South African's government has, in the past, said the country has a good story to tell.... However, the current economic reality is somewhat different, according to Ian Cruickshanks, Chief Economist, Institute of Race Relations.

Cruickshanks was speaking at the SWIFT Business Forum South Africa 2016 hosted in Johannesburg under the theme Facing Economic Reality, focused on trends facing the economy of South- and Southern Africa.

The forum delved into the fact that while Nigeria's status as Africa's leading economy in 2014 was recently reclaimed by South Africa, the local economy is battling to keep up with East African counterparts.

Cruickshanks said that based on current data, the country is facing its greatest period of economic uncertainty since 1994, and is entering what he described as "our own discomfort zone".

According to statistics raised in his presentation, Africa contributes 3% to global GDP and is awaiting commodities cycle upturn, while South Africa's contribution is less than 1% and is also awaiting commodities cycle upturn, along with Africa's upturn.

Cruickshanks also referred to an Ernst & Young report on the Sub-Saharan African business environment. According to the report and in terms of ease of doing business South Africa was ranked 2nd in Africa and 35th globally, while Nigeria secured 19th position in Africa and 133rd globally. Kenya was positioned in 12th spot in Africa and 109th worldwide.

Under 'corruption perception' South Africa achieved 8th position in Africa, and 64th worldwide, while Nigeria was placed in 37th position on the continent and 143rd internationally. Kenya was ranked in 44th position in Africa and 154th worldwide.

An unstable labour force, crime, corruption and inadequate service delivery were listed as among South Africa's main challenges to its economy.

De-risking

According to a report by SWIFT, a global member-owned cooperative and provider of secure financial messaging services, de-risking is on the rise in several African countries.

South Africa lost more than 10% of its foreign counterparties between 2013 and 2015. In Angola the decline was even steeper, with the number of foreign counterparties dropping by 37% in two years. Mauritius has also seen a sharp decline of 18%.

The data shows that Nigeria's international banking network has experienced limited de-risking. However, local banks have at the same time been cutting their own relationships with other African banks and financial services providers perceived to be risky, such as bureau de change and money transmission companies.

The report looks at some of the potential consequences for the affected countries. These include a significant impact on cross-border trade if countries are cut off from the global financial system. This could lead to issues with the supply chain.

"De-risking creates problems along the supply chain, making it difficult to import and export goods.

This will have a direct impact on levels of poverty and unemployment," says Pattison Boleigha, Chief Conduct and Compliance Officer at Access Bank.

There could also be difficulty in accessing some products and services such as international wire transfers, cash management services and trade finance. If traditional banking channels are no longer available, transactions are likely to be forced into alternative channels, which may be less well regulated.

"We could see serious funding gaps emerging, exacerbating an already fragile situation in most markets, says Bleming Nekati, Chief Trade Finance Officer at the African Development Bank. "This will negatively affect the viability of projects and have the effect of slowing down the development drive in Africa. In addition, the increased costs of funds will inevitably be passed on to the end borrowers."

Additionally, de-risking could have a negative impact on financial inclusion rates on a continent where huge proportions of the population are unbanked. Typically it is the smaller, local banks that are de-risked; those that are providing services to local communities. Therefore de-risking could adversely impact the services available to the poorest in society.