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South Africa: South Africa Business Forecast Analysis

2011/10/13

Life After The World Cup: A Fragile Recovery

The World Cup hosted by South Africa may be considered a great success. Despite early skepticism, the stadiums have been built on time and the fans were kept away from crime. Indeed, the South African authorities have been commended for showing the world that South Africa - and the entire African continent - can host a world class event. The soccer tournament has not only boosted the pride and morale of South Africans, he also acted as a powerful unifying force, cutting through deep racial divisions in a manner similar to the famous 1995 World Cup Rugby which was the first major sporting event to be held in South Africa after the end of apartheid.

And yet it remains to be seen whether the euphoria will last or whether it will prove to be a temporary phenomenon, fizzling as the harsh realities of the economy bites. While the underlying tensions have been exposed during the tournament, with some of the poorest members of society being excluded. The authorities have defended their actions by saying they are capitalizing on the "once in a lifetime chance to push through much needed cleaning and regeneration. The objectives are clearly admirable, but it will be a long road to travel. Although South Africa enjoys a relatively advanced and entrenched democracy, there are many structural weaknesses in the political context.

In the same time, the economy continues its recovery from the recession of 2009, after rising 1.1% quarter qoq (PAC) (1.4% per annum over the period [GA]) in the Q110. Although the number Q1 is relatively encouraging, the consumer remains under pressure and a number of data points signal that some weaknesses remain in the economy in recent years. In all, it's a mixed picture, and in this context, we maintain our forecast for real GDP growth of 3.0% in 2010. In our opinion, the annual rate of economic expansion will not return to levels before the financial crisis from 4.0 to 6.0% this year due to a weak consumer sector, a slight contraction private investment, a surge of imports and periodic strikes affecting the export sector.

The business environment remains attractive. South Africa has one of the most sophisticated environments in sub-Saharan Africa, which represents a key element of its status as a regional economic power. strong state institutions on promoting political and economic stability were the key to attracting foreign investors in recent years. However, an energy sector has weakened tarnished image in South Africa as a top investment destination and could limit FDI. In addition, high levels of crime and a rigid labor market will continue to constitute significant structural problems that will stain the attractiveness of the country's business environment over the long term.
 

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