South Africa boasts one of the largest economies in Africa, and attracts the business of many of our clients. The country is a big player in the mining, manufacturing, finance and retail markets. Our analysts expect South Africa’s economic reforms to progress at a sluggish pace, as the government's attempts to appease the members of the tripartite alliance – which have differing political views – will result in indecision on policy.

Using our unique Total Analysis model, we ensure that our clients make risk-assessed decisions in South Africa. We keep them informed of the latest market moves and political developments supported by our interactive data and forecasting. Clients also benefit from in-depth analysis of 24 of South Africa’s most important industries as part of our 'top-down' and 'bottom-up' perspective. Our research teams make it easy for you to succeed in South Africa.

Country Risk

South Africa Country Risk

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Core Views:

  • South Africa's electricity crisis reflects structural political and economic challenges that will not be addressed under the current administration. We are revising down our near-term growth forecasts, as rolling blackouts will mitigate the positive growth impact of lower oil prices, while limited labour and product market reform will cap the longer-term growth rate below the 3% mark.

  • South Africa's ruling African National Congress party will gradually adopt more populist, leftwing policies over the next four years in an attempt to retain dwindling popular support. Policy proposals will be mainly rhetoric until the 2016 municipal elections, after which point we expect an increasing focus on genuinely distributive policies.

  • Weak growth and policy priorities ahead of next year's...

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South Africa Operational Risk Coverage (9)

South Africa Operational Risk

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BMI View: Due to its strong military, relative dearth of territorial disputes, and minimal terrorism threats (thanks to a limited presence on the international stage), crime represents the greatest security risk in South Africa, particularly for foreign workers. The biggest threat to investors stems from the country's high crime rate with ATM scams, street muggings, car-jackings and burglaries a regular occurrence across the country. This threat is reflected in South Africa's underwhelming score of 26.7 out of 100 for Crime Risk, placing 28th in the Sub-Saharan (SSA) region. Moreover, an ineffective and corrupt police force leaves businesses reliant on costly private security services to protect their assets.

By far the biggest security risk affecting South Africa is its very high...

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South Africa Crime & Security

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BMI View:  Due to its strong military, relative dearth of territorial disputes, and minimal terrorism threats (thanks to a limited presence on the international stage), crime represents the greatest security risk in South Africa, particularly for foreign workers. The biggest threat to investors stems from the country's high crime rate with ATM scams, street muggings, car-jackings and burglaries a regular occurrence across the country. This threat is reflected in South Africa's underwhelming score of 26.7 out of 100 for Crime Risk; 28th highest in the region. Moreover, an ineffective and corrupt police force leaves businesses reliant on costly private security services to protect their assets. In light of this, we have awarded South Africa an overall Crime and Security risk score of 58.4, leaving it in fifth place regionally, and 8.9 points behind regional leader Lesotho....

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South Africa Labour Market

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BMI View: Overall, South Africa scores highly with regards to Labour Market risks, a growing pool of skilled workers, high urbanisation and relatively low non-labour workforce costs boosting the attractiveness of the country compared to other states in the region. However South Africa's overall rating is depressed by the heavy regulations governing workforce demographics, powerful unions keeping wages up and a high unemployment rate. Overall, South Africa receives a score of 47.5 out of 100 in BMI 's Labour Market Risk Index, placing the country seventh out of 44 countries in the Sub-Saharan Africa (SSA) region.

Education presents a relatively low risk to investors...

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South Africa Logistics

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BMI View: South African supply chains are reliant on a relatively superior quality transport network, and are subject to lower barriers to trade in terms of import and export costs compared with the rest of the Sub-Saharan Africa (SSA) region. However, both water and power shortages threaten the long-term growth of the South African economy and pose high risk to investors considering expanding their operations to this market. These factors are highlighted in the country's score of 54.8 out of 100 in the BMI Logistics Risk Index, which makes it a regional outperformer in SSA, placed second behind Mauritius.

Supply chains in South Africa benefit from...

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South Africa Trade & Investment

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BMI View : South Africa is one of the most attractive and stable countries in the region, offering a well-defined and well-implemented legislative environment with good contract enforcement and strong intellectual property protection. Furthermore, the country is open to foreign investment, and offers a diversity of investment opportunities, which have fostered the largest inward FDI stock in the region. Finally, businesses benefit from a relatively low burden of red tape and a fairly competitive tax bureaucracy. Consequently, BMI awards South Africa a score of 65.3 for Trade and Investment Risks, placing it in second place overall, between Mauritius and the Seychelles.

Despite ranking first in the region for its Economic Openness, businesses face the highest degree of risk from South Africa&#39...

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South Africa Industry Coverage (24)

Agribusiness

South Africa Agribusiness

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BMI View: While we hold a positive view on the South African agricultural sector and see particular growth in the livestock sector, we are less optimistic on sustained growth in cereals production. This will be due to slower yield growth owing to lower input usage from a weaker currency and limited development in GMO seed plantings. The sugar sector also presents interesting growth opportunities, mainly thanks to renewed investment and improved technologies. The country's livestock sector will see greater growth over the coming years, owing to lower grain prices and increasing demand from a more affluent population. We believe the country's main agribusiness companies will reap the benefit from lower global grain prices and...

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Autos

South Africa Autos

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A strong sales performance over the final month of the year meant that total new vehicle sales in South Africa ended 2014 down by only 1.1% year-on-year (y-o-y), at 642,670 units. Breaking down the headline figure, passenger car sales were down by 2.5% y-o-y, at 439,264 units, while light commercial vehicle (LCV) sales grew by 2.3% y-o-y, to 173,190 units. Medium/heavy trucks and buses also grew, by 1.3%, to 30,301 units.

Looking forward, BMI is expecting the outlook for new car sales to improve somewhat over the coming year, although some challenges will remain. On the macroeconomic front, the recent rapid decline in global oil prices has provided some good news for the local economy and BMI's Country Risk team has made a small upward revision to its forecast for 2015 real GDP growth, which we now see coming in at 2.5% in real terms, up from 2.1% previously.

Lower...

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Commercial Banking

South Africa Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

South Africa Consumer Electronics

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BMI View: In the Q2 2015 update we undertook a major revision of the historical data for South Africa's consumer electronics market, scaling down our estimate for PC market value, as well as extending the forecast period to 2019. Even with the revision, our outlook for medium-term consumer electronics spending growth remains on track. Relatively weak economic growth, and particularly our in-house Country Risk team's forecast for rand depreciation against the US dollar 2015-2019, weigh on the growth outlook. The erosion of South African household purchasing power in global markets will to some extent be offset by an increasing supply of low-cost smartphones and tablets as mobile operators encourage greater data usage...

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Defence & Security

South Africa Defence & Security

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We expect the South African defence budget to reach USD3.6bn in 2014. For the remainder of the forecast period, up to and including 2018, we expect the defence budget to rise, with the country spending on average USD5.3bn on defence annually. The final year of the forecast period (2018) will see defence spending reach USD6.8bn.

Between 2001 and 2011, the SANDF has comprised an average of 68,400 personnel. The numerical size of the armed forces has fluctuated widely between the 55,000 personnel they possessed in 2004 to the personnel strength of 103,000 recorded in 2006.

We have given South Africa an overall security risk rating of 75 for Q414. We believe that the country has a very low risk of becoming involved in a major international conflict. Secondly, the country is considered very unlikely to experience a major terrorist attack. However, the same cannot be said regarding crime with the country maintaining a...

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Food & Drink

South Africa Food & Drink

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BMI View: South Africa's economic growth will remain on the slow side over the coming months, although we have revised upwards our 2015 real GDP growth forecast to 2.5% from 2.1% due mainly to the positive impacts for consumers of recent oil price declines. We forecast that inflation will fluctuate between 4.0-5.4% over the remainder of 2015, keeping it within the South African Reserve Bank's target of between 3.0-6.0%. Although the outlook for private consumption has improved, we still believe it will be subdued by the standards of recent history, thanks to high unemployment amongst other factors, and our real growth forecast for 2015 stands at 2.0%.

Headline Industry Data

  • 2015 per capita food consumption (local currency) = +6.7%; five-year forecast compound annual growth...

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Freight Transport

South Africa Freight Transport

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BMI View : Our forecasts for the South African freight transport sector are positive across all modes in 2015 - air, road, rail, and through the country's ports. The economy will see a partial recovery from 2014's anaemic growth of 1.4%, and we forecast a real expansion of 2.5% this year. That said, growth in freight volumes will not be particularly robust, and there are significant downside risks to our projections, not least from the mining sector and a potential hard landing in China. South Africa's freight transport sector is driven primarily by two forces: private consumption and the mining sector. Manufacturing industries play a limited role in the intermodal transport of containers, but this is primarily driven by imports. Automotives production necessitates the transport of spare and...

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Information Technology

South Africa Information Technology

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BMI View: We undertook a significant revision of market data for South Africa's IT market for Q2 2015, revising our estimate for market size downwards, as well as extending the forecast to 2019. However, our bullish outlook for IT market spending growth over the medium term remains unchanged, although prospects for rand depreciation against the US dollar weigh on the outlook. The IT market continues to primarily be driven by government spending as well as large enterprises, both of which are expected to slow their spending in the light of a slower economy. However, there is growing interest in IT solutions...

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Infrastructure

South Africa Infrastructure

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BMI View: The ongoing power shortages in South Africa will weigh on the construction industry's growth over 2015, with our 3.4% real growth forecasts for the year reflecting this. While the mining industry and business sentiment in general will be similarly damaged by this, we expect low-cost homes to be a major driver of growth, along with renewable energy projects and railways. Despite headwinds, South Africa remains one of Sub-Saharan Africa's most attractive construction markets, offering both scale and a stable business environment.

We have marginally revised down our 2015 forecast for real growth in the South African construction industry to 3.4% year-on-year for 2015, down from 3.9%. This move is on the back...

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Insurance

South Africa Insurance

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BMI View: We have a positive outlook for South Africa's overall insurance sector over the 2015-2019 period. While the rand's ongoing depreciation against the dollar is suppressing the development of premiums in USD terms, we confirm medium single-digit growth rates in local currency terms in both the life and non-life segments. Consistently accounting for over 80% of total written insurance premiums, life insurance is set to account for the predominant part of the industry's overall growth in the coming years. Interestingly, while the largest sub-segments - motor vehicle and property insurance - are seeing their non-life market shares fall, the sluggish economic growth has brought credit-financial guarantee...

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Medical Devices

South Africa Medical Devices

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BMI Industry View : The medium term prospects for the medical device industry look encouraging; based on current trends, the market, of which over 90% is supplied by imports, is expected to grow at a CAGR of 5.6% from 2013-2018. A key driver of growth is expected to be the public-private partnerships to develop hospitals in South Africa but this could be tempered slightly, by a depreciating rand against the US dollar and the general state of the South African economy. The long term growth prospects of the South African medical device market will be strongly influenced by the ANC government's policies in regards to the new National Health Insurance (NHI) scheme, the promotion of public-private partnerships to develop and upgrade hospitals, the serious shortage of healthcare personnel and an urgent need to effectively...

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Metals

South Africa Metals

Mining

South Africa Mining

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BMI View: South Africa's mining sector growth will remain subdued as the country's gold and platinum sector face diminishing margins and industrial strife. Additionally, the coal and iron ore sectors will come under pressure as weak prices will dent production output over the coming quarters.

Vast untapped mineral reserves, supportive government jurisdictions and few obstacles prohibiting foreign investment make South Africa's business environment one of the best on the continent. Despite this, weak mineral prices and continued labour unrest will curb the country's mining sector growth outlook over the coming quarters. We expect South Africa's share of global mined output to decline as other mining jurisdictions experience faster rates of growth. We expect investment, particularly in gold mining, to be more attracted to low-cost, high resource...

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Oil & Gas

South Africa Oil & Gas

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BMI View: Continued regulatory uncertainty combined with the strains of a lower oil price environment will weigh heavily on companies' decisions to invest in South Africa's vast prospective deepwater and unconventionals resources base. We expect limited exploration in the country, in advance of a more sustained rebound in global oil prices. South Africa's downstream will continue to face major technical and financial headwinds; utilisation rates will remain low, driving mounting import dependence across our 10-year forecast period.

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Headline Forecasts (South Africa 2013-2019)
2013e 2014e

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Petrochemicals

South Africa Petrochemicals

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BMI View: On the back of lower oil prices, private consumption in South Africa is expected to rise, which should have a positive knock-on effect on the domestic petrochemicals industry as demand recovers somewhat. Meanwhile, the depreciation of the rand is expected to support local output. This, however, depends on how well the authorities control inflation.

South Africa's plastic and rubber output declined in 2014 alongside the overall depressed economic situation, with real GDP growth estimated to have slowed to 1.4%. For 2015, we expect the South African economy accelerate on the back of lower oil prices, with GDP growth forecast at 2.5%. On the back of improved economic conditions, resulting in rising private consumption and rising demand, the country's petrochemicals industry is set to recover somewhat, as consumption of plastics used for packaging is set to increase.

...

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Pharmaceuticals & Healthcare

South Africa Pharmaceuticals & Healthcare

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BMI View: The continued commitment of the South African government to boosting spending on healthcare will be the primary driver for the growth of the pharmaceutical market in 2015. Although lower oil prices will improve the consumer environment for lower cost medicines, rampant unemployment will continue to hurt private consumption growth.

Headline Expenditure Projections

  • Pharmaceuticals: ZAR39.79bn (USD3.67bn) in 2014 to ZAR43.44bn (USD3.65bn) in 2015; +9.2% in local currency terms and -0.6% in US dollar terms.

  • Healthcare: ZAR332.81bn (USD30.68bn) in 2014 to ZAR362.91bn (USD30.45bn) in 2015; +9.0% in local currency terms and -0.7% in US dollar terms.

...

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Power

South Africa Power

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BMI View: This quarter we have expanded our forecasts to 2024. That said, our fundamental assumptions for the country remain relevant. Our negative outlook for South Africa's power sector is based on inefficient existing generation capacity, a lack of investment, delays to project commissioning and the precarious financial situation of Eskom. These factors show little sign of abating over the short-to-medium term - with wide-ranging implications for the country's economy and mining sector in particular . On a more positive note,...

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Real Estate

South Africa Real Estate

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BMI View:  We believe that the real estate sector in South Africa will remain stable, but there are downside risks to our forecasts as a result of macroeconomic headwinds affecting the sector. We believe that the most significant opportunities lie within the retail sector, although over the long term, there is significant opportunity for commercial real estate firms to cater to businesses setting up in South Africa with a view to expanding elsewhere on the continent.  

Over the short term we are fairly pessimistic for the commercial real estate market. High inflation, low GDP growth and a slowdown in major trading partner China will all have an impact on the sector, whilst rising living costs and interest rates will affect personal consumption. This will lead to low growth in rental rates in the short term, and we would...

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Renewables

South Africa Renewables

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BMI View: Two pertinent risks are threatening the growth prospects of the South African renewable industry. Both South Africa's ageing and inefficient power network infrastructure and the country's lack of resource capacity to ensure both the conventional power and renewable industries grow in tandem are threatening the sustainability of growth in the renewables sector.

We have been tracking South Africa's rapidly expanding renewables industry over the last three years, as the Renewable Energy Independent Power Producer Programme (REIPPP) has progressed. The success of the procurement programme, in terms of attracting international renewables developers and suppliers into the market and bringing projects online, has cemented South Africa as one of the key renewable energy growth markets, not just in...

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Retail

South Africa Retail

Shipping

South Africa Shipping

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BMI View: We forecast positive growth across South Africa's ports in 2015, following a decline at many facilities in 2014. High levels of unemployment and negative sentiment have been weighing on consumer demand, but we expect that a fall in the price of oil will boost household spending in 2015. While demand will still be far from robust, it will nevertheless not see a dip. In terms of gross tonnage volumes, coal will continue to be the primary driver of growth, although the slowdown in China does present some risk to this.

Headline Industry Data

  • Richards Bay Port tonnage throughput in 2015 is forecast to return to growth at 2.0% following a decline in 2014. Over the medium term to 2019 we project a 2.2% average annual increase.

  • Port of Durban container throughput is forecast to grow by 2.5%...

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Telecommunications

South Africa Telecommunications

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BMI View: Investment in fibre optic network infrastructure will enable South Africa's telecoms service providers to diversify their product offerings for corporate and residential customers, and create new revenue streams to offset the disruptive impact of regulatory interventions and competition dynamics on traditional service revenues. In addition to enterprise solutions, residential services such as IPTV and VoD services will grow rapidly in the coming years on the back of these network infrastructure rollouts as well as the growing demand for convergence services by consumers.

Key Data

  • The mobile market grew by 2.6% q-o-q in Q314 to bring total growth in 9M14 to 15.2%.

  • Market average ARPU declined by 1.1% in Q314 in spite...

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Tourism

South Africa Tourism

Water

South Africa Water

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BMI View:  We have maintained our water forecasts this quarter, as South Africa's water industry continues to remain comparatively strong, with a large amount of projects in the pipeline. However, with numerous issues plaguing the water services sector, and limited funds, we anticipate little in the way of new infrastructure project developments over the coming year.

We highlight various core problems facing the water sector in South Africa. The first of these is the inadequate infrastructure - both the existing facilities and networks which are frequently outdated, inadequate or under-maintained, resulting in poor quality water and wastewater treatment, and high levels of water leakage (as high as 45% in some regions). The second infrastructure issue is the lack of...

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