‘Without fast, equal growth, S.A risks more unrest’

SOUTH Africa’s central bank said on Wednesday that the risk of severe civil unrest could intensify without faster and more equitable growth, while widespread looting and protests in July had probably already dented the economy and investment prospects.

South Africa endured some of its worst violence in years in July as protests following the arrest of former President Jacob Zuma spread into looting, arson and an outpouring of general anger over the hardship and inequality that persist 27 years after the end of apartheid.

In its biannual health check of the financial system, the South African Reserve Bank (SARB) said that while this had dissipated before becoming a threat to financial stability, it could dent South Africa’s economic recovery and weigh on its appeal to investors.

“In the absence of faster and more and more equitable growth over the medium-term, the risk of further unrest could intensify,” it warned.

The July trouble had already helped push levels of fixed investment to an 18-year low, cost banks alone over 1.2 billion rand ($75 million) in damages, and weighed on the already financially stressed government via its state-owned insurer SASRIA, the only one in the country covering political violence.

The cost of covering such events was now likely to rise, it continued.

The SARB also flagged a number of long-standing risks to financial stability, like high levels of government debt, and some new ones, such as the risk certain funds could struggle to meet en-masse redemption demands from investors driven by shifts in global financial conditions.

However, all significant banks passed its latest stress test, it said, and capital levels remained resilient even in its adverse scenario.

For the first time, the SARB also requested banks to assess the capital impact of a severe drought as an add-on to its adverse scenario. The ultimate impact of this on banks’ core capital adequacy ratios was a deterioration of roughly 30 basis points, it said.

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