of 0.9% of GDP in the current financial year, with this widening to over 2% in the next three years.
This means the government is bringing in more revenue than it is spending, excluding debt-servicing costs. It is on track to do this for three years in a row.
A primary budget surplus will result in the government’s debt pile stabilising at 77.9% of GDP in the current year before gradually beginning to decline. In effect, it halts growth in the debt pile.
With faster economic growth forecasted, the picture should improve further as Godongwana’s department remains dedicated to driving reform through Operation Vulindlela.
Coupled with a lower inflation target, the government’s debt-servicing burden should ease, freeing up more capital to spend on productive areas of the budget or pay down its debt.
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