Page 38 - Risk Report 2024

IRMSA
38 RISK REPORT 2024/25

8.3 Economy

Slow economic recovery after the past years’ declines will remain detrimental to all sectors.

This stems from low GDP growth, large budget deficits, and an increasing gross loan debt ratio (~73.9% of GDP
in March 2024), exacerbated by infrastructure failures. If corruption and weak institutions are not addressed,
recovery will be hampered. Geopolitical alignments threaten key investment and trading relationships, and tariffs
or sanctions may harm the economy.

The main economic risks are as follows:
• Low potential GDP growth risk is caused by the following:
• Uncertain policy environment (exacerbated by the 2024 election outcomes).
• Low employment due to inadequate education, which causes socio-economic conditions and increases
fiscal pressure.
• Long-term downward trend in net foreign capital inflows, exacerbated by high crime levels and SA’s
inclusion in the FATF Greylist and the EU High Risk list, and generally reduced capital flows to emerging
markets. Given limited domestic savings, investment must be funded by foreign capital inflows in the
absence of running a large current account deficit. Domestic demand of consumption and investment
must therefore be constrained.
• Deteriorating infrastructure, notably water, electricity and logistics, accentuates the economic downturn.
• Electricity disruptions impact mining, manufacturing, and agriculture most severely. SA is a net exporter
of agricultural products, implying a degree of food security. High electricity dependent manufacturing
industries include non-ferrous metals, iron, steel, chemicals, and pulp and paper.
• A surge in road freight transport mirrors the collapse of rail freight transport due to deep-rooted rail
inefficiencies.
• Deteriorated cargo handling capability at ports with a sharp decrease in container units processed at SA
harbours.
• Underinvestment in water infrastructure affecting numerous water intensive industries in the economy.
• The backlog in mining licence processing has precluded SA from fully participating in recent commodity
booms. The appointment of a preferred bidder to develop a system to evaluate and vet mining license
applications, is encouraging.
• Skills immigration challenges accentuate domestic skills constraints. Provincial stimulation of digital
creative and tourism initiatives is positive and SA’s inherent tourism potential will positively support
more of these opportunities.
• Ongoing land expropriation policy uncertainty and the NHI Act being unclear on what may be covered
privately in future – with prolonged implementation timelines leading to a longer period of uncertainty.

NWABISA BIXA ARTHUR KAMP WARREN YOUNG
Risk Specialist Chief Economist CRM Prof
Johannesburg Stock Sanlam Investment Group Chief Risk & Compliance
Exchange Officer
Sanlam Investment Group