Economic forecast South Africa: steady growth

South Africa is likely to show stable growth in the next five years. The country’s growth may seem moderate, when compared to other African countries. But relatively strong consumer spending power, a large market and a stable, diverse economy makes South Africa an attractive market in an African context.

Economics and Research Analyst Craig Parker at Frost & Sullivan, international consulting and research firm, makes a positive assessment. Countries such as Mozambique, Ghana and Angola are expected to average growth of over 7% in the next 5 years, whereas South Africa’s GDP growth is expected to remain between 2% and 4% for the same period. Still South Africa has a lot of things going for it.

Considering macroeconomic conditions, inflation is set to decline slightly until 2017, with interest rates rising by 2 % during the period. Inflationary pressure is expected to be predominantly supply-driven, in the first half of the forecast period, with consumption expenditure increasing in 2014 with slight demand-pull inflation.

In the past decade, from 2000 to 2009, GDP was driven by consumption expenditure, which increased in conjunction with household debt. Credit extension was limited in 2007 by the National Credit Act, which promoted responsible lending by financial institutions. This led to a marked decline in credit being extended to the private sector in 2007, and this spared many consumers during the financial crisis of 2009.

South Africa has many exciting growth prospects for the future. In the past, fixed capital formation has been relatively low, but has increased dramatically, since 2008, and is set to continue into the future. There are various medium and long-term infrastructure projects that are in place for the South African economy that will drive job creation and will stimulate economic growth.

The major areas identified for infrastructure development are for the energy, transport, water and sanitation sectors, notes Frost & Sullivan. The budget allocations made in 2012 will serve to drive these developments that are expected to attract significant private investment and public private partnerships.

Various other key sectors have been identified as ‘job drivers’ under the New Growth Path, set in motion in 2011. This plan seeks to maximise job creation in the economy, by promoting and supporting industries and sectors that can drive job creation. These sectors include agriculture and agri-processing, mining and beneficiation, manufacturing, the ‘green economy’ and tourism.

The green economy will focus on renewable energy generation. The Integrated Resource Plan, which is a 20 year plan for upgrading electricity generation in South Africa, has set a goal of 42% of electricity generation from renewable resources by 2030. Major contributors to these initiatives will be solar and wind farms.

South Africa will need these infrastructure investments to remain an economy and infrastructure powerhouse in the Sub-Saharan region. It is currently seen as a safe investment platform for expansion into the rest of Africa, and these developments should enforce its status. The safety of investment into South Africa is supported by the fact that it was ranked number one for auditing and reporting standards by the World Competitiveness Report. It also ranked in the top three for regulation of securities exchanges, soundness of banks and availability of financial services. This emphasises the strength and soundness of the financial services sector in South Africa.

Future growth seems to be on a more sustainable path, concludes Frost & Sullivan, with investment driving growth, job creation and skills development in a country where economic growth and social welfare are key priorities.

Source: press release Frost & Sullivan

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