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A government survey released in January found that black South Africans, who make up 80% of the population, earned only  one-fifth of what whites did in 2015.
A government survey released in January found that black South Africans, who make up 80% of the population, earned only  one-fifth of what whites did in 2015.

S. Africa’s Troubled Economy Facing Turbulent Times

Growth has been on a steady decline since the end of 2010 while unemployment continues to hover around 25%

S. Africa’s Troubled Economy Facing Turbulent Times

South Africa, once a standout emerging market economy, is caught in the middle of a political hurricane that's adding impetus to a downward economic spiral.
A week after chaos erupted at his annual speech—which resulted in soldiers having to be summoned to parliament—President Jacob Zuma appears increasingly isolated politically. A growing number of investors say that is proving to be a distraction from what requires Zuma's urgent attention, namely the economy, CNBC reported.
Zuma's political turmoil is taking place against a backdrop of sky-high unemployment, stagnant growth and a credit rating dancing on the edge of junk. Since last year, Zuma's government has pulled out all the stops to avert a possible downgrade, but the country's turbulent politics have complicated his task.
With the South African Reserve Bank schedule to meet next on March 30, market analysts are widely expecting the central bank to keep rates at 7%, in order to help curb higher-than-expected inflation.
"South Africa's economy is looking weak at best," Clayton Fresk, a portfolio manager at Stadion Money Management told CNBC in an interview. "Growth has been on a steady decline since the end of 2010 while unemployment continues to hover around 25%."
The banking sector is also under pressure, as the number of over-extended consumers rise and investors remain on the sidelines. Low economic growth across the country, coupled with high household leverage remain a persistent risk for the country's banks, according to S&P Global Market Intelligence.
Risks For Domestic Banking  
S&P Global expects economic growth in South Africa to improve to a modest 1.4%, up from a near lifeless 0.5% performance in 2016.
At the same time, the justification for rate hikes that would normally lure investors in search of higher returns is diminishing. Price pressures are running above the comfort zone of the SARB.
"As a result, we expect the downside risks will continue to lie dormant for the domestic banking sector," Matthew D. Pirnie, a Johannesburg-based credit analyst with S&P Global wrote in a note to clients recently.
There are a few bright spots, analysts say. South Africa "is much less commodity-dependent than other large African economies such as Egypt and Nigeria," according to the Stadion's Fresk. Meanwhile, the rand—South Africa's official currency—surged to its highest level in more than a year after inflation data beat expectations.
Still, Fresk told CNBC the country's overall situation remains "dire," a sentiment echoed by other observers troubled by Zuma's weakened political clout.
Domestic political tensions are expected to remain high this year, as Zuma's African National Congress heads toward its leadership conference in December. That is when a successor will be chosen ahead of general elections in 2019.
Sharp Inequality 
Faced with rising discontent over the economy among black voters, the government is weighing something more common in developed economies: a national minimum wage.
Late last year, a government panel recommended about $260 a month, or about $1.50 an hour—a small amount even in South Africa, but close to the median income in a country where the official unemployment rate is 25% and nearly half the population lives in poverty.
Last week, the nation’s deputy president, Cyril Ramaphosa, endorsed the panel’s recommendation, vowing that the minimum wage would be in effect by May 2018. But in such a sluggish economy, opponents contend that the effort would destroy jobs, especially for the least skilled.
Supporters counter that a minimum wage is the only way to reduce poverty in one of the world’s most unequal societies, helping to dismantle an apartheid-era system designed to provide cheap black labor for an economy dominated by the white minority.
Wealthy communities with living standards equal to those in the West and inhabited disproportionately by whites rub shoulders uneasily with desperately poor townships. A government survey released in January found that black South Africans, who make up 80% of the population, earned only one-fifth of what whites did in 2015.

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