Things that are going right for South Africa

Despite a turbulent global landscape marked by Donald Trump’s return to the US presidency and escalating geopolitical tensions, South Africa’s economy is showing signs of resilience and potential for growth in 2025.
Several factors are contributing to this cautiously optimistic outlook, including the fading impact of load shedding, a more stable political environment under the Government of National Unity (GNU), and attractive valuations in local equity and fixed-income markets.
This is according to Momentum Investments’ market and economic outlook for January 2025.
“Several fundamental drivers for the South African economy and asset classes have now become clear tailwinds, including the fading impact of load shedding and optimism that accelerated policy reform implementation will push growth higher,” said Sanisha Packirisamy, Chief Economist at Momentum Investments Group.
The report highlights the significant progress made in addressing the country’s energy crisis.
Loadshedding has been absent since March 2024, thanks to improved Eskom power plant performance and the increasing adoption of solar energy solutions by businesses and households.
This turnaround in the energy sector is a major boost for the South African economy, removing a significant constraint on growth.
“The fading electricity generation problem has positive implications for South Africa’s equity and bond markets,” said Packirisamy.
She added that for equities, the combination of a better-performing economy and lower generator fuel costs should support higher company profits.
Additionally, South African bonds could benefit from better fiscal numbers due to a higher corporate tax take, lower Eskom bailout risk and lower country debt default risk,” the report explains.
The formation of the GNU following the May 2024 elections has also instilled confidence in the country’s political and economic trajectory. The coalition government, comprising ten political parties, “has fostered collaboration on key reforms, including energy, healthcare and transport,” said Packirisamy.
These political developments, the Momentum Investments Chief Economist says, has contributed to a lower risk premium attached to South African investments.
However, she cautions that “there is room for disappointment should reform momentum slip”.
On the global front, Donald Trump’s return to the White House has introduced a significant element of uncertainty.
His “America First” policies, including proposed immigration reforms, tax cuts, deregulation, and tariffs, are expected to profoundly impact both domestic and international economies and markets.
“As Donald Trump gears up for his second non-consecutive term as president of the United States, his foreign policy initiatives, proposed immigration reforms, anticipated tax cuts and commitment to deregulation are set to impact both domestic and international economies and markets significantly,” said Packirisamy.
Trump’s protectionist trade policies, in particular, are seen as a cause for concern, as they could lead to retaliatory actions from trading partners and disrupt global trade flows.
Additionally, South African Ambassador to the US Ebrahim Rasool said that South Africa has to “reset and rebuild our relationships with the United States. It’s an admission that we have had setbacks.”
At the heart of the diplomatic strain are South Africa’s close ties with Russia and China, its case against Israel at the International Court of Justice (ICJ) over accusations of genocide in Gaza, and its refusal to condemn Moscow’s invasion of Ukraine.
Various heavy-hitting lawmakers, particularly Republicans, have strongly disapproved of these stances and are calling for a complete review of the two countries’ ties.
Packirisamy said that the Trump campaign policy package can generally be seen as reflationary, leading to higher growth and inflation for the US economy in the near term.
“However, the magnitude of the economic growth impact of these measures, even if fully implemented, is uncertain due to the disparate growth implications of the various elements of the policy basket and their differing implementation time frames,” she added.
Going forward
Despite these global headwinds, the Momentum Chief Economist said that South Africa’s economic fundamentals remain relatively strong.
Inflation is expected to average around 4% in 2025, creating an opportunity for further interest rate cuts.
“A moderated inflation outlook and stable inflation expectations create an opportunity to lower interest rates from the current restrictive territory,” she said.
Moreover, South African equities and bonds are currently relatively attractively valued, offering the potential for strong returns in the coming year.
Going forward, there are various opportunities and risks outlined by the group, which include:
Key investment opportunities:
- South African Equities: Attractive due to low valuations and potential for strong earnings growth, with a conservative 19% growth forecast for the next year.
- South African Bonds: Offer high real yields compared to developed market bonds and other emerging markets, based on recent inflation data.
Potential risks:
- Global Uncertainty: Risks from geopolitical tensions, Trump’s policies, and potential economic slowdown.
- Domestic Political Risks: While the GNU provides stability, the ability to implement reforms effectively remains a key concern.
Read: Calls to sin tax South Africa’s R1.1 trillion addiction