South Africa Economic Outlook - October 2024
Improved near-term economic prospects for South Africa
Financial markets and business surveys reflect greater optimism about the country’s post-election business environment
Johannesburg, 28 October 2024 — PwC South Africa’s Strategy&[1] is pleased to share its tenth South Africa Economic Outlook report for 2024. This edition looks at several perspectives on the current state and near-term outlook for the South African economy, its operating environment, and industry-level prospects.
Global financial markets show improved sentiment towards South Africa’s economy since the formation of the Government of National Unity (GNU). The Johannesburg Stock Exchange (JSE) All Share Index gained 15.2% in Q3, the rand appreciated to close to R17/$ in late September and government bond yields fell to the lowest level in three years. Elsewhere, key publications on domestic business activity and sentiment show that expectations for business conditions in the short term are at the highest levels in several years.
This improved outlook for the economy is good news ahead of the Medium-Term Budget Policy Statement (MTBPS) being issued on October 30. Based on tax receipts in the fiscal year to date, PwC expects the finance minister to announce a tax revenue shortfall of between R25bn and R35bn for the current fiscal year after accounting for an expected tax windfall from two-pot withdrawals. The improved economic outlook could help reduce this expected revenue shortfall if a stronger economy generates more tax than expected during the remainder of the 2024/2025 fiscal year.
[1] Strategy& is PwC’s global strategy consulting business, and the only at-scale strategy business inside a professional services network.
“The sentiment in global financial markets has been notably more favourable towards South Africa since the formation of the GNU which has continued to strongly drive economic reforms set in motion by the previous administration. Asset appraisals have shown positive momentum in recent months on the back of growing optimism of what the multi-party government could mean for the economy. As such, the outlook for companies whose earnings are predominantly linked to the South African economy has improved significantly over the past several months.”
The Cabinet of the seventh administration includes 10 political parties representing 72.0% of the vote from the May 2024 elections. Business leaders and financial market investors have welcomed what this diverse body of voices and range of approaches to solving our societal challenges could mean for the country. From a public-private cooperation perspective, South Africans also expect continued progress from the collaboration between organised business and government on key matters surrounding energy, logistics and crime.
“Our people have seen the hard work done by the country’s business sector to help rebuild the economy during some of our biggest recent challenges, including COVID-19, electricity load-shedding, challenges to efficient port and railway service delivery, and the burden of crime and corruption. South African CEOs have recommitted to supporting the government in the next phase of our public-private partnership. We will support the GNU in implementing the reforms needed to accelerate economic and employment growth towards a more prosperous South Africa.”
The second phase of the Government Business Partnership was launched early in October, signalling a continued public-private working relationship under the GNU to drive necessary economic reforms. According to modelling by the Bureau for Economic Research (BER), important reforms in energy, logistics, crime and other areas could boost South Africa’s real GDP growth to 3.3% in 2025 if these reforms are implemented immediately. PwC estimates that this level of economic growth could create 470,000 jobs next year. This, we believe, would result in the unemployment rate declining substantially in 2025 to 31.4% from 33.5% in 2024Q2.
It is also important to consider what South Africa needs to boost economic growth over the long term, and not just in the immediate future. PwC previously commented that improving the electricity situation, ensuring that South Africa has the correct skills base to address the needs of the labour market, and increasing private sector investment is needed to boost long term economic growth. Under a reform-focussed scenario, these changes could lift South Africa’s potential long term economic growth rate to above 4.0% per annum over the next decade.
In our Economic Outlook report, PwC South Africa’s mining, manufacturing, construction, retail, transport and real estate leaders reflect on the short-term outlook for their industries. For example, prospects for the manufacturing sector heading towards 2025 have improved as global demand conditions turn positive, and as the start of the interest rate cutting cycle suggests less pressure on local consumers in the short to medium term. The post-election political climate is also seen as being favourable to increased fixed investment in the industry. According to Statistics South Africa, turnover at manufacturing companies increased by 9.3% year-on-year in the second quarter, on the back of strong growth in automotive-related sales. (For more on the outlook for manufacturing, please see our just-released South Africa Manufacturing Analysis 2024 report.)
Elsewhere, our recently published flagship report ‘SA Mine 2024: Beyond mining‘ commented that mergers and acquisitions (M&A) activity in the local mining sector is expected to remain robust going forward. The industry has experienced a hive of M&A activity in the past year with key drivers including: 1) the quest for copper and other strategic minerals; 2) broader consolidation and operational synergies; as well as 3) diversification and strategic realignment to create shareholder value. Miners are responding to increasing demand for metals required for the world to transition to a low-carbon economy: copper, for example, is a vital component of renewable energy technologies.
Our new blog ‘Opportunities and challenges for growth in the business services sector in 2024’ notes that the business services sector—which encompasses a broad range of industries like business process outsourcing (BPO), human resource services and finance solutions—is experiencing a surge in consolidation. We believe that successful M&A strategies in 2024 and beyond will be those that align with South Africa’s broader goals of sustainable and inclusive economic growth. It requires companies to look beyond short-term financial gains and consider the long-term social and environmental impact of their transactions. This is also known as the triple bottom line: profit, people and the planet.
“Transparency and stakeholder engagement are critical to navigating the complexities of South Africa’s investment landscape. Companies that engage with regulators, employees, clients and communities early in the transaction process are more likely to achieve successful outcomes. This proactive approach can help identify and address potential challenges, build public trust and ensure that company investment contributes to South Africa’s economic transformation.”
Key content in this report includes:
- The good news story: A more favourable perspective about post-election Mzansi
- Industry-level prospects: Our industry leaders reflect on the near-term outlook for their sectors’ operating conditions
- Righting the ship: What the government and private business are doing to reach 3.3% economic growth
- Investment decisions now: Highlighting M&A considerations in mining, insurance and business services
- How we can help: Economic perspectives, industry-level insights and M&A services
