Oxford Economics Africa has said that the outcome of South Africa’s key election on May 29 was unlikely to jolt the rand, though inflation will creep up to 5.2% post the poll as a result of higher international oil prices and the El Niño-induced drought.
The El Nino drought conditions have afflicted and negated food productivity in much of Southern Africa, with neighbouring countries such as Zimbabwe, Malawi and Zambia worst affected.
Although Africa – largely a surplus producer of grain – is likely to be less affected, countries such as Zimbabwe have already started to count the cost of the drought.
Construction companies are also expecting that lesser government spending on infrastructure development to focus on humanitarian assistance will hit their order books for the current year.
In a research note, Oxford Economics Africa analysts Low Nel and Jee-A van der Kinder said that for South Africa, El Niño has coincided with this year’s elections, disruptions to global trade from Ukraine, Israel wars, as well as depressed commodity prices.
They said while the uncertainty emanating from the May 29 elections was least likely to spook the rand, factors such as global trade disruptions, higher commodity prices and El Niño will have a bearing on the value of the domestic currency and inflation.
“The election result will not shock the rand, but lofty international oil prices and El Niño will keep inflation high, and it will decline only slowly in the following years,” they said.
Standard Bank, which expects the governing ANC to notch up sufficient votes in the May 29 election to avoid a coalition that could steer policy towards a more populist stance, has cautioned investors to brace for a “tumultuous” period ahead of the key poll.
“Investors should brace for a tumultuous political year as political uncertainty and risk aversion may keep investors sidelined and underweight in South African equities,” said Standard Bank.
On the consumer prices front, Oxford Economics Africa expects SA’s inflation to close at 5.2% in 2024.
A higher inflation will likely result in the South African Reserve Bank (Sarb) delaying its rate-cutting cycle.
“The Sarb will hold rates until the third quarter. Supply-side constraints will limit real GDP growth to 0.7% in 2024 and 1.4% in 2025,” said Oxford Economics Africa.
This implies that SA’s economic growth outlook “remains dismal” for 2024, owing to “logistical constraints, load shedding, and weak consumer spending which is being constrained by high unemployment and elevated interest rates”.
“Although we expect growth to accelerate somewhat in the medium term as load shedding eases, structural constraints are expected to keep growth well below 2% per annum,” Nel and Van der Kinder said.
“The domestic economy’s problems are structural, exacerbated by a lack of investment and insufficient maintenance of critical infrastructure over the years.”
Oxford Economics Africa analysts also pointed to worrying levels of private sector confidence, concerns over state capture and ineffective policies, as key hold-ups for the expected decline in economic performance post the May 29 poll.
Worse still, they said South Africa was also battling inequality despite setting an 8% increase to the national minimum wage for this year.
“South Africa is one of the most unequal societies in the world, suffering from high unemployment, inequality, and crime. Welfare grant recipients numbering about 18.4 million far outstrip income taxpayers of about 7 million, representing a risk to the fiscus and social cohesion.”
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