South Africans have endured a tough few years, but shifts in global sentiment and improvements domestically could help the country, even if it takes a couple of years.
South Africa is currently facing high levels of inflation – most likely to average around 6% in 2023, decreasing buying power and making South Africans feel poorer. Interest rates also remain high, whilst unemployment stands above 30%.
Francois Stofberg, Senior Economist at Efficient Wealth, noted that South Africa’s GDP per capita, when adjusting for inflation, has been declining, meaning that South Africans are, in fact, poorer.
Although South Africans are partially right in blaming the political elite for the nation’s failure, there have also been global changes that have impacted South Africa’s economy.
“Since the global financial crisis in 2008/2009, rich countries have been artificially boosting their economies and markets with monetary and fiscal policy in a way that has led to a structural change in business cycles, sentiment, and valuations,” Stofberg said.
“So, while our government was failing us, the rest of the world was turning against emerging countries and their assets.”
However, he noted that the tide is slowly turning to emerging economies, with rich countries no longer able to keep their economies artificially strong.
He added that intervention in rich countries kept their economies alive, but their economic fundamentals also weakened, as GDP ratios in these countries are set to grow beyond 120% of GDP- double the rate in emerging countries.
“Companies in emerging markets have remained resilient amidst insurmountable odds, whilst many in rich countries have been kept alive by intervention,” Stofberg noted.
“A shift in the tide of sentiment is something that we can look forward to in SA, especially the hopeful remnant.”
“However, because of the manoeuvres of rich countries, the business cycle has been extended, meaning that we might have to wait a few more years.”
On the domestic front
Krutham’s (formerly Intellidex) Peter Attard Montalto also urged patience regarding South Africa’s domestic issues.
In terms of load shedding, Montalto said that 2.5GW of rooftop solar will be added in 2023, with more private projects expected to come online in 2024.
“A substantive end to load shedding (which means below about stages 2 or 3 on average) through the end of 2024 is still possible,” he said.
“Though the tail to actually end load-shedding after that is still long — and at risk given the collapse in the IPP Office and its ability to regularise utility-scale Eskom offtake procurement of generation and batteries. (The much-trumpeted announcement of preferred bidders for battery bid window 1 does not overcome it being so late.)”
He also stressed that more patience is needed in legislative reform.
“With parliament likely to take a three-month election holiday from mid-March, there are few sitting days left, and some patience will be needed to see much of this processed in the second half of this year and enacted even into 2025,” he said.
Although Montalto criticised the government’s ineptitude over not processing these Bills over the last five years, he noted that things are changing, as the new head of government business has put greater pressure on parliament to get its act in order, which has been seen with the Electricity Regulation Amendment (ERA) Bill.
“Patience is still needed to see out the unworkable current version of National Health Insurance (NHI), which is impossible to implement and to fund. If the legislation is passed in the coming days, it will do its job as an election flag and then fade,” he said.
Like the energy sector, reforms for the logistics sector also require large amounts of patience, with the reforms needing five years or so to effectively work and boost GDP.