Pickup in growth expected, but South Africa's expenditure still largely for wages, debt
Improved electricity supply to contribute to better economic growth in 2025
Photo by Bloomberg
Insights, data and analytics provider BMI expects South Africa's economic growth to pick up from 1% this year to 1.5% in 2025 as improved energy supply, greater private-sector investment, slower price growth and reforms to pension schemes provide tailwinds.
"However, growth will remain below the 2010 to 2019, or pre-Covid-19 pandemic, average of 1.7% due to persistent structural issues. We expect electricity and water tariffs to remain high, with [State-owned] Eskom pushing for a 36% increase in electricity prices next year," said BMI sub-Saharan Africa country risk senior analyst Lara Wolfe.
Unemployment levels and labour market rigidity will also continue to pose significant challenges, she added during a briefing on November 5.
Additionally, despite gradual reforms to the energy and transport sectors, Eskom and State-owned transport agency Transnet required large capital injections, which would limit the pace of reforms in the short term, Wolfe said.
Revenue growth in South Africa is projected to pick up in 2025, driven by stronger economic activity and the two-pot adjustments to pensions, although revenue growth is expected to remain below the ten-year average.
"Limited revenue will continue to constrain the policy space, as expenditure will remain focused on the large wage bill and debt servicing.
"Despite commitments to turn the country into a construction site, official projections suggest that government's capital expenditure growth will slow down next year, with government instead focusing on attracting private-sector investments and streamlining public-private partnerships," she noted.
The Medium-Term Budget Policy Statement saw a mild response because it did not contain significant negative or positive news. It did revise short- and medium-term revenue estimates down and included no major reduction in the country's substantial wage bill, she said.
BMI does not expect South Africa's rand to strengthen further during the coming year.
The rand outperformed in the second and third quarters of this year owing to a weaker dollar and improved power supply.
However, in line with expectations, there had recently been a slight reversal as the initial investor optimism faded slightly, as it was not supported by significant structural changes in South Africa's economy, said Wolfe.
Additionally, BMI expects ideological rifts in South Africa's Government of National Unity to become more evident in 2025 as the political parties gear up for the 2026 municipal elections.
Meanwhile, the global economy is expected to grow by 2.7% in 2025, with developed market growth expected to soften to 1.7% in 2025, from 1.8% this year, said BMI Sub-Saharan Africa country risk analyst Orson Gard.
Further, US policy towards the sub-Saharan Africa region is expected to remain largely stable, despite the elections taking place.
However, a major risk for South Africa is the possible termination of its eligibility under the US trade policy African Growth and Opportunity Act (AGOA).
A termination of AGOA for South Africa would have major implications for its manufacturing sector, he said.
"South Africa's rand is heavily traded and exposed to a stronger dollar, while its perceived closeness to Russia and China may lead the US to revoke its AGOA privileges, which will be damaging for manufacturing, specifically the automotive sector," he said.
Comments
Press Office
Announcements
What's On
Subscribe to improve your user experience...
Option 1 (equivalent of R125 a month):
Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format
Option 2 (equivalent of R375 a month):
All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors
including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.
Already a subscriber?
Forgotten your password?
Receive weekly copy of Creamer Media's Engineering News & Mining Weekly magazine (print copy for those in South Africa and e-magazine for those outside of South Africa)
➕
Recieve daily email newsletters
➕
Access to full search results
➕
Access archive of magazine back copies
➕
Access to Projects in Progress
➕
Access to ONE Research Report of your choice in PDF format
RESEARCH CHANNEL AFRICA
R4500 (equivalent of R375 a month)
SUBSCRIBEAll benefits from Option 1
➕
Access to Creamer Media's Research Channel Africa for ALL Research Reports on various industrial and mining sectors, in PDF format, including on:
Electricity
➕
Water
➕
Energy Transition
➕
Hydrogen
➕
Roads, Rail and Ports
➕
Coal
➕
Gold
➕
Platinum
➕
Battery Metals
➕
etc.
Receive all benefits from Option 1 or Option 2 delivered to numerous people at your company
➕
Multiple User names and Passwords for simultaneous log-ins
➕
Intranet integration access to all in your organisation