South Africa: Macroeconomic Country Outlook
- GlobalData forecasts South Africa’s real GDP to grow by 2.1% in 2022
- South Africa was ranked 71st out of 152 nations in the GlobalData Country Risk Index (GCRI) Q2 2022
- According to GlobalData, the industrial production index of the country contracted by an average annual rate of 0.8% from January 2022 to April 2022
South Africa is blessed with various natural resources. The export of precious natural resources, such as gold and diamond, is the country’s main export revenue earning sector. The country has a vast agricultural landscape, which is one of the main pillars of the economy and the mining industry is one of the largest employment providers. According to the Minerals Council of South Africa, South Africa's gold reserves was at 125.35 tonnes in both Q1 and Q2 2022.
Key findings
- South Africa’s stance on Russia-Ukraine war: South Africa shares a bilateral relation with Russia and Ukraine; hence the country chose to stay neutral for voting on three UN General Assembly resolutions condemning Russia’s invasion of Ukraine, which includes (i) Russia immediately stop its aggression and withdraw its troops on March 2, 2022 (ii) Humanitarian access and protection of civilians and humanitarian personnel in Ukraine on March 24, 2022 (iii) Suspend Russia from the UN Human Rights Council on April 7, 2022. According to the parliament of the republic of South Africa, the country witnessed an impact on the business worth ZAR77 billion ($5.2 billion) with Russia caused by the conflict among Russia and Ukraine.
- South African GDP returned pre-pandemic level after two years in Q1 2022: According to National Statistics Office, the gross domestic product (GDP) of South Africa increased by 3% in 2022 Q1, representing the second consecutive quarter of growth. The size of the economy returned to pre-pandemic level, with real GDP marginally greater than it was before the COVID-19 pandemic. According to Statistics of South Africa, 2022 Q1 witnessed a 1.4% increase in household consumption. As consumer spending on hotels and restaurants rose by 6.5%, the hospitality industry experienced a substantial increase in activity.
- According to the World Bank, Ease of Doing Business Report (2020), South Africa ranked 84th out of 190 countries: According to the World Bank, Ease of Doing Business Report (2020), South Africa scored 67 out of 100, a 0.3 percentage point improvement over 2019. In order to start a business in South Africa, it takes seven procedures and 40 days as compared to the sub-Saharan average of 7.4 procedures and 21.5 days. South Africa has made starting a business easier by reducing time for online business registration. However, the very high crime rate makes the business environment risky for investors.
- South Africa’s levels of investment: In South Africa Investment Conference in Johannesburg held in March 2022, South Africa received 80 new investment pledges totaling more than $20 billion. The most developed economy in Africa is on the verge of hitting its five-year investment goal of $100 billion. Energy is one of the primary sectors attracting investment attention. The G7 nations committed $8.5 billion to assist the nation to reduce its dependency on coal. The African Development Bank has committed to invest $400 million in South Africa as part of its investment programme to help the country make quick transition to a more energy-efficient economy. The new commodity boom appears to be boosting investor confidence, and mining is a significant source of employment and foreign exchange in South Africa.
- The country is struggling to tackle poaching: According to the World Wildlife Fund (WWF), poaching of rhinos has resumed in South Africa, with 451 animals killed in 2021, although this number is still 24% lower than in 2019, before pandemic. Of this total, 124 were killed in privately owned reserves, while 327 were killed in government-run reserves and national parks. Nearly 80% of rhinos in the world reside in South Africa. They are killed to meet the great demand for their horns in Asia, where they are allegedly used as aphrodisiacs or in traditional medicine. Black rhinos are among the most endangered species in the world, with only 5,000 of them remaining in the wild, according to the International Union for Conservation of Nature (IUCN).
- The country has low R&D expenditure: In order to reach its 2024 spending goal, South Africa will need to raise billions of Rand for R&D. By 2024, South Africa envisages investing 1.1% of its GDP in R&D, given the expected GDP rates, this would amount to $3.5 billion. The 1.1% goal is merely an interim target before South Africa reaches its 2030 goal of allocating 1.5% of GDP to R&D. However, based on current predictions, the nation's total R&D expenditure must increase dramatically, to ZAR85 billion ($5.8 billion), in order to meet that goal. South Africa’s R&D expenditure as a percentage of GDP has remained the same at 0.8% of GDP from 2018 to 2020, according to GlobalData.
Key fundamentals
Sectoral outlook
- Tourism sector recovering: According to the Statistics South Africa data (Stats SA), tourist accommodation figures for March 2022 indicate a healthy improvement. The total accommodation income climbed by 88% in March 2022, compared to March 2021. Tourism accommodation income increased by 83% during the whole first quarter of 2022. EU nations' decision to remove South Africa off red list gives bright hope for the South African tourism industry. According to the Cape Town Tourism Authority, 74% more international tourists came to the city in April 2022 than in the same month in 2019 before epidemic began. According to South African Tourism, India is one of the top three priority markets for South African tourism globally and the seventh largest international source market. South Africa aims to attract close to 29,000 Indian visitors in 2022, a 64% on an annual basis over 2021.
- Card payments in South Africa to grow at 7.1% CAGR between 2021 and 2025: Although South Africa remains a cash-driven society, the country’s payments landscape is steadily shifting towards electronic payments. This can be attributed to combined efforts of the government and financial institutions to boost financial awareness through the launch of financial literacy programs, provision of basic bank accounts, and expansion of payment card acceptance among retailers. The South African card payments market is set to grow at a compound annual growth rate (CAGR) of 7.1% between 2021 and 2025 to reach ZAR1.9 trillion ($119.2 billion) in 2025, forecasts GlobalData.
- South Africa power supply security to rely on gas-based capacity and renewables to replace coal with low power market growth expected to 2035: The South Africa power market cumulative installed capacity was 64.5 GW in 2021 and is expected to grow at a low compound annual growth rate (CAGR) of over 1% from 2021 to 2035, with the proportion of gas-based capacity and renewable power expected to grow rapidly during the same period, according to GlobalData. South Africa generates most of its electricity requirement from coal-based capacity. More than 70% of installed capacity is achieved through coal. However, the country’s new Integrated Resource Plan (IRP) has called for retirement of coal power plants. In order to retire coal, the country needs to look at other energy resources to boost its electricity consumption and intends to increase gas-based capacity to maintain electricity supply. However, because South Africa does not have adequate gas reserves, it proposes to source additional gas supplies from neighboring Mozambique and other 14 member countries of the Southern African Development Community (SADC).
GlobalData Country Risk Index (GCRI) – Q2 2022
South Africa was ranked 71st out of 152 nations in the GCRI Q2 2022. The country’s score is in the manageable risk nations band (between 40 and 50). South Africa’s overall risk score (42.3) was higher than the Middle East and Africa (40), but lesser than the world average (44) in GCRI Q2 2022. The country’s score was higher than the regional and world averages in demographic and social structure effectiveness, but lesser in environment parameters. High corruption and severe inequality have added to risk.
GCRI Methodology
GlobalData’s unique Country Risk Model determines the existing and future level of country risk by assessing various qualitative and quantitative factors. The index is designed to help firms formulate their global business strategies based on historical developments in an economy.
The Country Risk Index incorporates the latest available macroeconomics, political, social, technological, environmental, and legal data from a range of recognized national and international statistical sources, and also proprietary data from GlobalData. Middle East and North African countries in this publication include Egypt, Israel, Saudi Arabia, United Arab Emirates, Morocco, and Iran.
About the report
GlobalData Macroeconomic Outlook report is designed to provide detailed macro-economic analysis which will help clients in their business planning, investment and strategic decisions, and analysis. It also provides a quick view of the current situation and the risk score of the country in comparison to region and world based on the proprietary risk framework. The report also highlights key strengths, weaknesses, opportunities, and threats in each of the pillars of PESTLE, economic growth prospects, and key events which can impact the country’s future outlook.
More details: Macroeconomic Outlook Report: South Africa
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