Water supply constraints will discourage investment in South Africa, economists said on Tuesday, as the world celebrates World Water Day amid a biting drought that is threatening productivity in the southern African region and other parts of the continent.
Shortages of water, which have already cut crop production in South Africa and its neighbors – Zimbabwe, Zambia and others – will further compound regional economic woes emanating from electricity shortages, currency weakness and commodity price declines.
A panel of economic analysts said South Africa’s outlook remains “dim” as the “electricity and water supply constraints will hamper growth by both interrupting production and discouraging investment” in Africa’s second largest economy.
“Moreover, a moderation in Chinese demand and low commodity prices will weigh on growth,” the analysts said.
The panel of analysts has now cut its GDP forecast for South Africa for the eighth consecutive month and now expects the economy to expand 0.8% in 2016. This represents a 0.3% percentage point downgrade from last month’s estimate.
The downgrade comes in the wake of a ratings review for South Africa which could swing the country a notch closer to junk status. Other experts believe South Africa will not manage to avoid junk status until the end of the year.
However, other regional economies had also decelerated in the 2015 fourth quarter period. The analysts said the overall deceleration for the region “came mainly on the back of slowdowns in South Africa and Nigeria, the region’s two biggest economies” as well as in Zambia and others.
Nigeria’s economy declined to 1.8% for the 2015 year and the slow-down has been attributed to “low oil prices, which led to low government revenues and severe dollar scarcity. Moreover, an exacerbation of the military conflict with Boko Haram weighed on growth.”
Continued weakness in commodity prices on global markets has prompted calls for countries such as Zambia, South Africa and Zimbabwe “to diversify and reduce their dependence” on commodities and imports.
Other more diversified economies such as Kenya have not been affected by currency weakness, with the Kenyan Shilling actually gaining 0.8% in value against the US dollar since the beginning of the year.
“On the domestic front, political uncertainty in South Africa, security threats in Kenya and Nigeria, and an electricity shortage will keep growth under potential.”
This had forced the panel of analysts to downgrade “the outlook for Sub-Saharan Africa for the fourth consecutive period,” with projections that the region will now expand 3.7% this year. This is 0.1% lower from projections issued last month.