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South Africa's economy flutters, GDP to slowdown

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February 22
1:39 AM 2016

The South African economy is reeling under pressure owing to dwindling inflows of money, weaker currency, rising unemployment rate and severe drought conditions. With the slump in commodities market, South Africa's GDP growth rate is predicted to slowdown further in 2016.

The South African economy is facing alarming investment grade credit rating nearing to 2000 crisis level soon after Nelson Mandela left office. The country is not only witnessing a major challenge on domestic front and foreign trade, but also the weakening of Rand against the US dollar.

The unemployment rose is highest among 40 developing nations, as tracked by Bloomberg. The slump in commodities market more particularly metals and mining segments is taking a toll on the economy. The commodity segment was noted to contribute over 50 percent of exports.

Apart from that, the country is also witnessing growing questions about President Jacob Zuma's functioning style more particularly, the frequent changes in the Finance Ministry. Zuma, in December, fired Nhlanhla Nene and appointed a lawmaker David van Rooyen. With rand crashing and soaring bond yields, Zuma again changed positions in the finance ministry by bringing in Pravin Gordhan as Finance Minister. 

President Jacob Zuma is seeking greater participation of South Africans in developing the economy. He has called for black professionals to play a key role in nation's development by creating more number of jobs, as reported eNCA. Zuma has also been holding meetings with several organizations such as Black Lawyers' Association, the Black Management Forum and the Association of Women Chartered Accountants. 

Viktor Szabo, who helps manage $12 billion of emerging-market debt at Aberdeen Asset Management Plc, said: "The country still faces serious structural challenges and the changes at the top of the finance ministry just reconfirmed the policy risks. Things could get worse."

Hakan Aksoy, a London-based bond fund manager at Pioneer Investment Management, claimed "The trust towards South Africa disappeared." Pioneer Investment manages Euro 224 billion ($244 billion).

The South African government is taking all the possible measures to avoid the downgrading to junk and put the economy back on track. The government is controlling its spending by state enterprises and placing ceiling on expenditure. 

The gross domestic product (GDP) of South Africa is projected to be $400 billion by 2020 from $350 in 2015. The GDP growth rate is now predicted to slowdown to 0.3 percent during the first quarter of 2016 from the 0.7 percent in the fourth quarter of 2015. The annual GDP growth rate was one percent in 2015 and expected to be 0.7 percent in the first quarter of 2016, according to Trading Economics

Pravin Gordhan, South Africa's Finance Minister, is scheduled to present national budget on 24 February.

Since Mandela came to power in 1994 after winning multiracial election, the South African economy has been growing at an average of three percent. The continuous economy growth supported African National Congress in providing housing, water and electricity to millions of people. Over 16 million people received social grants. The government was also able to reduce its debt burden.

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