{"id":810822,"date":"2025-02-09T09:00:00","date_gmt":"2025-02-09T07:00:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=810822"},"modified":"2025-02-07T15:36:11","modified_gmt":"2025-02-07T13:36:11","slug":"the-tide-is-turning-in-south-africa-3","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business\/810822\/the-tide-is-turning-in-south-africa-3\/","title":{"rendered":"The tide is turning in South Africa"},"content":{"rendered":"\n

South Africa has long grappled with deep-seated economic challenges, from high unemployment to persistent inequality and sluggish growth. <\/p>\n\n\n\n

Stagnation, a growing debt burden, and waning investor confidence have exacerbated these issues over the past decade. <\/p>\n\n\n\n

However, as 2025 unfolds, there is a renewed sense of optimism that the country is on the brink of a turnaround. <\/p>\n\n\n\n

This is according to Old Mutual Wealth Investment Strategist Izak Odendaal, who noted that with the right conditions aligning, both structurally and cyclically, South Africa’s economy is poised for a positive shift.<\/p>\n\n\n\n

Odendaal highlighted that one of the primary drivers of this optimism is the prospect of economic growth regaining momentum.<\/p>\n\n\n\n

Structural reforms and increased investment are beginning to bear fruit, setting the stage for a more dynamic and resilient economy. <\/p>\n\n\n\n

Economic growth is fundamentally tied to capital investment, productivity, and labour force expansion.<\/p>\n\n\n\n

While South Africa has an abundant labour supply, capital investment has remained insufficient, with national investment levels falling far short of the 30% of GDP benchmark generally needed for sustained high growth. <\/p>\n\n\n\n

The consequences of this shortfall are evident in the country\u2019s struggling infrastructure, sluggish productivity, and constrained economic output.<\/p>\n\n\n\n

However, Odendaal noted that efforts to reverse this trend are already underway, particularly in key sectors such as energy, logistics, and water infrastructure. <\/p>\n\n\n\n

The unbundling of Eskom and the opening of South Africa\u2019s electricity market to private-sector participation have been significant milestones. <\/p>\n\n\n\n

Although challenges remain\u2014evidenced by occasional power outages\u2014the likelihood of returning to the crippling levels of load shedding seen in 2022 and 2023 is minimal. <\/p>\n\n\n\n

The energy sector continues to attract substantial private investment, ensuring that improvements will be sustained well beyond 2025.<\/p>\n\n\n\n

Odendaal also pointed out that logistics, another critical area of reform, is also seeing meaningful progress. <\/p>\n\n\n\n

Transnet\u2019s deterioration over the past decade has hindered economic efficiency. Encouragingly, reforms are in motion, with Transnet Rail now separated into distinct infrastructure management and operational divisions. <\/p>\n\n\n\n

The opening of rail networks to private sector operators mirrors the electricity sector\u2019s restructuring and is expected to unlock new investment and efficiency gains.<\/p>\n\n\n\n

Infrastructure investment, particularly in energy and transport, has the potential to attract significant domestic and foreign capital. <\/p>\n\n\n\n

The momentum observed in the energy sector is likely to spill over into logistics and bulk water provision, facilitating broad-based economic recovery. <\/p>\n\n\n

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Even if the political landscape shifts, it is unlikely that South Africa will return to outdated state-controlled monopolies, as the push for market-driven solutions has gained too much traction.<\/p>\n\n\n\n

The political landscape itself has been another source of optimism. <\/p>\n\n\n\n

The formation of the Government of National Unity (GNU) in 2024 signalled a new era of cooperation, albeit not without its challenges. <\/p>\n\n\n\n

Odendaal said while coalition politics brings inevitable disagreements, particularly on contentious policies such as the National Health Insurance, the coalition partners recognise the necessity of working together. <\/p>\n\n\n\n

The alternative\u2014political instability or populist economic policies\u2014is largely unappealing to all parties involved. <\/p>\n\n\n\n

As a result, the GNU is expected to remain intact, at least through the municipal elections in 2026 and potentially until the ANC\u2019s internal elections in 2027. <\/p>\n\n\n\n

South Africa\u2019s role as the G20 host this year further underscores the importance of maintaining political stability to avoid global embarrassment and reassure investors.<\/p>\n\n\n\n

Beyond structural reforms, cyclical factors also contribute to an improved economic outlook. <\/p>\n\n\n\n

High interest rates have been a significant drag on economic activity in recent years, but relief is finally on the horizon. <\/p>\n\n\n\n

The South African Reserve Bank has already cut the repo rate by 75 basis points, providing much-needed relief to consumers and businesses. <\/p>\n\n\n\n

Lower inflation, which reached just 3% in December, has played a key role in enabling these rate cuts.<\/p>\n\n\n\n

While the dip in inflation was partly driven by temporary factors such as falling fuel prices, the broader trend suggests a more stable pricing environment. <\/p>\n\n\n\n

The Reserve Bank expects inflation to average 3.9% in 2025 and 4.6% in 2026, with additional rate cuts likely if inflation remains contained.<\/p>\n\n\n

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However, while cyclical factors provide short-term relief, Odendaal warned that structural challenges remain. <\/p>\n\n\n\n

One key issue is the persistently high-risk premium attached to South African debt. <\/p>\n\n\n\n

The government\u2019s perceived lack of fiscal discipline has led to elevated borrowing costs, which, in turn, affect private sector financing. <\/p>\n\n\n\n

For interest rates to decline further in the long term, South Africa must improve its fiscal position through a combination of economic growth and prudent spending. <\/p>\n\n\n\n

The upcoming Budget Speech is expected to reinforce the Treasury\u2019s commitment to fiscal consolidation, maintaining a rising primary surplus\u2014where tax revenues exceed non-interest spending.<\/p>\n\n\n\n

If successful, this strategy could pave the way for eventual credit rating upgrades and lower borrowing costs across the economy.<\/p>\n\n\n\n

If the government remains committed to its reform agenda, GDP growth could rise to 3% by 2027, accompanied by lower inflation and interest rates. <\/p>\n\n\n\n

While the Reserve Bank has noted upside risks to inflation stemming from external factors, it remains committed to a cautious and measured approach to monetary policy.<\/p>\n\n\n\n

South Africa is entering 2025 with a significantly improved economic outlook compared to previous years. <\/p>\n\n\n\n

Structural reforms in energy and logistics, combined with a more stable political environment under the GNU, are setting the stage for sustained growth. <\/p>\n\n\n\n

Meanwhile, lower inflation and interest rates are providing much-needed cyclical relief, boosting consumer and business confidence.<\/p>\n\n\n\n

While challenges remain, the trajectory is increasingly positive. <\/p>\n\n\n\n

Investors, both local and international, are beginning to take notice, and if the current momentum is maintained, South Africa could finally be on the path to unlocking its full economic potential.<\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

There is a renewed sense of optimism that the country is on the brink of a turnaround. <\/p>\n","protected":false},"author":92,"featured_media":704955,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9872],"tags":[2720,20167,1110,853],"class_list":["post-810822","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-gdp","tag-government-of-national-unity-gnu","tag-old-mutual","tag-south-africa"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/810822","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/92"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=810822"}],"version-history":[{"count":4,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/810822\/revisions"}],"predecessor-version":[{"id":810872,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/810822\/revisions\/810872"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/704955"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=810822"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=810822"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=810822"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}