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Cape Town - The current most likely scenario for South Africa is that President Cyril Ramaphosa will be able to make the necessary changes and reforms to help economic growth accelerate to 3% by 2022, according to Christie Viljoen, an economist at PwC.
A report by PwC economists released on Monday states 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. The report presents forward-looking scenarios for the period 2018 to 2022, which it refers to as the "Ramaphosa presidency".
It is, however, critical for the country to attract foreign investment while at the same time driving economic transformation, according to Viljoen. He pointed out that this is the case for emerging markets at the moment.
PwC economists see a 1 in 4 chance that the election of Ramaphosa will have no significant impact on South Africa's economy. Currently PwC sees a 25% probability of the next five years delivering economic growth of less than 1.5%.
On the other hand, the PwC economists see a 75% probability of improved economic growth in the country over the next five years under the leadership of Ramaphosa, compared to the preceding years.
The PwC economists consider the time is right for both domestic and international investors to put money into South Africa owing to Ramaphosa's takeover of the leadership of the ANC and the government.
The report points out that South Africans, foreign investors and financial markets have welcomed recent political changes in the country, and stakeholders are currently focusing on a more positive outlook for the country’s economics and politics.
"Economic growth and investment in SA is set to rebound following several years of economic and political decline," according to the report.
"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."
5 scenarios
In the report the PwC economists consider five possible scenarios for the country's economic growth and the performance of the rand up to 2022.
These scenarios include different projections for economic growth and the exchange rate, and will have varying implications for different industries and investment decisions.
The "downside" scenario sees little to no improvement in job creation and economic growth, while the "worst-case" scenario sees no improvement in job creation and economic growth, due to limited further reforms after the new administration’s initial successes.
The "baseline" scenario (referred to as #Ramaprogress) sees more success in job-creating growth, because of notable reforms under Ramaphosa’s "New Deal" agenda. According to the economists, this would lead to real economic growth increasing to 2% by 2020 and 3% by 2022.
"As fiscal dynamics improve, no further downgrades are seen in the sovereign’s credit ratings. Meanwhile, the ANC improves its performance in the 2019 national elections and ends a recent decline in support," the report states about the #Ramaprogess scenario.
The "upside" and "best-case" scenarios see even greater reform success that accelerates economic growth even further.
5 scenarios:
(Source: PwC)
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