Nedbank believes there's a 10% chance of 'Ramaphobia': two years of a shrinking economy and loadshedding

Business Insider SA
  • Nedbank has issued a stark warning about SA's economic prospects as part of its half-year results.
  • It estimates that there's a 10% chance that South Africa is heading towards a shrinking economy this year and in 2020.
  • The most likely scenario - Ramareality - includes a Moody's downgrade.
  • For more stories, go to

Nedbank used the announcement of its half-year results to issue a stark warning about South Africa’s future.

The bank - which saw a 2.6% increase in headline profit, with a sharp increase in bad debts that had to be written off - said the SA economy performed worse than expected in the first six months of 2019. It now expects growth to reach only 0.5% this year.

“Significantly more urgency is required with the implementation of structural reforms to stem the economic and fiscal deterioration currently being experienced in the SA economy. If we are unable to do this, all the hard work done on maintaining our last investment grade rating from Moody´s will be in vain, at great cost to all South Africans as a result of higher inflation and higher interest rates, as well as lower growth and lower levels of employment than would otherwise have been the case,” Nedbank said in a statement.

It now estimates that there’s a 10% chance that South Africa is heading towards a “Ramaphobia” scenario

In this scenario there is significant conflict with the anti-Ramaphosa faction and the fight against corruption loses momentum. Structural reforms fail, there are more credit rating downgrades, loadshedding continues and there’s no progress on a turnaround at Eskom. Populist pressures cause ""unfavourable" outcomes and the land issue leads to rising tensions and social discontent.

In a Ramaphobia scenario, the economy will shrink this year and in 2020, and inflation will reach 6.4% next year.

Other scenarios that Nedbank thinks could play out:

Ramaphoria – 30% probability

How this plays out: government implements a structural reform agenda and find solutions for land reform without a negative impact on confidence. Public finances improving and there’s a turnaround at Eskom.

Growth reaches 2.3% next year.

Ramareality – 50% probability

Moody’s downgrades South Africa to junk, but this does not have a massive impact on the rand and bonds as international investors stick to SA’s high interest rates. There’s limited structural reform and the fight against corruption continues. The debate around land and the SA Reserve Ban continues with no immediate resolution. There’s a deterioration in Eskom’s finances, with ongoing bailouts and limited progress in turning the utility around.

Growth remains stuck at 0.5%, and only reaches 1.6% next year.

There is also a “mild-stress scenario”, with a probability of 20%.

Source: Nedbank

Nedbank warned that progress on structural reforms and policy certainty is too slow.

Source: Nedbank

It expects that credit growth in the economy will only be 5.4% this year, from 5.2% last year. Even under the Ramareality scenario, it expects credit growth to accelerate to 6.9% next year.

Nedbank reported a jump of a third in the losses it had to write off due to unpaid debts – its credit loss ratio (which measures debts that had to be written off expressed as a percentage of total loans and credit). Still, the ratio is still not as high as in 2015, when it reached 77%.

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