South Africa on the right track – but there’s a catch

South Africa is on the right track to rebuild its infrastructure and address crime and corruption, but reform in logistics is lagging and remains a stumbling block to economic growth.

This is according to Investec chief economist Annabel Bishop, who said this comes after the national elections earlier this year and the formation of the Government of National Unity (GNU). 

She referred to comments made by President Cyril Ramaphosa in August when he convened a meeting with members of his cabinet and senior business leaders in South Africa.

This meeting was an extension of a project launched last year where business and the government are working closely to address some of South Africa’s three most pressing problems – crime and corruption, energy, and transport and logistics.

At the meeting, Rampahosa highlighted the state’s commitment to “urgently implement the collaboration’s reform agenda to restore confidence and sentiment-essential drivers of investment, inclusive economic growth and job creation”.

Bishop said that, so far, progress has been mixed in the three areas. While there have been stellar achievements in halting load-shedding and rapidly working through greylisting deficiencies, transport and logistics reforms lag. 

The latest Bloomberg consensus forecast for 2024’s economic growth outcome remained unchanged at 1.0% in August, down from 1.0% in June and July. This is slightly down from May’s 1.1%, as growth in 2024 is still expected to be weak.

Bishop explained that the consensus on the economic growth outlook has not risen yet post-elections and also remains stuck for 2025, at 1.6% and at 1.9% for 2026.

“Very severe uncertainty prevailed around the period of South Africa’s National Elections, and a potential shift to the political left had worried investors, particularly on property rights, deteriorated fiscal health, weak growth and higher inflation,” Bishop said.

This can be seen in the data on business confidence in the pre-election period, which was depressed. The majority of businesses (65%) were dissatisfied with prevailing conditions and so profitability. 

While Bishop said sentiment is expected to improve in the second half of 2024, this will depend on profitability.

In addition, while the lack of load-shedding to date in Q3 2024 and over Q2 2024 support positive economic growth outlooks of 0.5% for both these quarters, port, rail and other logistics deficiencies continue to detract from growth. 

Stats SA recently reported that South Africa saw GDP growth of 0.4% in the second quarter of 2024.

“The weakness of the transport sector – despite some small progress – remains a key stumbling block to robust economic growth,” Bishop said. 

Bloomberg recently reported that Transnet posted a loss of R7.3 billion for the year through March 2024, compared with a restated R5.1 billion loss in 2023.

Its freight-rail business – the largest operating unit accounting for 44% of revenue – delivered 151.7 million tons of cargo during the period, up 1.5% from the prior year. Pipeline volumes fell 2%, while port-container movements improved 2.9%.

Transnet is almost a year into a turnaround strategy that it announced in October 2023 to overhaul its rail and port services and tackle the impacts of years of mismanagement, theft and vandalism.

Transnet faces many stumbling blocks to its turnaround, including underinvestment in infrastructure and equipment. External shocks, including floods and extreme weather events, have also added to operational problems. 

However, the board has said it is positive about progress and that the plan is starting to bear fruit, with further improvements in rail volumes expected in the current financial year. 

Until Transnet’s turnaround is completed, South Africa’s logistics challenges will continue to be a drag on the country’s economic growth.

The Bureau for Economic Research (BER) recently noted that logistical problems at South Africa’s container terminals have wreaked havoc on the economy. 

These problems not only hamper exports but also constrain manufacturers that rely on imports as input into production. 

The container terminals in Durban and Cape Town have been primary sources of concern, although some progress has been made since the end of last year. 

The Absa Purchasing Managers’ Index (PMI) survey, conducted by the BER, asks companies to indicate the direction of change in overall purchased inventory quantities. 

It creates an index that tracks the level or volume of overall purchased stock of materials and goods used in normal business or activities.

Aside from a momentary uptick in April 2023, the index has been in contractionary territory (below 50 points) since the start of last year. 

Coupled with comments from respondents bemoaning import delays, the low stock levels likely reflect the difficulty of getting goods in and out of South Africa’s harbours.