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: South Africa is one of the most attractive markets in Sub-Saharan Africa (SSA) 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 just behind Mauritius in our total Operational Risk Index, with a score of 56.3 out of 100.

Overall, South Africa is an attractive...

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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 in South...

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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 56.7 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...

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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 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...

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South Africa Industry Coverage (24)

Agribusiness

South Africa Agribusiness

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BMI View: We maintain a subdued outlook for many industries within South Africa's agricultural sector. Production will increase year-on-year in the 2015/16 season, but for sugar, wheat, corn and barley this will merely represent a rebound after severe declines in 2014/15 caused by drought. Grain production growth will be slow over the coming years due to low prices, while yields will be constrained due to the weak rand, weather volatility and lower farm incomes....

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Autos

South Africa Autos

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Over the past quarter, BMI has become significantly more negative on the near-term outlook for new vehicle sales in South Africa. We are now targeting a 10.8% fall in sales over 2015, to 573,424 units, with risks very much weighted towards the downside.

There are a number of reasons behind our increased bearishness towards this autos market. For one, rand weakness is dramatically increasing the cost of imported cars. Second, BMI is now expecting the South African economy to grow by less than 2% in 2015, with growth being held back by power issues at Eskom and an uncompetitive local labour market. Moreover, inflation is also becoming a concern for the South African Reserve Bank (SARB).

Looking at the most recent sales data from the National Association of Automobile Manufacturers of South Africa (NAAMSA), new vehicle sales were down by 3.2% year-on-...

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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: BMI's outlook for consumer electronics device spending growth in South Africa reflects a weakening economic outlook, including rand depreciation against the US dollar. 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 by launching own-brand low-price devices. The popularity of smartphones launched by MTN and Vodacom...

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Defence & Security

South Africa Defence & Security

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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...

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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. With potential growth falling and now in line with actual growth, higher growth in South Africa is dependent on structural reforms. We have seen minimal progress in such reforms, hence we see little scope for a decent recovery and have revised downwards our 2015 and 2016 growth forecasts to 1.9% and 2.0%, respectively. 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 3-6%. Although the outlook for private consumption has improved, we still believe it will be subdued by the standards of recent history,...

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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 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

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BMI View: BMI's outlook for South Africa's IT market in 2015 is based on a weakening economic outlook, including rand depreciation against the US dollar and the negative impact on household purchasing power. Over the medium term, the economic environment will continue to present challenges, but there are significant opportunities. 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...

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Infrastructure

South Africa Infrastructure

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BMI View: The ongoing power shortages, labour issues and sluggish implementation of the National Development Plan continue to pose downside risks to our forecasts for the construction industry's growth over 2015, which currently see 3.4% real growth. Business sentiment will continue to remain low, seeing a poor outlook for the non-residential building sector.

  • We continue to highlight strong downside risks to our 2015 construction industry real growth forecasts for South Africa and weak data over Q115 supports this view. We are holding our forecasts as we expect acceleration in growth over H215, but we expect growth to remain stagnant over the coming years. The industry as a whole remains exposed to four crucial downsides. The ongoing power...

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Insurance

South Africa Insurance

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BMI View: We have a positive outlook for both the South African life and non-life insurance markets through our five-year forecast period. On the back of strengthening economic growth, changes in the country's demographic structure, and developments in other sectors of the economy (e.g. construction), we foresee robust growth in both segments and attractive opportunities for domestic and foreign investors.

South Africa's life insurance market constitutes a substantial segment of the country's overall insurance sector, accounting for 82% of total written premiums in 2015. Also in terms of growth potential, life insurance is expected to outpace its non-life counterpart throughout the five-year forecast period - as...

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Medical Devices

South Africa Medical Devices

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BMI Industry View : 2015 will be challenging for the healthcare sector with a host of legislative changes that are pending conclusion. 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. Meanwhile, progress in implementing the national health insurance programme appears to have stalled amidst delays in publishing policies outlining its shape and cost. Despite these uncertainties, we expect the medical device market will continue to grow, although...

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Metals

South Africa Metals

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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...

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Mining

South Africa Mining

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BMI View: South Africa's mining sector will face significant headwinds as the country's gold and platinum industry will continue to struggle from labour unrest, price weakness and retrenchment. Growth in the country's coal and iron ore sector will be modest, driven primarily by increasing domestic demand.

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 South Africa's gold sector to lose market share, as miners will shift...

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Oil & Gas

South Africa Oil & Gas

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BMI View: Despite a prospective deepwater and unconventionals resource base, the outlook on the South African upstream remains relatively poor. In the context of sustained lower oil prices, the high cost and technical complexity of prospective explorations will act as a major deterrent to investment. Coupled by continued uncertainty over the country's petroleum law, we see limited exploration activity in the coming years. The downstream sector also faces significant headwinds, given poor operational efficiencies at the country's refineries and domestic fuel price subsidies dulling the appetite to invest.

Headline Forecasts (South Africa 2013-2019)
2013 ...

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Petrochemicals

South Africa Petrochemicals

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The South African petrochemicals 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 the January-May period of 2015, basic chemicals declined by 1.8% y-o-y, while plastic fell 3.8% and rubber declined 7.1%. The decline in plastic and rubber output came after a poor 2014 when South Africa's basic chemicals production index grew 6.2% y-o-y on average while the rubber index fell 6.9% and plastic fell 3.1%. The factors causing the decline include poor domestic market performance, lower international petrochemicals prices and rising costs of inputs, including raw materials and labour.

The automotive and construction sectors, which are the largest polymers-consuming industries, are set for...

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Pharmaceuticals & Healthcare

South Africa Pharmaceuticals & Healthcare

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BMI View: Improvements to South Africa's pharmaceutical supply chain will result in fewer drug shortages, making the country a more attractive destination for local manufacturing. Inequalities will still persist between states, with further drug shortages more likely in rural areas given the underdeveloped health systems in these parts of the country.

Headline Expenditure Projections

  • Pharmaceuticals: ZAR39.79bn (USD3.67bn) in 2014 to ZAR44.12bn (USD3.62bn) in 2015; +10.9% in local currency terms and -1.4% in US dollar terms.

  • Healthcare: ZAR330.74bn (USD30.49bn) in 2014 to ZAR360.78bn (USD29.57bn) in 2015; +9.1% in local currency terms and -3.0% in US dollar terms.

Risk/Reward Index

...

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Power

South Africa Power

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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. This has led our country's risk team to revise down the near-term growth forecasts for the country, as rolling blackouts will mitigate the positive growth impact of lower oil prices . On a more positive note, we ...

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Real Estate

South Africa Real Estate

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BMI View: While concerns about economic performance and a deteriorating business environment are leading to a slowdown in investment, the developed nature of South Africa's economy as a whole and its and commercial real estate sector will mean that the sector continues to see investment and activity. Corporates will continue to seek premium office space, while development of new retail facilities across the country reflects rising incomes and long-term optimism about the sector. Meanwhile, the industrial real estate sub-sector is seeing increasing investment as property funds seek to diversify their interests away from a traditional focus on office and retail space.

Economic growth in South Africa has been slowing, with GDP growth of 1.5% in 2014, down from 2.2% in 2013. While we see this rising to 1.9% in 2015, growth will be muted over our...

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Renewables

South Africa Renewables

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B MI View: South Africa's renewable energy auctions continue unabated despite the conventional power sector remaining firmly in crisis mode. We have long-held the view that the country's renewables sector is a brightspot in South Africa's energy industry, a view supported by the successful outcome of the country's fourth bidding window of the REIPPP.

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 Sub-Saharan Africa (SSA) but globally.

...

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Retail

South Africa Retail

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BMI View : Despite South Africa's unsatisfactory economic performance, there continues to remain a number of reasons to be optimistic towards the country's retail sector. Gradual modernisation of the country's urban retail real estate has helped redefine South Africa's competitive landscape, with a number of large, international retail groups, such as Krispy Kreme, preparing to enter the market over our forecast period. Nonetheless, headwinds remain due to the country's unstable economic outlook combined with high unemployment, high household debt and increasing interest rates.

South Africa's economy has shown little sign of improvement during the first half of 2015. According to figures released on May 26, annual GDP grew by a mere 1.3% in the first three months of this year, a dramatic drop compared with the 4.1% achieved in the final quarter of...

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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. There are risks to this outlook, however. Although a fall in the price of oil has the potential to increase household consumption, this benefit will be largely offset by ongoing currency depreciation. Unemployment and negative sentiment also remain high. Demand will be far from robust, but 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 0.3% following a...

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Telecommunications

South Africa Telecommunications

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BMI View: The South African mobile market is highly competitive and at 159% has one of the highest penetration rates in Africa. BMI believes organic growth in the market has now run out of steam, with average annual growth for the next four years estimated at only 1.14%. Intense competition, exacerbated by new MVNO me&you mobile launching in May 2015, will see mobile ARPUs gradually decline. We expect regulatory progress on spectrum management and network sharing agreements to remain slow, resulting in increasingly aggressive moves to cut costs as operators seek to maintain their profit margins. Similarly to the global trend,...

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Tourism

South Africa Tourism

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In recent years South Africa's tourism sector has been growing consistently resulting in a very strong current market. The range of holiday options and amount of tourist attractions offered by South Africa, along with a stable political environment and ever improving transport infrastructure, means inbound tourism is very strong. Although the forecast over the next five years does show this growth to continue, recent changes to visa laws may have seriously detrimental effects on the sector.

South Africa is a very popular destination for international tourists, with nearly 10.3mn arrivals forecast for 2015. The country offers great beaches, mountain walking, top class cities and among the best wildlife safaris in the world. Indeed, the draw of wildlife- and outdoor pursuits-based holidays has led to locations throughout the entire country, including some very remote areas, becoming strong tourism destinations. Many of the accommodation...

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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 infrastructure...

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