As the dawn of 2024 breaks across the African continent, there’s a prevailing sense of cautious optimism regarding economic prospects. With each passing year, African nations strive to navigate the complex web of domestic challenges and global dynamics that shape their economic landscapes. Amidst this backdrop, South Africa finds itself in a pivotal position, poised to make modest gains while confronting a myriad of hurdles.
According to the UN World Economic Situation and Prospects (WESP) 2024 report, Africa’s economic growth is anticipated to experience a slight uptick, with the average GDP projected to inch up to 3.5 per cent. This modest growth trajectory, while encouraging, is tempered by a host of concerns including debt sustainability, fiscal pressures, and the looming specter of climate change.
In the broader African context, major economies such as Egypt are expect- ed to witness a slowdown, with growth rates decelerating from 4.2 per cent to 3.4 per cent. This downturn is attributed primarily to foreign exchange scarcities which threaten import capacity and domestic demand, underscoring the delicate balance African nations must strike in managing their economic affairs.
For South Africa, a nation grappling with persistent challenges, the road ahead appears fraught with obstacles. In 2023, the South African economy saw meager growth, expanding by a mere 0.5 per cent—a figure largely stymied by the ongoing energy crisis plaguing the nation. Regrettably, 2024 is not expected to herald significant change in this regard, casting a shadow of uncertainty over the country’s economic prospects.
Nigeria, Africa’s most populous nation and a key player in the regional economy, presents a mixed picture. While growth prospects suggest a moderate increase at 3.1 per cent, this upward trajectory is primarily attributed to government reforms within the oil sector—a reminder of the pivotal role policy decisions play in shaping economic outcomes.
Confronting The Energy Crisis
For South Africa, confronting the energy crisis remains paramount. The persistent shortage of reliable power not only stifles industrial output but also undermines investor confidence, hampering the nation’s ability to attract much-needed capital. Addressing this fundamental issue demands a multifaceted approach encompassing infrastructure investment, renewable energy initiatives, and policy reforms aimed at fostering a conducive business environment.
Moreover, South Africa’s economic fortunes are intricately linked to its ability to navigate the global stage.
The specter of trade tensions, geopolitical uncertainties, and the evolving dynamics of international markets loom large, presenting both challenges and opportunities. In an increasingly interconnected world, South Africa must adeptly navigate these shifting tides, leveraging its unique strengths while mitigating potential risks.
Amidst these challenges, however, there are glimmers of hope. South Africa boasts a diversified economy, encompassing sectors ranging from mining and agriculture to finance and technology. This inherent resilience, coupled with a skilled workforce and robust institutions, forms the bedrock upon which future prosperity can be built.
Furthermore, South Africa’s potential extends beyond its borders. As an integral member of the African Union and a regional powerhouse, the nation possesses the capacity to drive economic integration and foster cross-border cooperation—a cornerstone of sustainable development in the region.
In harnessing this potential, policymakers must prioritize inclusive growth strategies that uplift marginalized communities and empower the most vulnerable segments of society. Addressing socioeconomic disparities, fostering entrepreneurship, and investing in education and healthcare are not only moral imperatives but also essential ingredients for long term economic stability and prosperity.
As South Africa navigates the complex- ities of the year ahead, a sense of cau- tious optimism prevails. While challeng- es abound, the nation possesses the resilience, ingenuity, and determination to surmount them. By embracing in- novation, fostering collaboration, and charting a course towards sustainable development, South Africa can indeed pave the way for a brighter, more pros- perous future—one characterized by shared prosperity and inclusive growth.
In the final analysis, 2024 holds the promise of progress, provided South Africa seizes the opportunity to con- front its challenges head-on, chart- ing a course towards a future defined by resilience, prosperity, and hope.
Improvement In Growth
Projections indicate a slight improvement in growth compared to the previous year, with the economy expected to expand by 1.0% year-on-year, up from 0.5% in 2023. While this uptick offers a glimmer of hope, the road ahead remains fraught with challenges that necessitate adept course-plot- ting and strategic policymaking.
One significant factor expected to bolster economic growth is the reduction, and eventual elimination, of congestion at ports. This improvement in logistics infrastructure promises to streamline trade processes, enhancing efficiency and facilitating smoother business operations. However, the persistent issue of inadequate electricity supply poses a looming threat to economic stability. Load shedding, a consequence of insufficient energy capacity, is likely to persist throughout 2024, potentially escalating to higher stages of disruption.
Despite these challenges, South Africa’s economic outlook is not devoid of positive influences. Global economic growth, while experiencing a mild slowdown, is anticipated to provide some support to the South African economy. The OECD forecasts a marginal decrease in global growth to 2.7% year-on-year in 2024, followed by a modest rebound to 3.0% in 2025. This trajectory, albeit tempered, offers a lifeline for South Africa amidst uncertain domestic conditions.
Internationally, key economic players such as the United States and China are projected to undergo varying growth trajectories. The OECD forecasts a slowdown in US growth to 1.5% year-on-year in 2024, with expectations of monetary policy easing to stimulate economic activity. Similarly, China, while maintaining robust growth rates, is expected to experience a gradual deceleration due to ongoing challenges in the real estate sector and high household saving rates.
Closer to home, the Eurozone grapples with the aftermath of geopolitical tensions and energy price shocks. Despite initial setbacks, GDP growth in the Eurozone is forecasted to recover gradually, reaching 0.9% in 2024 and 1.5% in 2025. These global dynamics give emphasis to the interconnectedness of economies and highlight the importance of South Africa’s ability to manoeuvre external headwinds.
Real GDP Growth
Real GDP growth is forecast at 1% in 2024 and, on average, only 1.4% be- tween 2024 and 2026. This does not compare well with the International Monetary Fund’s 4% projection for emerging and developing economies, and even falls below the out- look for advanced economies of 1.7%.
The South African Reserve Bank (SARB) noted in its Monetary Policy Committee (MPC) meeting in January 2024 that al- though headline inflationary pressures at a global scale appear to be moderating, core inflation remains sticky. The MPC would like to see South African inflation trend further towards the mid- point of its targeting band of 3%-6% and subsequently made the unanimous decision to keep the policy rate unchanged at 8.25%, noting that risks to the up- side remain for the inflation outlook.
Maintaining a fiscal policy stance that stabilises debt is one of the key action items tabled by the National Treasury to unlock much-needed growth and, in turn, address many social and developmental woes the country faces. Another key required action includes a focus on improving the efficiency of public spending.
One of the most significant focus areas in the medium term will need to be investment in infrastructure to stimulate economic growth. This will require the government to enhance infrastructure delivery by upping both quantity and quality. It needs to crowd in more private sector financing for larger projects, review the public-private partnership framework, and establish an agency to support finance and implementation of infrastructure. The need for continued progress on structural economic reforms, specifically in the electricity and logistics sectors, is now more urgent than ever.
The economic costs of failure and inefficiency in these sectors have mounted over the past year, partly due to lack of investment but also due to mismanagement, corruption, and even theft. Reforms in the electricity sector – including lower restrictions on self-generation and reforms to encourage private investment – are expected to add over 11GW of renewable sources to help curb the power crisis in the medium term. With the electricity sup- ply crisis continually weighing on economic growth, it is critical that these reforms continue to be implemented to curb power cuts, unlock investment and get the economy back on course.
The already gloomy picture could get worse if the pace of reforms remains sluggish. Real GDP growth averaged about 1.4% per year between 2010 and 2022–a rate well below the target set in the 2030 National Development Plan that was released in 2011. To make a dent in unemployment, create jobs, and to reduce poverty and inequality, South Africa needs a faster pace of growth; but slow reforms will mean sluggish to no growth in the foreseeable future. With limited space for accommodative policy on both the monetary and fiscal fronts, it is imperative that re- forms are implemented timeously and effectively if the South African economy is to have a chance at recovery.
Looking ahead, 2024 presents both challenges and opportunities for South Africa. While the path forward may be fraught with obstacles such as energy shortages and political uncertainties, there are avenues for progress. Strategic investments in infrastructure, concerted efforts to address energy deficiencies, and prudent fiscal management can lay the groundwork for sustainable growth.