The biggest risk to South Africa right now, according to Absa


Banking group Absa has released its latest quarterly outlook for Q3 22, stating that against a backdrop of rising inflation, rising unemployment and an increasingly desperate struggle for control within the ANC, the potential for civil unrest in South Africa has increased.

“The most troubling downside risk to our baseline forecast is the potential for another outbreak of violent social unrest,” it said.

Peter Worthington, a senior macroeconomist at Absa, said obstacles in the form of weak bureaucracy — which stand in the way of aggressive reform — expose major downside risks in the country.

He said Absa’s forecast for South Africa’s future economy is uncertain, and if the country cannot have positive growth, the possibility of social unrest remains.

Last year’s turmoil continues to take its toll on South Africa’s economic growth. The riots that broke out in KwaZulu Natal and parts of Gauteng in July 2021 killed more than 350 people and injured thousands, with an economic cost of more than R50 billion.

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Absa noted that the riots are putting a lot of pressure on government spending, with the South African Special Risk Insurance Association (SASRIA) paying out to cover business losses. The banks said SASRIA must now be recapitalized.

Looking ahead, this upward pressure on spending still exists. After pay increases in the public sector and the potential for further bailouts for state-owned companies, the fragile socio-political situation that could lead to unrest is the third biggest risk to spending, Absa said.

“It is, of course, almost impossible to quantify the precise probability of such an event and its timing and scale,” Absa said. However, it warned that the impact of the turmoil goes beyond direct economic costs.

“Another downside event of this nature, following last July’s civil unrest, would drastically cut investment, undermine the currency, increase fiscal pressure and weigh on credit,” the bank said.

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Absa is not alone in sounding the alarm about the unrest. Finance Minister Enoch Godongwana warned earlier this month (July 14) that deteriorating services at the municipal level are likely to lead to increased instability and protests in the country.

Godnongwana said that while much of the 2021 riots were undoubtedly caused by criminal elements, it found fertile ground in the desperate economic situation many South Africans faced.

The finance minister’s sentiments were echoed by former President Thabo Mbeki, who said the government’s failure to address inequality and high unemployment and improve the lives of the people of South Africa has led to growing frustration among South Africans. the population.

“You can’t have so many people unemployed, so many people poor,” he said. “One day it will explode.”

Professional service provider PwC. said current economic conditions are worse than at the time of the 2021 riots, providing fertile ground for a repeat of events.

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“Both unemployment and inflation are currently higher compared to levels during the turmoil in July 2021. In addition, research by the Bureau of Economic Research shows that consumers’ expectations for their household finances in the first quarter of 2022 were more positive compared with their outlook for the economy,” the group said in April.

“This mismatch between expected financial conditions and the economy’s ability to meet these expectations contributed to last year’s turmoil. Considering all these factors, as well as the upward momentum in union wage and salary expectations for 2022, there is ample reason to be concerned about social stability in South Africa.”

PwC added that the eventual introduction of a basic income grant – or a similar money transfer tool – could come too late to quell these social pressures.

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