Plan for softer customer demand as rising inflation and power shortages dampen sentiment
MNCs will face rising competitive pressures because of the slowing economy, and increased customer price sensitivity caused by surging inflation. To counter vanishing customer loyalty and defend market share, companies should consider raising marketing spending, introducing new price-competitive products, or providing value-added services. MNCs selling to the public sector should prepare for tough pricing negotiations and position offerings as providing cost-saving benefits to their customers.
South Africa’s economy expanded by 2.6% YOY in Q1 2022 on a seasonally unadjusted basis, performing better than expected. Growth was driven by high global commodity prices, which boosted exports and tax revenues, allowing the government to continue increasing spending for longer than previously planned. Meanwhile, the private sector has benefited from the steady rollback of COVID commercial restrictions, and record-low interest rates that have contributed to a surge in low-cost borrowing. Transport and ICT (+9% YOY), and trade, catering, and accommodation (+6%YOY) led the economic expansion. Personal services, which include healthcare, grew 6.2% YOY because of the backlog in elective procedures that built up during the pandemic. In contrast, power-intensive industries, including construction (-6.3% YOY), mining (-4.1% YOY), and manufacturing (+1.1% YOY), underperformed because of chronic electricity shortages that are hampering investment and productivity.
The economy is forecast to grow by 2.2% YOY in 2022, driven by strong global demand and prices for South Africa’s commodity and precious metal exports as traders seek alternatives to Russian sources. This will also support government revenues, allowing the government to postpone painful spending cuts and tax increases until next year. Nonetheless, GDP growth is forecast to slow to 1.6% YOY in 2023. A bleak outlook for the tourism industry caused by the cost-of-living crisis in Europe, rapidly increasing domestic interest rates led by the South African Reserve Bank’s battle to contain surging inflation and maintain the rand’s stability, and chronic joblessness and electricity shortages will sap productivity growth.
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