Amid economic hardships, investors see opportunity in South Africa
The South African economy has had its roughest downturn over the last three years, and despite ranking fairly well against fellow emerging economies in the BRICS block, the persisting challenges continue to threaten hopes of a thriving economy.
These rough times the economy is experiencing has also seen business withholding capital and some redirecting it to stabilizing operations by investing in alternative power supplies instead of expansions.
Previously when the same businesses were withholding capital, it was termed “investment strike” as the capital was not being redirected but simply withheld in a ‘wait and see’ silent protest.
Both scenarios have the same impact but this time the money is being invested in a different sector of the same economy.
This is a clear indication that there is a level of confidence and optimism that business still has that was not there previously.
Government has acknowledged that central to the country’s economic problems is the failure to provide reliable electricity by Eskom.
It has also acknowledged that, unfortunately, that is not the genesis of the problem nor the only one.
The International Monetary Fund (IMF) warned as early as last year that South Africa’s economy might not register a positive growth because of the electricity issue.
The IMF also projected the real GDP growth to decelerate sharply to 0.1% in 2023 mainly due to a significant increase in the intensity of power cuts and the weaker commodity prices.
The electricity challenge alone has pulled a handbrake on any hope of reasonable economic growth, and that has seen South Africa losing its edge as a flourishing emerging market.
Internally, the country has to contend with a shrinking economy (GDP shrunk by 1.3 in the last quarter of 2022), high unemployment rate of almost 50%, youth unemployment and long-standing high level of inequality.
When all expected the economy to dip into a recession over the last few years, strong crop exports have managed to save the economy on more than one occasion in the recent years (Agriculture grew by 19% in the third quarter last year) but with the power supply problem persisting, even that strong sector is being dragged down.
Though a bit high, government effort also contributed to saving the country from collapse. South Africa’s national debt in relation to gross domestic product (GDP) has grown from 69% in 2020, 68.98% in 2021, 67,99% in 2022 and up again to 70.73%.
The gross loan debt has skyrocketed to just over R4.3 trillion, almost double of the R2.5 trillion in the 2017-18 financial year. The debt is owed to a cocktail of creditors including IMF, New Development Bank (BRICS Bank) and the World Bank.
As bleak as the picture might look, South Africa’s economy is still the most diverse and developed in the continent. In fact, along with Angola, Ethiopia, Nigeria and Kenya, South Africa was one of the best-performing economies in Africa in 2022.
Our economy still boasts an estimated 12% of Africa’s overall GDP, more than 50% of the GDP is made up of imports and exports are very ‘trade-friendly’ while at least 35% of our GDP is Foreign Direct investments (FDI).
Despite the economic challenges of recent years, exacerbated the energy crisis, and resultant economic hardships, South Africa remains the most industrialised and diversified economy in Africa.
It also boasts modern communication, banking, road and general logistics infrastructure that is unmatched, and has the requisite economic fundamentals to accelerate economic growth as many global markets begin to emerge from several difficulties.
Stellantis, the world’s third largest auto manufacturer by sales and the owner of brands including Fiat, Peugeot, Citroen and Jeep, plans to manufacture and sell a million vehicles from the proposed plant by 2030, a move that would help it achieve a 70% regional production autonomy �` a true testament of South Africa’s resilient economy.
Though our saving grace over the last few years has been our strong and highly developed mining and agriculture sectors, the country still has very resilient and highly competitive industry and services sectors.
These along with manufacturing, wholesale and retail trade, financial services, transport and tourism remain the country’s economic engine sectors.
Our economy, though the third largest in the continent, remains the most industrialised, technologically advanced and most diverse in Africa. And we are one of only eight upper-middle-income economies in the continent.
South Africa, when compared to its emerging market peers, has also fared very well in the post-Covid period and slightly avoided a recession twice.
This can be credited to the government’s Economic Reconstruction and Recovery Plan (ERRP), which was crafted to rekindle economic activity post-pandemic in a manner that ensures sustainability, resilience and inclusiveness. The ERRP is also an opportunity to create a crop of new black industrialists.
To achieve this, the ERRP also aims at diversifying the manufacturing base, improving its competitiveness and dynamism, increasing its participation in regional and global markets, reducing concentration levels and achieving effective transformation.
Besides the economic statistics, further evidence that investors still have a lot of appetite to deploy capital into our economy is the rate of pledges committed at the President’s annual South African Investment Conference (SAIC) that have materialised.
Since its inception back in 2018 when president Cyril Ramaphosa announced a target of R1.2 trillion investments over the five-year term, despite the unforeseen challenges of COVID-19, at least 64% (R774 billion) of the targeted pledges from 152 major businesses were made in the first three years alone.
Over the last year, many of these commitments have resulted in the companies that made those commitments investing in new factories, call centres, solar power plants, undersea fiber optic cables, the expansion of production lines and the adoption of new technologies.
Importantly, these investments have resulted in new jobs and new opportunities for small emerging businesses. The investments that have flowed into the economy to date have contributed to a substantial increase in local production.
The current state of our economy only proves that South Africa is truly resilient.
When most emerging economies are barely recovering post-COVID-19, ours managed to absorb and survive the most paralysing pandemic years without slumping into a recession, or having hyperinflations that killed some sectors in other countries.
With almost all government’s plans to address all key issues already in motion, it is not surprising investors continue to flock to our shores. Mobilising over R2 trillion in new investment by 2028 to fast-track economic growth is a realistic and achievable target to attract sustainable investments to harness economic growth and create jobs.
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