African business, politics and lifestyle
South Africa’s slow recovery strikes home
Three hours before South Africa’s central bank delivered a surprise interest rate cut, me and my wife stood on the grass outside our house while an auctioneer held a forced sale that could have driven us and our children from our home.
We are tenants – it was the landlord whose house had been repossessed – and a buyer was found who was ready to keep the lease.
But it was a shock to have been given 48 hours notice that the house was to be sold and even more to hear the auctioneer announce that if there were no bids for the house with the lease, the trustee had every intention of trying to evict us by June.
We would undoubtedly have had a lot more options than many of the South Africans suffering as a result of the crisis, but for a foreigner it brought very close the reality of the slow pace of recovery from the first recession since the end of apartheid.
Our landlord had not been alone in buying multiple houses as prices kept going up. But as in many other countries, when interest rates rose and house prices fell, owners found it harder to pay back loans and selling the properties could no longer cover the costs of the original loans.
The global downturn hit South Africa much harder than poorer parts of the continent. The fact that credit had become much easier in recent years and a whole new swathe of society had got used to borrowing meant people were much more exposed when tough times came.
South Africa officially exited recession in the third quarter of last year, but the pace of the pickup has been slower than elsewhere and has been primarily driven by production, with consumers remaining under strain. That said, domestic spending increased in the last quarter of 2009 for the first time since early 2008.
“Despite clear signs that the economy has emerged from the recession, the pace of recovery is expected to remain slow,” said Reserve Bank Governor Gill Marcus as she announced the cut in interest rates, made easier by the fact inflation fell back into the 3-6 percent target range in February and is expected to remain there for some time.
The cut should somewhat appease the government’s labour union allies, who have long-clamoured for more cuts, saying domestic rates are still relatively high, making life hard for debt-ridden South Africans. But for many South Africans, its impact will still be limited and it is uncertain whether there will be more room for further cuts.
“Whether this will be enough to create the conditions for a more robust turnaround remains to be seen,” commented Razia Khan, Head of Macroeconomics and Regional Head of Research for Africa at Standard Chartered Bank.