South African President Jacob Zuma looks on as members of Julius Malema's Economic Freedom Fighters (EFF) party raise objections before being evicted from Parliament during his question and answer session in Cape Town, South Africa, May 17, 2016.Mike Hutchings/Reuters
The two biggest economies in sub-Saharan Africa are now officially shrinking, with South Africa joining Nigeria in suffering a decline this year.
South Africa's gross domestic product fell by 1.2 per cent at an annual rate in the first quarter of this year, much worse than analysts had expected, putting the country at severe risk of a recession this year. It also faces the likelihood of a credit-rating downgrade by the end of the year, putting it into "junk" status.
The economic decline was led by an 18-per-cent drop in South Africa's mining sector as commodity prices remain weak, its statistician-general announced on Wednesday. This means that the South African economy has dropped by 0.2 per cent over the past year.
Nigeria, meanwhile, revealed last month that its economy had contracted by a 0.36-per-cent rate in the first quarter, with analysts calling it the country's worst economic performance since the mid-1990s. Heavily dependent on oil revenue, Nigeria has been hit by falling oil prices and currency paralysis as the government refuses to devalue its battered currency.
Most recently, Nigeria has suffered a drop in oil production as militants attack pipelines and oil wells in the Niger Delta. Its oil output has dropped to a 20-year low of about 1.5 million barrels a day, down from 2.2 million barrels at the start of the year, contributing to a rise in global oil prices.
One militant group, calling itself the Niger Delta Avengers, said on Wednesday that it had blown up another oil well in the region. It also said it rejected a government offer of negotiations.
The government of President Muhammadu Buhari has floundered in its response to the Delta Avengers, who seem linked to another rebel group that had laid down its arms as part of a 2009 amnesty deal. That amnesty was negotiated by the previous government of Goodluck Jonathan, a southerner who came from the Niger Delta region. Tensions have increased under the government of Mr. Buhari, a northerner.
The economic woes of South Africa and Nigeria are contributing to a slowdown in African growth. The World Bank said this week that it expects sub-Saharan Africa to expand by just 2.5 per cent this year, down from 3 per cent last year.
"Commodity prices are expected to remain low, global activity is anticipated to be weak, and financial conditions are tightening," the World Bank said this week in an analysis of the African slump.
"Oil exporters are not likely to experience any significant pickup in consumption growth," it added. "Investment growth is expected to slow in many countries as governments and investors cut or delay capital expenditures."
The latest data from South Africa show that it faces the worst economic crisis since the 2009 recession. In addition to the decline in GDP in the first quarter, household consumption and exports also fell. And South Africa's business confidence has dropped to its lowest level since the days of apartheid, according to the latest index released by the South African Chamber of Commerce and Industry.
South Africa's Deputy President, Cyril Ramaphosa, said the news of the declining economy "highlights the singular importance of decisive action to strengthen the economy, stimulate growth and increase employment."
But one analyst, Frans Cronje of the South African Institute of Race Relations, said a recession and a ratings downgrade are nearly certain this year if the government fails to adopt new policies on mining, labour relations and foreign investment. "There is very little on the policy front to suggest that the cabinet is serious about securing an economic turnaround," he said.
Many investors and analysts are worried that President Jacob Zuma could fire his Finance Minister, Pravin Gordhan, who is seen as the country's last defence against runaway state spending, higher debt and widening corruption.
South Africa dodged a bullet in recent days when two major credit-rating agencies, S&P and Fitch, both decided to maintain their current ratings for the country, one notch above "junk" status. But both agencies warned that political infighting in the government is inflicting heavy damage on its economic policies. Some analysts believe it is almost inevitable that South Africa will fall into a "junk" rating in December when the agencies make their next review.
"Political risk has increased since the previous rating review in December, 2015," Fitch said in its review on Wednesday.
"The dismissal of two finance ministers in a week in December, and subsequent tensions between the new Finance Minister Pravin Gordhan and other parts of government, have raised questions about the commitment of the government to sustained fiscal consolidation and prudent governance of state-owned enterprises."