South Africa losing top spot in Africa

South Africa is steadily losing its place as the economic powerhouse of the African continent as other countries become more attractive to investors and implement reforms to boost economic activity. 

The country slipped to fourth place in RMB’s Invest in Africa 2024 rankings, surpassed by the Seychelles, Mauritius, and Egypt. 

South Africa ranked first in only one category – forex stability and liquidity – while it lost the top spot in terms of economic output to Egypt. 

Worryingly for the future, it also came in last place on the continent regarding GDP growth forecasts, income inequality and unemployment. 

South Africa’s economy has been relatively stagnant over the past decade, hovering around 1% GDP growth annually. 

This is below the country’s population growth rate of around 1.6% – meaning South Africans are getting poorer every year. 

Earlier this year, the country lost its place as the best-rate sovereign in Sub-Saharan Africa with foreign debt to Ivory Coast. 

“Long the continent’s economic powerhouse, South Africa faces major headwinds that have seen other countries supersede it in a variety of consequential rankings,” RMB said in the report. 

“At fourth place overall, Africa’s southernmost nation lags the two idyllic island nations, as well as northern powerhouse Egypt.”

The investment bank did say a recovery is possible, spurred by the formation of a Government of National Unity (GNU) and renewed investor optimism. 

However, this is unlikely to occur overnight and will require concrete changes from political leaders. 

“Foreign investors will likely wait for evidence that South Africa’s many reform plans and procedures to stabilise multiple dire metrics are gaining traction before investments turn a corner.” 

Improving South Africa’s economic growth is the only way to sustainably prevent foreign and local investors from taking money out of the country and instead investing more in local assets. 

This is evidenced in the financial results of Africa’s largest bank and comments from its chief executive. 

Standard Bank CEO Sim Tshabalala said South Africa is lagging behind the rest of the continent, and investors will increasingly look elsewhere for returns, further hindering economic growth. 

For the first time in 2023, Standard Bank made more money from its rest-of-Africa operations than it did in its home market. 

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 to 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 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. 

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.”

“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.”