2024q3
Regional eXplorer (ReX) update – 3rd quarter of 2024
S&P Global is glad to announce the third quarter update for 2024 of Regional eXplorer (ReX) – the South African knowledge base of municipal-level insight. Each quarter, data from a vast number of sources are incorporated into the ReX database to provide users with the most up-to-date statistics.
In this newsletter:
2. Medium-and long-term outlook
4. Main data release incorporated in the update
Policy reforms are likely to boost South Africa’s real GDP growth to 1.1% in 2024 and 1.8% in 2025.
S&P Global Market Intelligence revised South Africa’s real GDP growth estimate upward to 1.1% for 2024 and 1.8% for 2025. Policy reforms addressing the most pressing infrastructure bottlenecks in energy, ports, railway and skills
availability combined with the introduction of a two-pot retirement system underline the growth revision. Additionally, the outlook assumes a steady supply of electricity in the medium term with a 62.3% increase in Eskom’s Energy Availability Factor (EAF) in June 2024 supporting the real GDP growth in 2024-25.
The new two-pot retirement system, which gives pension fund holders early access to a small portion of their preretirement savings pool (maximum of $1,400 in the fourth quarter of 2024) is likely to bring down household debt commitments and boost consumer spending. Improved consumer sentiment following the May elections, along with widening real income levels resulting from a decline in headline inflation and lower interest rates, is furthermore expected to support household spending. S&P Global Market Intelligence analyst further revised fixed in – vestment spending for 2025 upward to 3.6% from 2.6% previously following an estimated 2.1% contraction in 2024. Policy reforms, which will boost private-sector participation in energy provision, port facilities and railway services, are likely to strengthen real fixed capital formation in the near term.
The new Electricity Regulation Amendment Bill, signed into law in August 2024, aims to facilitate the transition of South Africa’s power sector into a multimarket model for electricity trading and the unbundling of state power producer Eskom into separate divisions for transmission, generation, and distribution. Projections from S&P Global Commodity Insights indicate a substantial investment pipeline for wind, solar and central power projects. The implementation of renewable energy expansion initiatives may be constrained by the lack of sufficient electricity distribution capacity and limited scope for additional state guarantees to Independent Power Producers, nonetheless.
Resilient global economic growth expected for 2024–25 will partly offset the impact of the ongoing transport infrastructure bottlenecks on South Africa’s export performance during 2024–25. In March 2024, state logistics provider Transnet Freight Rail (TFR) announced that the state-controlled railway network will be opened to private sector participation under Public-Private Partnerships. Benefits of this reform on transport bottlenecks will be only visible toward the end of 2024–25, should legislation be implemented successfully, and private-sector bidders enter the market.
Medium-and long-term outlook
Policy reforms are likely to boost South Africa’s real potential growth rate to 1.1% in 2024 and 1.8% in 2025. The formation of the Government of National Unity (GNU) after the May 2024 elections is set to advance policy reforms in South Africa’s energy, ports, and railway sectors, while addressing critical skills shortages through visa reforms. Increased private-sector involvement in renewable energy, port operations and railway access is expected to enhance gross capital formation via infrastructure development, ultimately bolstering South Africa’s long-term growth potential. Additionally, South Africa stands out in Sub-Saharan Africa for its favorable demographic dividend, with a larger working-age population compared to non-working individuals bolstering potential growth over the long term. Businesses are furthermore likely to expand operations beyond infrastructure development to leverage preferential access under the African Continental Free Trade Agreement (AfCFTA), investing in critical mineral deposits, the tourism sector, and advanced financial and technology services.
Monetary loosening to gain momentum from September 2024 onward, with 125-basis-point easing expected in the policy rate during 2024–25. A fall in headline inflation toward the midpoint of the 3%-6% inflation target range by the fourth quarter of 2024 is likely to prompt a 25-basis-point cut in the South African Reserve Bank’s (SARB’s) policy rate during September followed by a similar cut in November. Monetary easing is expected to continue in the first half of 2025 as lower food and transport cost combined contained service inflation leaves headline inflation close to the SARB’s inflation objective.
Prudent fiscal and monetary policies likely to ensure economic stability. Economic stability will be ensured through the implementation of sound monetary and fiscal policies. S&P Global Market Intelligence anticipates that the South African Reserve Bank (SARB) will maintain its independence, focusing on currency stability and keeping inflation within the 3%-6% target range while ensuring the health of the financial sector. Over the long term, the SARB is expected to lower its unofficial inflation target from 4.5% to 3.0% to align inflation with that of South Africa’s major trading partners. Fiscal transparency is projected under the Medium-Term Expenditure Framework (MTEF), with South Africa ranked among the top three countries globally for transparency by the International Budget Partnership. A binding fiscal anchor, such as a stabilizing primary budget surplus, is likely to emerge in the short to medium term to promote fiscal consolidation and reduce the risk of fiscal imbalances and public-sector debt instability.
Low savings will leave South Africa reliant on foreign direct investment (FDI) to achieve growth objectives. The disparity between savings and investment will result in South Africa depending on FDI, necessitating the maintenance of regional competitiveness to attract capital into the country. Investors can take confidence in South Africa’s favorable business environment. The country has a highly developed and well-regulated financial system, including the Johannesburg Stock Exchange (JSE). While infrastructure bottlenecks have emerged in recent years, South Africa’s Road, rail, and port facilities remain the most advanced in the region. The judicial system is robust, and the diverse skills pool, along with top-ranking tertiary institutions, positions South Africa to capitalize on the anticipated regional economic growth in the coming years.
Political developments continue to pose the biggest risk to South Africa’s long-term prospects. Delays in implementing essential policies to address infrastructural bottlenecks pose a risk to our long-term outlook. While markets welcomed the formation of the GNU in 2024, the potential for a coalition collapse within five years remains a concern. Additionally, policy paralysis may occur due to significant differences in political ideologies regarding growth and ministerial objectives. South Africa is one of the most unequal societies in the world, leaving the risk for social unrest and pressure for social support programs high. State inefficiency, public-sector brain drains, the collapse of service delivery on municipality level, high crime statistics and a vulnerability to adverse weather conditions continue to pose a risk to South Africa’s long-term prospects.
Upside potential of the rand exchange rate improves. The rand exchange rate strengthened to levels of 17.84 to the US dollar by mid-August from 18.34 to the US dollar at the beginning of the month. A weaker US dollar supported the undervalued rand exchange rate, with a fair value closer to 15.35 to the US dollar. Faster policy rate cuts in the US compared with South Africa are likely to support the rand exchange rate in 2025. S&P Global Market Intelligence analysts expect the rand to trade at around 17.80-18.30 to the US dollar for the remainder of 2024, with a 2.5% appreciation assumed in 2025. A wider current-account deficit at 2.1% of GDP in 2024–25 will continue to cap the rand’s upside potential in the near term.
Risk to the forecast
The political party participation in the Government of National Unity (GNU) is expected to ensure policy continuation in areas such as fiscal, monetary, energy, transport, labor and mining. The ongoing implementation and broadening of reforms could strengthen South Africa’s near-term prospects beyond the current baseline.
There are several downside risks to the current economic forecast;
- The GNU established after – the May 2024 elections unravels owing to policy diversity and lack of consensus among political parties. President Cyril Ramaphosa resigns, and policy and political uncertainty deter domestic and international sentiment. Policy reforms in energy, transport, mining, and labor stall.
- Private-sector portfolio and fixed investment are delayed owing to mounting concerns about property rights, social unrest, and electricity supply.
- Ongoing adverse weather conditions pose a threat to low food prices, and hence risks raising inflation and lowering purchasing power — with particularly dismal consequences for low-income households.
- South African loses preferential trade access to the US under the African Growth and Opportunity Act (AGOA) owing to increasingly strained US-South Africa political relationship. The US suspends financing for the South Africa renewable energy program.
- The government delays government spending rationalization programs, which include the public-sector wage bill and state-owned enterprise (SOE) inefficiencies. Public-sector debt levels escalate above current expectations, triggering further sovereign credit risk downgrades by international rating agencies, being crowded out of public investment, and deterring long-term growth prospects.
However, there are upside risks to the current forecast. The GNU leadership may launch a series of reforms and policy actions to address the weaknesses in the education system, loss in international competitiveness, the mining charter, and the financial viability and leadership of SOEs. Lastly, International commodity prices move above the baseline outlook; this improves the growth and exchange rate outlook in the South African economy.
Main data releases incorporated in the update
ReX has been updated with the latest data available from StatsSA, SARB, SAPS. The main data updates from the past quarter included the Domestic Tourism Survey (DTS 2020 & 2021), Quarterly Labour Force Survey (QLFS 2024Q2), Fuel Sales Volumes for 2023 and the Quarterly National GDP.
Over the last quarter, the South African Police Service released quarterly Crime data after a delay in the previous quarters data. Both 2023-2024 Q4 and 2024-2025 Q1 were incorporated into ReX this quarter. It has been revealed that there is an increase in violent crimes reporting in South Africa, this sentiment is further supported by the Quarter and Annual crime data within the Crime Module. The chart below illustrates the Top 10 regions that experienced an increase in their Violent Crime Index between the two years. Bela Bela's Violent Crime increased by 34% between 2022/23 and 2023/24, the highest growth among the South African Local Municipalities.
StatsSA recently re-released their provincial GDP after halting the publication in 2022. The new release incorporates new data sources and methodological improvements. Key findings from the updated data release are that Kwa-Zulu Natel, Eastern Cape and Western Cape recorded the largest growth rates above the national average. KwaZulu- Natal had a significant upward revision in 2023 between the two versions while North-west’s GDP was revised down by 1%. However, the GDP bounces back in 2024 up to a 1% growth. Eastern Cape’s GDP had an upward revision for both 2023 and 2024 to a complements StatSA GDP-R findings. KwaZulu- Natal had a significant upward revision in 2023 between the two versions while North-west’s GDP was revised down by 1%. However, the GDP bounces back in 2024 up to a 1% growth. Eastern Cape’s GDP had an upward revision for both 2023 and 2024 to a complements StatSA GDP-R findings.
In 2023, Gauteng remains the highest contributor to the national GDP total with KwaZulu-Natal and Western Cape remaining in the top 3 dominating provinces. Northern Cape brings up the rear with a 2% contribution. Community Services sector is a top contributor in 6 of the 9 provinces, with Finances contributing the most to both Gauteng and Western Cape’s GDP.
Population Census 2022 Update
Since the release of the 2022 Census on the 10 October 2023 by Stats SA the ReX team has investigated the overall findings, and particularly the regional distributions brought forward. In our investigation, one of the most notable findings was that the City of Johannesburg saw a decreasing rate of population growth. This is the only metropolitan area that saw a decrease between the year 2011 and 2022 and differs with the consensus of other estimated models.
Most estimates are very consistent over time for the various regions, but JHB did see more variation, with the Census 2022 result being an outlier. Initially ReX (v2496) saw a lower estimate for JHB when compared with the Mid-Year Population Estimates published in 2022 (MYPE ’22), thereafter Census 2022 published a much lower result in October of 2023. Recently we saw again the latest MYPE ’24 rising the estimate for JHB compared to Census, but lower now against S&P Global’s most recent view.
City of Johannesburg
Based on the present age-gender structure and the present fertility, mortality and migration rates, City of Johannesburg's population is projected to grow at an average annual rate of 1.9% from 5.99 million in 2023 to 6.59 million in 2028.
The population projection of City of Johannesburg Metropolitan Municipality shows an estimated average annual growth rate of 1.9% between 2023 and 2028. The average annual growth rate in the population over the forecasted period for Gauteng Province and South Africa is 1.7% and 1.2% respectively and is lower than that the average annual growth in the City of Johannesburg Metropolitan Municipality.
The population pyramid reflects a projected change in the structure of the population from 2023 and 2028. The differences can be explained as follows:
- In 2023, there is a significantly larger share of young working age people between 20 and 34 (24.8%), compared to what is estimated in 2028 (22.8%). This age category of young working age population will decrease over time.
- The fertility rate in 2028 is estimated to be slightly higher compared to that experienced in 2023.
- The share of children between the ages of 0 to 14 years is projected to be significantly smaller (19.9%) in 2028 when compared to 2023 (21.5%).
In 2023, the female population for the 20 to 34 years age group amounts to 12.6% of the total female population while the male population group for the same age amounts to 12.2% of the total male population. In 2028, the male working age population at 11.2% does not exceed that of the female population working age population at 11.6%, although both are at a lower level compared to 2023.
Note on ReX versus Census 2022
Although the StatsSA Census 2022 is an important and vital source of socio-economic data in South Africa, there are numerous reasons why using Regional eXplorer as a data source remains vital and independent. Primarily, users should bear in mind that the models make use of all the available Census data but also includes hundreds of other data sources as well. The S&P Global ReX service covers variables that cannot be measured in a Census. Because the Census is a household-side measure, it cannot measure anything from the business side of the economy. Furthermore, there are various questions that the Census does not ask, but which have been modeled into ReX through the application of other data sources. Variables that are available in ReX, but are not available in the latest Census: Gross Domestic Product (GDP), Gross Value Added (GVA), Labour Remuneration, Tourism data, International Trade data, Retail Sales, Gross Operating Surplus, Tress Index, Location Quotient, Crime data, Employment (at place of work).
Enjoy the update!
The S&P Global ReX team