South Africa’s economy grew 18.4% YOY in the second quarter of 2021, the fastest on record. Mining was the strongest performer, expanding 53.5% YOY because of an uptick in global commodity prices, while manufacturing grew 42.1% YOY, reflecting lighter lockdown restrictions and export-oriented demand growth. In contrast, the unemployment rate in South Africa reached a record high of 34.4% during Q2, and tourist arrivals fell by 2% MOM in June, remaining 78% below their pre-pandemic level. Retail sales, meanwhile, slumped by 10.9% MOM in July.

Our View

Except for sectors that outperformed expectations (including mining, manufacturing, agriculture, and IT), the upswing in growth during Q2 2021 does not imply a healthy recovery in activity, because it was largely a statistical effect caused by a record-breaking economic slump in Q2 2020. Rather, the economy’s outlook has deteriorated. The decline in retail sales in July provides quantitative insights into the effects of widespread social unrest that month. The destruction of workplaces during that unrest will nudge unemployment to a new record high when Q3 data is released, which, in addition to persistent weakness in tourism, will curtail consumer spending growth. Rising unemployment will also force the government to expand welfare support, such as the proposed basic income of ZAR 350 (US$ 24 per month). This will exacerbate fiscal pressures, prompting the government to cut spending and raise taxes faster and more extensively than originally planned. FrontierView forecasts GDP growth of 2.8% YOY in 2021, slowing to 2% YOY in 2022.

Business Implications

South Africa will remain an indispensable market in MNCs’ SSA portfolios despite its lackluster performance. To succeed in this low-growth environment, MNCs should closely review their goals for the market and target resilient (especially premium) customer segments, particularly in outperforming industries. MNCs operating across sectors should also focus on growing sales by capturing market share from rivals. With the support of marketing campaigns, MNCs can maximize the value they offer their customers by reassessing product portfolios and, where possible, altering package sizes.

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