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

BMI View:

Core Views:

  • Growth will slow sharply in 2016, rebounding only slightly in 2017. We expect household expenditure growth to collapse, while government expenditure growth decelerates on the back of fiscal consolidation and gross fixed capital formation growth also slows given continued policy uncertainties.

  • We believe that the South African Reserve Bank (SARB) will tighten rates by another 50 basis points (bp) to 7.5% in Q3, given three sources of upside pressures on inflation: 1) the second-round effects of food price inflation, 2) exchange rate depreciation and an increased pass-through from the exchange rate to inflation and 3) a recovery in oil prices.

  • We expect South Africa's current account deficit to narrow marginally to 4.0% of GDP in 2016 from 2015's 4.4% as the trade deficit continues to narrow following the Q1 bottom...

South Africa Operational Risk Coverage (9)

South Africa Operational Risk

BMI View:

BMI View: South Africa is one of the most attractive markets in Sub-Saharan Africa on account of its limited security risks, well-regulated open market and investor-friendly business environment, combined with its superior logistics offering and abundant natural resources. Nonetheless, the country's competitiveness is hampered by a weak economic outlook, a limited and largely unskilled labour pool and a heightened political risk profile. In addition, high crime levels increase the dangers for foreign businesses and personnel alike. Nevertheless, South Africa is a regional leader for Operational Risk, sitting second in our total Operational Risk Index, with a score of 54.3 out of 100.

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South Africa Crime & Security

BMI View:

BMI View: South Africa poses risks associated with the country's violent society, which companies need to protect themselves against. While crime levels are amongst the highest in the world, South Africa faces a limited terrorist threat and has stable relations with its neighbours and major powers. Businesses are exposed to corruption, but the regulatory framework in place to combat financial and organised crime is stronger than regional averages. South Africa obtains a score of 49.7 out of 100 for Crime and Security Risk, putting the country in sixth place out of 48 Sub-Saharan African states.

Crime Heightens Risks In South Africa
South Africa and Regional Average Crime and Security Scores
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South Africa Labour Market

BMI View:

BMI View: Risk levels in South Africa's labour market vary according to sector. Businesses looking to use South Africa as a base for accessing the Sub-Saharan African market will benefit from a larger pool of skilled workers than in the country's regional peers. Labour intensive industries such as mining and manufacturing, while enjoying access to large labour pool, face numerous risks stemming from the population's poor health levels and high trade union activity which affect productivity and raise costs. As a result of these varied implications, the country scores a moderate 48.5 out of 100, which ranks it in 7th place out of 48 Sub-Saharan African states.

Availability of Labour (42.1/100): South Africa's large and...

South Africa Logistics

BMI View:

BMI View: South African supply chains are reliant on a relatively developed transport network, and are subject to lower barriers to trade in terms of import and export costs compared with the rest of Sub-Saharan Africa. 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 56.6 out of 100 in the BMI Logistics Risk Index, which makes it a regional outperformer, placed second behind...

South Africa Trade & Investment

BMI View:

BMI View: South Africa performs well overall on BMI's Trade and Investment Risk Index, placing only behind Mauritius as a regional outperformer. South Africa's economy and business confidence levels experienced a rough 201;, however, these have not changed the country's fundamental characteristics which have contributed to this score. The following contribute to South Africa receiving its high score: the highest levels of trade volumes and FDI inward stocks in the SSA region; an efficient tax system and competitive corporate taxation rates; a stable banking and financial services sector;...

South Africa Industry Coverage (22)

Agribusiness

South Africa Agribusiness

BMI View:

BMI View: We continue to hold a mixed outlook for the South African agricultural market as a whole. Both corn and wheat will be hit by severe drought and the effects of El Nino, but we do expect grains to rebound over the course of our forecast period. Furthermore, livestock production and sugar consumption will both embark on a positive trajectory. Over the medium term, a weak rand, weather volatility and falling farm incomes will exert downward pressures on the market...

Autos

South Africa Autos

BMI View:

BMI View: Total vehicle sales are forecast to grow 1.7% in 2016 and at an annual average of 1.8% over our 2016-2019 forecast period. The headwinds within the South African economy will drag on new vehicle sales, with the export market providing the outlet required for growth to remain in positive territory.

Domestic Demand Dragging On Vehicle Sales
Total Vehicle Sales By Segment
e/f = BMI estimate/forecast. Source: NAAMSA, BMI

Key Views...

Commercial Banking

South Africa Commercial Banking

BMI View:

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

Consumer Electronics

South Africa Consumer Electronics

BMI View:

BMI View: We have further downgraded our forecast for the South African consumer electronics market in 2016 in our Q316 report update to reflect our Country Risk team's outlook for a sharp depreciation of the rand this year. This will further squeeze demand for higher value PC and AV devices, which have been hardest hit by currency depreciation and weakened purchasing power in global markets over 2013-2015. However, following a 22.5% depreciation in 2016, we expect the rand to stabilise by 2020. This will allow rising demand for smartphones, tablets, supported by an increasing supply of low-cost devices, as well as previously deferred PC purchases, to drive a return to growth in US dollar terms.

Latest Updates And...

Defence & Security

South Africa Defence & Security

BMI View:

BMI View: South Africa's defence budget will remain limited in the medium term, amid difficult economic conditions and as the government focuses spending on much-needed service delivery improvements rather than military development. Over the longer term, as the economy improves, defence spending will register gradual growth amid rising regional terrorist threats and domestic risks linked to crime and social unrest, necessitating investment into maintaining and improving the SANDF's capabilities. We expect exports from the well-developed South African defence industry to grow steadily over the next decade, as foreign engagement with local companies strengthens.

Headline Defence Expenditure Forecasts (South Africa 2016-2020)
...

Food & Drink

South Africa Food & Drink

BMI View:

BMI View: South Africa's food and drink industry will remain hampered by the country's economic downturn in 2016. The consumer outlook will be bleak over this period stemming from rising food prices, which will weigh on household spending. We believe industry players will diversify their product offerings into more value-added segments in order to capture the more cash-strapped consumers switching out of mainstream categories.

Food and Drink Spending
(2013-2020)
...

Freight Transport

South Africa Freight Transport

BMI View:

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 1.9% this year and in 2016. 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 intermediate parts.

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Information Technology

South Africa Information Technology

BMI View:

BMI View: We continue to hold a positive outlook for the South African IT market in 2016 and beyond, over our forecast period to 2020. Nevertheless, the primary concern is the heavy depreciation of the South African rand against the US dollar. Despite the rally throughout the first months of 2015, the fundamental economic issues weighing on the rand - infrastructure bottlenecks and strike action - remain intact, and we therefore expect diminished demand for hardware to continue in 2016, before stabilising in 2017. The strongest driver of growth in the IT market will be government spending via service expansion and modernisation efforts. There is also growing interest in IT solutions by SMEs looking to explore new sales and marketing channels...

Infrastructure

South Africa Infrastructure

BMI View:

BMI View: South Africa's construction market has entered into a period of subdued growth as macroeconomic and operational headwinds weigh on business confidence and limit productivity in the sector. We expect rail and renewable energy sectors to post the most solid performance, with improved freight logistics and a more stable power supply crucial to economic growth. Support will also stem from the continued implementation of the low-cost housing programme.

Forecast & Industry Developments

  • We are maintaining our forecast for 1.6% real growth over 2016 and annual average growth of 2.2% in real terms over the next five years up to 2020. Nominal industry value will rise from an estimated USD11.2bn in 2015 to USD15.5bn in 2025, keeping it as one of the largest construction markets in Sub-Saharan Africa.

  • ...

Insurance

South Africa Insurance

BMI View:

BMI View: South Africa's insurance market is easily the most developed in the Sub-Saharan African region, playing host to a number of major conglomerates, many of which boast extensive overseas operations across Africa as well as European markets. Despite the market's maturity, we see potential for substantial long-term growth in both life and non-life premiums as rising income levels and an increasingly varied product mix allow insurers to expand their customer base to lower income groups. However, a sluggish macroeconomic backdrop will serve to dampen the short-term expansion efforts of insurers, with many providers finding stronger growth opportunities in neighbouring Sub-Saharan markets. As a result, premiums growth will be quite muted in USD terms over the forecast period to 2020.

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Medical Devices

South Africa Medical Devices

BMI View:

BMI View : 2016 will be another challenging year for the healthcare sector as the economic outlook worsens on the back of a very weak currency. Domestic production is growing in sophistication, but the vast majority of the market will remain dependent on imports. The FY2016-17 budget release confirms that health spending will continue to grow, primarily to support the introduction of the national health insurance scheme.

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Projected Medical Device Market, 2015-2020

Mining

South Africa Mining

BMI View:

BMI View: South Africa's mining sector will face persistent headwinds due to labour unrest, mineral price weakness, further divestments and retrenchment.

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South Africa Mining Industry Value Forecast
2015e 2016f 2017f 2018f

Oil & Gas

South Africa Oil & Gas

BMI View:

BMI View: Major planned overhauls of the country's regulatory and fiscal regimes are a broad positive for the South African oil and gas sector. However, the pace of reform will likely remain slow and we see limited upside to the upstream sector over the short to medium term. As such, and despite relatively moderate oil consumption growth, domestic production will struggle to keep pace with demand driving a higher dependence on imports over the 10-year forecast period. Our outlook on the downstream segment is heavily bearish, due to ageing and poorly efficient refining capacity, weak profitability and limited appetite for investment.

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Headline Forecasts (South Africa 2014-2020)

Petrochemicals

South Africa Petrochemicals

BMI View:

The South African petrochemicals industry is set for stronger growth in 2016 as a result of low base effects, a modest upturn in local consumption and capacity growth in the C3 chain. However, the sector has been the worst affected area of an economy that is enduring sub-2% growth and falling competitiveness, weighed down by poor consumption, strike action and disruption to electricity supply.

In 2015, South Africa had ethylene capacity of just under 700,000 tonnes per annum (tpa) and propylene capacity of 960,000tpa. Meanwhile, polymer capacities included a total of 570,000tpa of polyethylene (PE), 60,000tpa of polyethylene terephthalate (PET), 680,000tpa of polypropylene (PP) and 200,000tpa of polyvinyl chloride. This gives South Africa a relatively small yet diverse petrochemicals base. However, capacities are unlikely to change over the medium term.

In 2015, basic chemicals output fell 0.6% y-o-y, while plastic fell...

Pharmaceuticals & Healthcare

South Africa Pharmaceuticals & Healthcare

BMI View:

BMI View: South Africa boasts the largest pharmaceutical market in Africa, and already has a well-established manufacturing industry supported by foreign investment. An improving regulatory environment, promising economic growth and high per capita spending will all contribute to South Africa's increasingly attractive operating environment. More companies will express an interest in South Africa's pharmaceutical market in the coming years as part of a strategy to increase both the scale of their manufacturing footprint and also their product portfolio in emerging Sub-Saharan markets.

Headline Expenditure Projections

  • Pharmaceuticals: ZAR43.41bn (USD3.40bn) in 2015...

Power

South Africa Power

BMI View:

BMI View: Non-hydropower renewable electricity generation will experience the highest growth in South Africa's power sector at an annual average of 12.5% over our 10-year forecast period to 2025. Despite new conventional plants facing delays and financing problems, coal-fired power will remain the main source of generation due to the abundance of coal available. Risk of load shedding in 2016 is lessened due to units at the Ingula hydroelectric plant being synchronised to the grid.

Headline Power Forecasts (South Africa 2015-2021)
2015e 2016f ...

Real Estate

South Africa Real Estate

BMI View:

BMI View: The sluggish nature of the South African economy has created uncertainty for businesses, leading to a drop in investment activity. Nevertheless, the office commercial real estate sector has performed well, with good demand for premium grade units. An upward trend in retail sales indicates long-term potential for retail real estate, and regarding the industrial sub-sector, there has been a rise in industrial real estate acquisitions as companies seek to diversify their portfolios.

South Africa is afflicted with high levels of poverty, rising unemployment, low consumer confidence and the possibility of a recession. Real GDP growth has fallen in recent years and in 2015 is forecast at 1.4%, down from 1.5% in 2014, sparking fear of a recession as the economy struggles to recover from the longest drawn-out industrial action since the end of apartheid and weak overseas demand. We believe...

Renewables

South Africa Renewables

BMI View:

BMI View: South Africa's non-hydro renewables capacity will nearly triple over our 10-year forecast period and the country will lead the SSA region for installed renewables capacity by 2024. The attractive regulatory environment, high investor interest and strong power demand in the country will be the main driving forces underpinning growth.

South Africa - Headline Renewables Forecast
2014 2015e 2016f 2017f...

Retail

South Africa Retail

BMI View:

BMI View: South African retailers face an extremely challenging 2016, as the country's ongoing economic malaise combines with new affordability rules, limiting retailers' ability to provide easy in-store credit. Despite this, over the medium-to-long term the outlook is brighter, as the economy slowly recovers and the crucial 20-39 year old demographic increases its population share. This segment of society is particularly important for fashion brands, given their high brand awareness. Moreover, an expanding middle-income population will assist retail growth across market segments in the long term.

Headline Household Spending
(2014-2020)
...

Shipping

South Africa Shipping

BMI View:

BMI View: W e expect positive growth across South Africa's ports in 2016. Many South African facilities had a poor 2014 in which volumes declined, but we estimate a return to growth in 2015 and expect that this will be cemented this year. That said, there are significant challenges to this outlook, stemming from the uncertain macroeconomic environment. The South African economy is being buffeted by external headwinds from the China slowdown and lower commodity prices, which is being exacerbated by domestic labour disputes. Fundamentally, many of the ports require investment, and the port of Durban - the largest container port in the country - has been silting up.

Headline Industry Data

  • Richards Bay Port tonnage throughput in 2015 is forecast to expand by 2.2% in 2016. Growth will be 2....

Telecommunications

South Africa Telecommunications

BMI View:

BMI View: This quarter sees some slight revisions to our forecasts for South Africa's mobile and broadband subscriber markets. The mobile market outperformed our expectations in 2015, adding over 8mn subscribers in the 12 months to December. 3G and 4G services continue to experience strong uptake and are having a positive impact on non-voice service revenues. In January 2016, all three carriers showcased their LTE-Advanced technology and we believe that they will roll-out LTE-Advanced services commercially over the course of 2016. Further market consolidation is expected, despite the collapse of mobile market leader Vodacom's attempt to acquire fixed-line network operator Neotel, and t...

Tourism

South Africa Tourism

BMI View:

BMI View: South Africa possesses the most developed tourism market in Sub Saharan Africa. With a relatively developed transport infrastructure, areas of natural beauty, safari parks and city destinations, the country presents a strong proposition to tourists. The country is a regional economic powerhouse, and benefits from business travel because of this. An emerging middle class is being encouraged to travel internally, boosting the domestic market, although slowing economic growth is a danger. A low rand encourages international travel, but long term may affect government investment.

Key Forecasts (South Africa 2013-2020)
2013e ...

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