For nearly a decade, the South African economy took on the role of “Africa’s sick man.” Economic growth nearly stagnated at 1.7% between 2008 and 2015, compared with sub-Saharan Africa’s 4.9%.
President Jacob Zuma’s appointment and quick removal of David van Rooyen as finance minister sent the rand, the country’s currency, into a tailspin last year. Calls for Zuma’s impeachment reached a fever pitch after a South African court ruled that he had misappropriated resources for personal home improvements.
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And as if those political missteps weren’t enough, World Bank data indicate that youth unemployment in South Africa has reached 52.6%. Kenya’s youth unemployment rate is 17.4 percent, and Nigeria’s is 13.6 percent. South Africa’s troubles are the results of economic malaise and systemic underperformance in Africa’s second-largest economy.
However, not all is lost for South Africa. Its economy is undergoing an evolution which, if harnessed correctly, will yield favorable investment outcomes as the country repairs its current structural imbalances. The following trends offer hope for investors in the region — enough to encourage anyone looking into South African investment to stay the course:
1. Electricity use remains high
Indicators such as electricity consumed per capita suggest that South Africa is poised to retain its leadership position among emerging and frontier markets. The country’s consumption rate stands at 4,328 kilowatt-hours per capita, putting it far ahead of regional sub-Saharan peers.
Kenya and Nigeria use 168 and 142 kWh, respectively. Globally, South African usage significantly exceeds India at 788 kWh and Brazil at 2,539 kWh. Given that sub-Saharan Africa is increasingly focused on domestic industry, South Africa has enormous leverage to drive growth between now and 2020. However, South Africa will need to deal with managing electricity transmission and the constant phenomenon of “electricity shedding,” which is severely affecting business efficiency.
2. The government is investing in industrial measures
The South African government initiated its three-year Industrial Policy Action Plan in 2013, signaling a deliberate effort to strengthen the manufacturing sector. The policy established a series of reforms that would stimulate growth in the coming years.
Intervention in the textile industry through the Clothing and Textile Competitiveness Improvement Programme led to a decrease in job losses and an increased commitment. It also prompted local retailers to procure materials domestically, further improving the industry. This should hearten domestic and international investors who were troubled by the “uneven playing field” when producers sourced much cheaper materials from external markets.
3. Domestic consumption continues to grow
Despite South Africa’s economic downturn, domestic consumption in South Africa remains on par with regional peers such as Nigeria and Egypt, a trend that will hold through 2020. Consumerism injects much-needed help into the economy amid the adverse macroeconomic climate.
In the first half of 2016 alone, Dunkin’ Brands and Starbucks entered the South African market. These moves hint at bullish expectations among investors on the long-term trajectory of the economy. Growth in annual retail sales averaged 4.2% between 2010 and 2014, which is optimistic, given the sluggish performance posted by the aggregate economy. Consumer spending is the silver lining in South Africa’s difficult economic period, and it will help spur the country forward.
South Africa’s financial woes aren’t over yet, but these indicators should bolster investors’ confidence. The country seems clouded by uncertainty right now, but the long-term outlook is promising. South Africa will progress out of the current slump and will present vast opportunities as it grows along with its sub-Saharan peers.
