The big problem for South Africa keeping Standard Bank’s CEO up at night
South Africa is facing the risk of losing its position as Africa’s most developed economy as it struggles with slower economic growth compared to its continental peers.
This concern is shared by many, including Standard Bank CEO Sim Tshabalala, who warns that South Africa’s sluggish growth could lead to missed investment opportunities as companies and investors seek better returns in faster-growing African markets.
The International Monetary Fund (IMF) has forecasted South Africa’s GDP growth at just 1.2% for 2024, significantly below the continent’s average of 4%.
Isaah Mhlanga, Chief Economist at Rand Merchant Bank, said that South Africa’s sluggish growth is rooted in long-standing structural issues that need more than temporary solutions.
“Investors are naturally drawn to regions showing more dynamic growth.”
David Shapiro, an investment strategist, added that investors are increasingly looking toward high-growth African economies.
“While South Africa remains a key market, its current trajectory does not offer the same opportunities as countries with stronger growth outlooks,” he said.
Other African countries, such as Kenya, Nigeria, and Ghana, are expected to experience stronger economic expansion driven by improving infrastructure, political reforms, and foreign investment.
This growing gap is prompting investors to rethink their strategies, with many diversifying into more dynamic African economies.
Tshabalala is clear about the risks this poses.
He points out that South Africa’s slow economic growth, combined with a lack of decisive reforms, will result in the country losing its competitive edge as an investment destination.
He stresses that Standard Bank, like many other businesses, must prioritise shareholder returns, which may increasingly mean directing investments outside of its home market.
“We’re focused on shareholder return, absolutely focused on it and on managing our portfolio of businesses with discipline,” Tshabalala said.
“The fastest-growing parts of the African continent are outside of South Africa, particularly East Africa, which is growing at an annual rate above 5%.
“You want to allocate your capital to these faster-growing regions to grow lending, insurance products, and make acquisitions.”
One of the major challenges South Africa faces is competition for capital.
As Tshabalala notes, the country is in a global race to attract the investment needed to finance its infrastructure, including projects for Eskom, Transnet, and other critical sectors.
However, other African and emerging markets are lowering investment risks and generating higher returns, making them more attractive to investors.
Tshabalala’s concerns are reflected in various reports, such as the Africa Export Competitiveness Report 2023, which shows South Africa slipping in key rankings.
While the country remains the largest exporter on the continent, it has fallen behind Egypt in export competitiveness and GDP, ranking only third in Africa for workforce output and eighth in business dynamism.
This widening gap highlights the country’s struggle to keep up with the growth of its peers.
The RMB Invest in Africa rankings show a similar trend, with South Africa dropping to fourth place after Mauritius, Egypt, and Morocco.
While South Africa still ranks first in forex stability and liquidity, it has lost its top spot in terms of economic output to Egypt.
More alarmingly, the country ranks last on the continent in GDP growth forecasts, income inequality, and unemployment—a dire outlook for potential investors.
For Tshabalala, this trajectory is worrying but not irreversible.
He agrees with RMB’s assessment that a recovery is possible, spurred by the formation of a Government of National Unity (GNU) and renewed investor confidence.
However, he cautions that investors will wait for concrete evidence that South Africa is implementing its reform plans and stabilising its many economic challenges before they commit to major investments.
“There is beauty in having a portfolio of countries,” Tshabalala said.
“South Africa is an absolute giant in the portfolio. You might say its economic growth is pedestrian, but if the country suddenly grows at 2% or 3%, then the base is significantly bigger, and it makes sense to allocate more capital to the country.”
Tshabalala’s view is that Standard Bank will follow growth and client activity wherever it emerges.
He emphasised that while South Africa remains a vital part of their business portfolio, it will continue to look for growth opportunities across the continent and beyond.
This strategic flexibility is essential in ensuring that Standard Bank and its investors continue to thrive, even if South Africa’s economic outlook remains uncertain.
Key statistics reveal the broader economic challenges facing South Africa.
The country’s economy has been stagnant over the past decade, hovering around 1% GDP growth annually.
Structural problems like persistent power outages, high unemployment, and rising inflation are holding the country back from achieving the kind of robust growth seen in other African nations.
For Tshabalala and others in South Africa’s business community, the stakes are high.
Without significant reforms and a clear strategy for economic recovery, South Africa may continue to lose ground to its continental peers. Investors will increasingly look to more promising markets, leaving South Africa at risk of falling behind in the global competition for capital.
Tshabalala believes that while South Africa faces major headwinds, a well-executed reform strategy and a return to higher growth could turn the investment landscape upside down.
If growth accelerates, South Africa could once again become a key investment hub, drawing capital back into the country and regaining its status as Africa’s leading economy.
However, until then, the focus will remain on finding growth wherever it emerges, both within and outside of South Africa.
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