Nov. 1, 2010 -
PRLog -- By all measures, the football World Cup hosted by South Africa can be judged a great success. Despite early scepticism, the stadiums were built on time and fans were kept safe from crime. Indeed, the South African authorities have been heaped with praise for proving to the world that South Africa - and the wider African continent - can host a world-class event. The football tournament has not only boosted pride and morale among South Africans, it has also acted as a powerful unifying force, cutting across deep-seated racial divides in a similar fashion to the famous 1995 Rugby World Cup, which was the first major sporting event to take place in South Africa after the end of apartheid. Y et, it remains to be seen whether the euphoria will last, or whether it will prove to be a temporary phenomenon, fizzling out as the harsh realities of the economy bite. Certainly, simmering tensions were exposed during the tournament, with some of the poorest members of society being excluded. The authorities have defended their actions by saying that they are capitalising on the 'once in a lifetime' chance to push through much-needed clean-up and regeneration. The objectives are clearly admirable, but it will be a long road to travel. While South Africa enjoys a relatively advanced and entrenched democracy, there are many structural weaknesses in the political backdrop. Meanwhile, the economy continues its recovery from the 2009 recession, having grown by 1.1% quarter-on-quarter (SAA ) (1.4% year-on-
year [y-o-y]) in Q110. Although the Q1 number is relatively encouraging, the consumer remains under pressure and a number of recent data points signal that some weaknesses remain in the economy. In all, it is a mixed picture, and against this backdrop, we retain our forecast for real GDP growth of 3.0% in 2010. In our view, the rate of annual economic expansion will not return to the pre-financial crisis levels of 4.0-6.0% this year owing to a weak consumer sector, a small contraction in private investment, a rebound in imports and periodic strikes affecting the export sector. The business environment remains broadly attractive. South Africa has one of the most sophisticated business environments in Sub-Saharan Africa, representing a key component of its status as a regional economic powerhouse. Strong state institutions fostering relative political and economic stability have been key in attracting foreign investors over the past several years. However, a weakened power sector has dented South Africa's image as a top investment destination and could limit foreign direct investment inflows. Furthermore, high levels of crime and an inflexible labour market will continue to constitute significant structural problems that will blemish the attractiveness of the country's business environment over the longer term.
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