South Africa’s economy is showing stabilization over sustained recovery after a record-breaking recession in 2020. The government’s decision to cut spending this year will curtail demand growth in an economy already facing meager growth prospects. The economic outlook is clouded by record joblessness, weakness in international tourism, and worsening electricity shortages that will undermine private sector productivity.
The economy is not forecast to reach its pre-pandemic size until 2024. To help businesses offset current challenges, Associate Practice Leader for Sub-Saharan Africa Research, Matthew Kindinger, evaluated the most impactful trends sweeping the country, and how you can navigate them.
Public sector demand growth will lag because spending will contract at the fastest rate since 1995. During the February budget speech, finance minister Tito Mboweni announced sharp cuts to public expenditure as the primary tool for consolidating public finances. Consequently, spending is expected to contract by at least 5% YOY in real terms in 2021, after which spending is expected to stagnate through the mid-2020s.
Extreme currency volatility won’t be repeated in 2021, although the rand will gradually lose value. After a period of severe volatility in 2020, the currency is expected to exhibit greater stability in 2021. However, businesses should plan for gradual depreciation of the rand. This will be driven by low domestic interest rates and increasingly fragile public finances, which risk further credit rating downgrades that could undermine investor sentiment. Short periods of volatility are also possible given the rand’s status as a highly traded emerging-market currency.
Read our South Africa Market Review for a more in-depth analysis of South Africa’s economic status, with featured topics such as COVID-19 commercial restrictions, electricity availability, and the tourism outlook. At FrontierView, our mission is to help our clients grow and win in their most important markets. We provide the research, data, and insights you need to outperform the competition. Our customizable market intelligence turns information into real-time insights that you can act on with confidence. For full access to our offerings, start your free trial today and download our complimentary mobile app, available on iOS and Android.