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.
South Africa Country Risk
We maintain our 2016 real GDP growth forecast at 1.6%. The absence of load shedding at least until May 2016 justifies a minor increase from 2015's 1.4%, but strikes are likely to pick up in 2016. The deterioration in the business environment at the end of 2015 will extend into 2016, depressing investment growth, while private consumption remains limited by high unemployment and rate hikes.
Given that the rand has continued to weaken despite the return of Finance Minister Gordhan and food price pressures show no sign of abating, inflation expectations are at risk of becoming disanchored. To prevent this, the South African Reserve Bank will have to hike rates significantly to maintain its credibility hence we are ramping up our expectations to 75 basis points in hikes this year.
South Africa's current account...
South Africa Operational Risk Coverage (9)
South Africa Operational Risk
South Africa Operational Risk
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 49.8 out of 100 for Crime and Security Risk, putting the country in fifth place out of 48 Sub-Saharan African states.
The main risks to businesses in South Africa stem from the elevated levels of crime in the country, with homicide and rape rates amongst the highest in the world. While the most pressing concern for expatriates is the threat of home burglaries, the widespread possession of firearms means that crime can easily turn violent. The police force is perceived to...
South Africa Crime & Security
South Africa Crime & Security
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....
South Africa Labour Market
South Africa Labour Market
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 49.8 out of 100 in BMI's Labour Market Risk Index, placing the country fifth out of 48 countries in the Sub-Saharan Africa (SSA) region.
Education presents a relatively low risk to investors in South Africa, at least in comparison to the wider region, as it has one of the best secondary and tertiary education rates in the region and one of the highest literacy...
South Africa Logistics
South Africa Logistics
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 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 56.6 out of 100 in the BMI Logistics Risk Index, which makes it a regional outperformer, placed second behind Mauritius.
Supply chains in...
South Africa Trade & Investment
South Africa Trade & Investment
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 64.8 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...
South Africa Industry Coverage (23)
South Africa Agribusiness
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...
South Africa Autos
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|
South Africa Commercial Banking
|Date||Total assets||Client loans||Bond portfolio||Other||Liabilities and capital||Capital||Client deposits...|
South Africa Consumer Electronics
BMI View: Consumer electronics device spending growth in South Africa has been negatively impacted by economic weakness 2013-2015, with the squeeze on spending from rand depreciation against the US dollar most significant in the PC and AV segments. Rand depreciation eroded South African household purchasing power in global markets, though with the trend of depreciation forecast to ease over the medium term it will to some extent be offset by an increasing supply of low-cost smartphones and tablets. Such low-cost smart devices have proved the most resilient device categories, as demonstrated by the popularity of smartphones launched by MTN and Vodacom, and we expect this to remain the case over the medium term.
Defence & Security
South Africa Defence & Security
BMI View: South Africa possesses the largest defence sector in Africa, and local manufacturers - a growing number of which are entering into international product development partnerships - export items such as armoured vehicles, artillery and defence electronics to a wide range of countries across the world. Domestic demand for defence equipment remains strong, driven by Pretoria's continued commitment to regional peacekeeping, as well as the high levels of crime and social instability in the country, which...
Food & Drink
South Africa Food & Drink
BMI View: South Africa's food and drink industry will be under pressure in 2016, with a weaker currency and unfavourable weather conditions for agricultural production pushing up food prices. Non essential consumption will start to fall over the same period due to decreasing consumer confidence. However, we expect business confidence to remain optimistic for the long term. An increase in investment in the drinks industry and MGR sector will boost industry growth, reflected in our five year forecast period to 2019.
Headline Industry Data
2015 per capita food consumption (local currency) = +6.7%; five-year forecast compound annual growth (CAGR) to 2019 = +7.0%.
Alcoholic drinks value (ZAR) sales growth for...
South Africa Freight Transport
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.
South Africa Information Technology
BMI View: The South African IT market will continue to grow in local currency terms in 2016, but as was the case 2013-2015, we forecast contraction in US dollar terms due to rand depreciation against the US dollar and the negative impact on household purchasing power. The outlook for 2016 is however slightly less challenging as economic conditions begin to ease, and over the medium term vendors will be able to target growth opportunities as consumer and business sentiment strengthens. Nonetheless, the IT market will continue to primarily be driven by government spending via service expansion and modernisation programmes. There is also growing interest in IT solutions among SMEs looking to explore...
South Africa Infrastructure
BMI View: We have downgraded our construction industry real growth forecasts for 2016, which is now 2.8% y-o-y. Business sentiment will continue to remain low, seeing a poor outlook for the non-residential building sector, which has previously been a bright-spot. Rail and renewable energy infrastructure projects remain our favoured sectors, along with low-cost housing.
Latest Updates An Structural Trends
We have lowered our real growth forecast for South Africa's construction sector as the downside risks we highlighted last quarter have taken hold. We now forecast real growth of 2.8% in 2016, average annual growth of 2.8% over the next five years and 3% over our 10-year forecast period.
South Africa Insurance
BMI View: South Africa is home to a large and well developed insurance industry, with life insurance in particular boasting high rates of penetration and density. Both life and non-life are expected to record healthy growth in premiums over the forecast period through to 2019, barring short term contractions caused by currency movements. Some significant structural challenges remain: widespread poverty has lead to high rates of underinsurance in the non-life sector and low household income has also hampered the life sector where most households which can afford to purchase cover already do so. The dominance of domestic firms, particularly in the life sector, also reduces scope for new or greater entry by foreign multinationals.
South Africa Medical Devices
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. Medical device manufacturers face the prospect of longer approval times under proposed new regulatory measures, while the ongoing inquiry into the costs of private healthcare could result in the introduction of price capping. Implementation of the national health insurance programme has moved a step forward with the publication of the white paper in December 2015, but the lengthy timeframe for implementation will limit its impact in the short...
South Africa Metals
BMI View: South Africa's metals industry will face the continued prospect of subdued refined metal prices, elevated energy costs, and labour unrest, limiting the industry's investment and growth prospects. Nevertheless, modest multi-year consumption growth for metals will be driven by the country's automotive, construction, and infrastructure sectors.
Following subdued economic growth in 2014, we forecast stronger metals demand fundamentals in 2015. Lower oil prices will benefit private consumption and investment, leading to our upward revision for South African real GDP growth...
South Africa Mining
BMI View: South Africa's mining sector will face persistent headwinds due to labour unrest, mineral price weakness, further divestments and retrenchment.
Oil & Gas
South Africa Oil & Gas
BMI View: Despite a vast shale resource base and prospective deepwater acreage, exploration in South Africa will be subdued by the high cost of drilling, continued bureaucratic hold-ups and a sustained lower oil price environment. Ongoing reform of the country's fiscal and licensing regime adds another layer of uncertainty and the passage of the amended petroleum bill will be key to securing future investments. The downstream sector also faces major headwinds, due to ageing and inefficient refineries, continued fuel price subsidisation and mounting competition abroad.
South Africa Petrochemicals
The South African petrochemicals industry witnessed a contraction in 2015 amid slow overall economic growth. The industry is in recession and it could take at least two years before returning to growth as key petrochemicals sectors flatline in a difficult operating environment. The sector is the worst affected area of an economy that is enduring sub-2% growth and falling competitiveness.
In 2015, basic chemicals output fell 0.9% y-o-y, while plastic fell 2.2% and rubber declined 1.2%. However, some signs of recovery were seen in H215 with uptrends in plastics and chemicals. In terms of end-markets, the construction sector is enduring a poor performance, which is helping to depress demand for construction-related polymers. On the upside, the automotive industry enjoyed a boom in 2015 and rising local content in cars manufactured in South Africa offers further opportunities for consumption group.
The automotive parts...
Pharmaceuticals & Healthcare
South Africa Pharmaceuticals & Healthcare
BMI View: A compulsory licence for Aluvia in South Africa remains unlikely given that country's reluctance to resort to such measures. The request puts pressure on AbbVie to address supply issues, but more importantly reminds South Africa's government that expectations over the stalled efforts to amend the country's patent laws remain high. The government has made assurances that movement will be seen in Q116; failure to do so will risk a political storm.
Headline Expenditure Projections
Pharmaceuticals: ZAR39.79bn (USD3.67bn) in 2014 to ZAR43.41bn (USD3.44bn) in 2015; +9.1% in local currency terms and -6.2% in US dollar terms. Forecast in US dollar terms revised...
South Africa Power
BMI View: Our negative outlook for South Africa's power sector continues to remain in place this quarter. Inefficient existing generation capacity, a lack of investment, delays to project commissioning and the precarious financial situation of Eskom show little sign of abating over the short- to- medium-term. On a more positive note, we highlight that South Africa's power plant and transmission grid infrastructure will continue to offer investment opportunities over our forecast period and beyond, thanks to a buoyant renewables industry, pressure on state utility Eskom to boost generation to avoid power shortages, and South Africa's nascent nuclear expansion plans.
South Africa Real Estate
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...
South Africa Renewables
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 Retail
BMI View : Despite South Africa's ongoing economic and power supply problems, the retail sector remains confident and plans for the development of many more shopping malls shows no sign of abatement. Continued modernisation of the country's urban retail real estate sector is helping to attract international retail groups who are keen to cater to the country's expanding middle class. Following Krispy Kreme's launch in Johannesburg in Q415, US-based competitor Dunkin Donuts has also expressed an interest in the market and coffee giant Starbucks aims to make its entry into the South African market in the first half of 2016.
Although recession in South Africa is a possibility as we enter 2016, this is not our core view. The economy shrank by 1.3% during...
South Africa Shipping
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....
South Africa Telecommunications
BMI View: We continue to maintain our core forecast for the South African market and retain our positive outlook for 2016. The market has so far performed beyond our expectations, adding over 6mn subscribers in 9M15. Furthermore, the uptake of 3G and LTE services is in line with our recent revisions. We do however caution that with penetration rate inching towards 170%, there is a high likelihood of a significant number of inactive sims connections that have not been discounted. A major discounting by operators will lead us to revise our forecasts. Furthermore, we are carefully monitoring the competitive dynamics of the South African mobile market as we believe 2016 will be the year of major consolidation as fixed line...
South Africa Tourism
BMI View: South Africa is home to the most developed tourism market in Sub-Saharan Africa, with the supporting infrastructure to match. Air travel connections are extensive and the hotel market is modern and competitive, particularly in established tourism destinations such as Cape Town and Durban. The country continues to attract a large volume of international visitors and some sectors, such as luxury safari holidays, are proving a valuable growth area. While we are currently forecasting healthy increases across all key market indicators over the next five years, we do note that stricter visa regulations and ongoing security concerns have the potential to derail growth.