South Africa

South Africa losing out to Africa 

South Africa’s economic growth is lagging behind the rest of the continent’s, which will result in the country losing out on critical investments from companies, including those based in South Africa. 

This is feedback from Standard Bank CEO Sim Tshabalala, who laid out just how fast the rest of Africa is growing compared to the bank’s home market. 

Africa’s biggest lender by assets reported record profit in 2023 as businesses across the continent helped counter tepid growth at home. 

The rest-of-Africa operation overtook its South Africa unit last year and now accounts for 42% of the bank’s headline earnings. Its home market brings in 34% of earnings.

The lender’s operations outside of South Africa posted a 49% jump in headline earnings in the year, lifting the bank’s profit to a record R44.21 billion. 

Its South African business, on the other hand, grew just 3% as the continent’s most advanced economy struggles with energy and logistics crises. 

Tshabalala said positive fiscal reforms are taking place across the continent that make those countries more attractive to investors. 

These reforms have also been complimented by policy reforms that make it easier to trade in Africa, reduce regulations, and make it easier to do business. 

Thus, Africa – excluding South Africa – is expected to grow at 3.8% in 2024, while South Africa’s economy should only grow at 1.2%.

The difference in economic growth across the markets in which Standard Bank operates can be seen in the graph below. 

The attractive return on investment in faster-growing African markets will result in companies investing capital there at the expense of investment in South Africa. 

For 2023, the return on equity in Standard Bank’s Africa regions was 28%, up from 21% at the end of 2022, while the entire group’s return was 18.8% due to the poor return in South Africa. 

Tshabalala has previously said this will inevitably result in Standard Bank investing more money outside of South Africa as it will drive more growth for the bank. 

Tshabalala explained that South Africa is involved in a global competition with its African counterparts and other emerging markets for scarce capital to drive economic development. 

“The world competes for capital. We compete for the money we need to finance our nation’s budget deficit and compete globally for the money to finance infrastructure investment, fund Eskom and Transnet, and finance corporate projects.”

The biggest factor in attracting capital is the country’s risk premium, which dictates the returns an investor should expect when taking on the risk of investing in a given country. 

This directly impacts a country’s ability to raise capital and the companies that operate in it. As this premium increases, which it has in South Africa, it makes it more difficult to attract investments in local businesses and finance the government’s deficit. 

“We are competing on the continent and with emerging markets for this capital. So if they have decreased the risk of investing in their country and generated greater returns, the money will then rather go to those places than South Africa,” Tshabalala said. 

The key factor is the rate at which the economy is growing. South Africa is expected to grow at less than 1% in 2023, while other African countries will average greater than 3% growth. 

“What does this mean? It means that we are losing our national competitive advantage. We need to grow faster and get people healthier and wealthier,” Tshabalala said.