This year is promising to be another year filled with uncertainty, punctuated by job losses, pension reforms, transformation of the health system and continued lack of economic growth and a hint of socio-political unrest as the country goes into a crucial election that maybe a watershed election if what some political parties’ slogans are anything to go by, that have dubbed this year’s election – “2024 is our 1994”.
Big corporations including those in mining and media have announced retrenchments which will add to the country’s high unemployment rate and reduce the middle class as slow economic growth globally and domestically impact company profits.
Most of the challenges in the domestic economy are self-made, said the South African Reserve Bank (Sarb). It has labelled them “domestic idiosyncrasies”, that have increased the country’s risk premium making capital expensive.
SA has been added to the grey list with another year to go before the country’s expected exit authorities have said, causing bigger constraints on the growth of logistical and electricity crises caused by Transnet and Eskom.
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Despite Electricity Minister Kgosientsho Ramokgopa’s weekly briefings and visits to power stations, South Africa remains without power.
The positive side of this, analysts have said, is the pickup in investment towards alternative electricity generation, but this also has a lag before that power actually comes to the grid.
Last year, the country received approximately R34.4 billion of sovereign loans to help fund decarbonisation.
Meanwhile, a procurement process to acquire an additional 2 500MW of nuclear energy would start in March this year, after the National Energy Regulator of SA (Nersa) gave the go ahead.
The process will kickstart when the request for proposals (RFP) is issued, and it will be about 10 years before the first unit of the new nuclear project is commissioned.
Deputy director-general in the department of mineral resources and energy, Zizamele Mbambo, said the process would be transparent.
We’ll follow an open bid process, wherein all the different nuclear vendors will have an opportunity to bid.
GROWTH
The Reserve Bank has said economic growth in South Africa will likely remain muted in the near term as energy and logistical constraints continue to bind economic activity and generally increase input costs.
Post its last meeting in November last year, the monetary policy committee (MPC) stated that it expected electricity supply to increase gradually over the medium-term, however, helping to raise GDP forecast for 2024, 2025 and 2026.
Spending by firms, households, public corporations and general government remains positive in real terms, on an annual basis. Disposable income of households is expected to grow, albeit slowly. Our GDP growth forecast for 2024 and 2025 is increased from the previous meeting, to 1.2% and 1.3%, respectively, in large part due to an expected decrease in load shedding.
INFLATION
The consumer price index (CPI) moderated to 5.5% in November to after soaring to 5.9% in October. Inflation has remained sticky around the globe after what started as supply side inflation on the back of supply chain bottlenecks and Russia’s war in Ukraine that’s heading into its second year in February.
Chief economist at Citibank Gina Schoeman said central bankers were terrified of the uncertainty brought on by high inflation and what to do with monetary policy.
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Also of concern is the concept of deglobalisation or fragmentation that were buzzwords at previous meetings of the world economic forum in Davos, that are also seen as a threat to inflation.
“Central bankers are all very cautious, over the last four years the number of supply side shocks that have hit them unexpectedly and caused inflation to rise when they thought it was declining is still very fresh in their minds.
These shocks do not leave a small open economy like South Africa unscathed … its also about SA fairing its way around the geopolitical stage having gone through the debacle with the US and now getting involved vocally in what is happening in the middle east with Israel. Geopolitics is something we cannot separate from our story and all this together against an economy that just hasn’t grown.
“We can say some of this is because of commodity prices but if this economy had actually grown over the last decade our real per capita would have shown it and the ANC would probably not be in a desperate position as it is right now because it would have done reforms.”
However, Schoeman said there was a glimmer of hope for 2024 even though the country is faced with risks that include going into an election, rising public debt against lower revenue and the global backdrop.
We really shouldn’t have the same level of load shedding in 2024 as we did in 2023 and that creates a nice base effect.
“We need to ensure that the growth we saw in the second quarter because of renewables continues because when inflation comes down in 2024 and the Sarb is able to cut rates to remove the restrictive monetary policy, you might find for the first time in a very long time SA’s GDP growth is driven by investment and consumer consumption,” she said.
MARKET PERFORMANCE
The local bourse ended the year in negative territory after limping for most of the year on the back of turbulence from global markets in 2023.
While there’s been a recovery in global markets the JSE remains on the backfoot faced with constraints specific to South Africa such as load shedding and logistical shortcomings, said Makwe Masilela director at Makwe Fund Managers.
He said:
The JSE is negative for the year and the rand weakened over 10%, the lack of growth in China has resulted in a cooling of commodity prices. Most commodity shares have not done greatly and the industrial stocks that we have relied on have given an average performance and that has weighed on domestic markets.
Masilela said domestic and global markets in 2024 will be driven by a variety of factors including presidential elections in South Africa and the US, what direction global central bankers deal take with regards to monetary policy as well as the US GDP outcomes.
“Markets are already expecting interest rates to start dropping form the second half of 2024, if the Israel/Hamas doesn’t remain localised it could lead to negative investor sentiment.
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“The softening of China’s economy has added to the challenges dogging global growth, of particular concern is that country’s property market which accounts for nearly 30% of their GDP. Geopolitics in Europe and a potential escalation between China and the US will also be factored by the markets,” he stated.
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