The South African economy is navigating through turbulent waters as it confronts a trio of formidable challenges: an erratic electricity supply, a high risk of public debt sustainability, and a volatile political scene. These hurdles are casting shadows over the nation’s prospects for economic growth in the coming year, according to global financial services giant Allianz’s Country Risk Atlas 2024.
Electricity generation, or the lack thereof, is pinpointed as the primary anchor dragging down South Africa’s economic momentum. Allianz’s comprehensive analysis suggests that the unreliability of power supply is significantly hampering the operational capabilities of businesses, industries, and households alike. The anticipation of labour unions organizing strikes against the relaxation of local content requirements for new power generation capacity only adds to the complexity of the situation. Despite these challenges, the projection for South Africa’s GDP growth remains modest at +1.4% for the year.
However, it’s not an entirely bleak outlook for South Africa. The report acknowledges the resilience demonstrated by the South African economy in 2023, amidst adversities such as loadshedding, infrastructural deficiencies, and stagnant employment rates. Positive economic indicators included a declining trend in insolvencies and a strengthened external position, buoyed by disciplined fiscal management and robust tax collection efforts that have helped stabilize the government’s debt-to-GDP ratio.
Moreover, South Africa’s ability to withstand external shocks, supported by a healthy reserve of international funds covering about six months of imports, a flexible exchange rate, and minimal foreign currency external debt, paints a picture of underlying economic resilience.
The global context in 2023 saw a wave of economic upgrades across 21 nations, including emerging markets like South Africa, which were lauded for their ability to weather global upheavals. This contrasted with the downgrades of four economies, reflecting the varied economic landscapes and challenges faced worldwide.
According to a report by ESI Africa, Africa, in particular, experienced the most upgrades, signaling a continent on the move, despite grappling with liquidity and market access issues in an increasingly tight global financial environment. Allianz’s report underscores the critical juncture at which South Africa and the broader African continent find themselves, with the potential for further advancements or setbacks in the economic domain largely hinged on the effectiveness of ongoing fiscal and monetary policies.
