End of a decade of pain for South Africa

South Africa is entering 2026 with one of the most constructive backdrops for the local economy in over a decade, with investors in local assets set to reap the rewards. 

While returns are unlikely to match those seen last year, 2026 is set to see improvements in South Africa’s economic and fiscal fundamentals. 

These improving local fundamentals are coupled with favourable global conditions, such as rising commodity prices and a weaker dollar. 

This presents somewhat of a “Goldilocks” scenario for South Africa, with a weaker dollar, stable global growth, and concrete signs of domestic reforms bearing fruit. 

Enhancing this case further is the country’s low inflation environment, which is set to translate into sustainably lower interest rates. 

Anchor Capital’s investment team explained that the most important factor for South Africa in 2026 is that the impact of structural reforms is beginning to show up in the data. 

This gives businesses and investors increasing confidence to invest in the local economy as there are concrete signs of improvement. 

One of the clearest signs of improvement was S&P Global upgrading South Africa’s credit rating to BB on the back of an improved fiscal outlook. 

The National Treasury’s painful process of fiscal consolidation is gradually growing South Africa’s primary budget surplus and is set to see the country’s debt peak in the current financial year. 

Over time, South Africa’s debt pile and its interest costs should begin to decline, freeing up billions of rands for more productive investment as it is no longer “dead money”.

Apart from the ratings upgrade, South Africa enters 2026 no longer being on the Financial Action Task Force’s greylist. This should ease compliance and improve capital flows into the country. 

Perhaps most importantly for South Africa are the improvements in the country’s electricity and logistics sectors, with load-shedding seemingly over and rail volumes picking up. 

These sectors, monopolised by Eskom and Transnet, are two of the biggest constraints on South Africa’s economy. Reforms to increase private participation in these sectors should see investment surge and performance pick up further. 

Increased private investment in fixed assets such as equipment, machinery, and infrastructure is vital as it provides a basis for sustained economic growth. 

Currently, South Africa’s economic revival is somewhat narrowly driven by consumer spending, which is growing on the back of cyclical factors that will, at some point, turn. 

Anchor also pointed to additional fiscal revenues from a looming tax on online betting earnings, with the National Treasury estimating this could raise R10 billion for the government. 

This will improve the state’s fiscal health and give it room to increase productive expenditure on fixed assets, driving economic growth. 

As a result, Anchor said favourable global factors and improving local fundamentals have combined to create one of the most constructive backdrops for South Africa in over a decade. 

Threats to Goldilocks

South Africa appears to be entering a so-called ‘Goldilocks’ phase, with the country set to benefit from a weaker dollar, stable global growth, and stimulus-fuelled demand. 

However, there are significant threats to this outlook which threaten to derail the progress South Africa has made in improving its economic and fiscal fundamentals. 

The largest of these threats, Anchor said, is the looming ANC national elective conference, where the party will elect its next leader. 

This conference, set to happen in 2027, is likely to see a ramping up of political uncertainty as ANC bigwigs jostle for positions of power. 

More importantly, whoever is elected the new leader of the ANC may struggle to keep the Government of National Unity (GNU) together amid pressure from elements of the party to do away with the coalition government. 

This transition could undermine the fragile confidence in the country’s economy from businesses and investors, particularly if it is poorly managed and results in the breakup of the GNU. 

Another major political risk comes from South Africa’s municipal elections scheduled for this year, which may result in elevated volatility and uncertainty. 

However, over the long run, these elections could be a positive catalyst for change, with renewed emphasis on service delivery over traditional voting allegiances. 

Anchor also warned that South Africa remains highly exposed to global commodity and interest rate cycles, with it being a very open, small economy. 

This vulnerability always leaves a significant element of the equation outside of the direct control of South Africa, with the country being buffeted by larger geopolitical forces. 

Anchor said there is further work needed to build a more idiosyncratic investment case for South African assets, with the country heavily reliant on cards falling in its favour. 

A hidden threat is that South Africa believes its own hype and does not continue the significant reform process that began nearly a decade ago. 

This, Anchor said, requires policy discipline and reform execution, which may be undone if the GNU does not hold or the municipal elections rewrite the political landscape in South Africa.