SA Inc Urgently Needs Courageous Decisions from Policymakers

South Africa requires increased policy clarity, reform, and “audacious” decisions from a political standpoint in order to achieve the vital 4-5% growth needed to enhance our economic outlook from its current predictions.

An improved inflation outlook and the potential for more significant rate cuts have set the stage for a growth forecast approaching 1.7% next year, with foreign investors beginning to express interest for the first time since the onset of Covid-19.

Read: It’s time to place a bet on SA Inc

Recent ratings downgrades and the feared grey listing kept these wealthy investors at a distance until now, but some of the key players are beginning to calculate the right moment to re-enter the SA market.

This is an opportunity that must not be overlooked. While South Africa remains on the grey list, there will be a reassessment in February 2025, and in a surprising turn, rating agency S&P Global has upgraded the outlook on South Africa’s rating from stable to positive.

Read: SA getting closer to earning its way off the grey list

Meanwhile, the recent Medium-Term Budget Policy Statement outlined sobering facts regarding government revenue and the necessity for spending cuts and reform.

A positive development that has caught the attention of these investors and ratings agencies is the government of national unity (GNU) exhibiting signs of progress.

For South Africa to reap the benefits from the favorable conditions of rate cuts, prospective investment policy clarity and pro-business reforms must follow the recent national elections.

Read all our MTBPS coverage here.

Currently, South Africa is poised to receive a boost from potentially additional rate cuts following two modest cuts of 25 basis points in September and November of this year, taking the repo rate down to 7.75%.

Additional rate cuts will further aid overburdened consumers. The impact of lowering inflation is already visible through decreasing credit default rates.

Read:
South Africa’s outlook upgrade makes Eskom bonds less risky
MPC repo rate misfire
Just a 25bp cut by Sarb

Old Mutual views the declining interest rates as a favorable sign for the bank. While they may diminish the endowment from a loan book perspective, they also lead to lower defaults on credit issuances and foster higher deposit rates.

While the global drop in inflation is a notable achievement, the International Monetary Fund (IMF) warns that downside risks are increasing and now dominate the worldwide outlook.

These threats include escalating regional conflicts, prolonged tight monetary policies (where South Africa is a clear example), potential surges in financial market volatility that negatively affect sovereign debt markets, a deeper economic slowdown in China, and the continued rise of protectionist measures.

A weaker rand resulting from Trump’s victory in the US and its adverse effects on imports such as fuel will also require careful monitoring.

Read:
Rand reclaims some lost ground
Rand’s reform rally wavers as Trump’s election fuels dollar strength
Rand hits R18 to US dollar

Nevertheless, Africa’s banking and insurance sectors are well-positioned to navigate risks and harness opportunities, promoting financial inclusion and addressing existing gaps in solutions. In South Africa and throughout the continent, savings rates remain alarmingly low, and the region is severely under-insured, particularly in terms of pure risk life and disability insurance.

Growth of ‘Insurtech’

According to Deloitte’s 2024/25 insurance outlook report, Africa’s youthful and expanding population presents immense market possibilities. Insurtech is set to increasingly utilize mobile technology to provide microinsurance products to underrepresented communities.

It is encouraging to witness Insurtech and fintech innovators like Omari making strides in this area, where enhanced and affordable access to solutions like reasonable digital home insurance can positively impact lives in developing nations such as Zimbabwe.

PWC’s Insurance 2030 report highlights that companies that focus on customer-centric approaches can reach the stage where insurance becomes a product that is purchased rather than sold. From both insurance and banking perspectives, this largely depends on the type of product – direct digital sales may succeed where consumers are very comfortable interacting digitally and there is quick feedback, such as in routine monetary transactions.

However, consumers may feel quite uncomfortable when the transactions become larger and more complex, necessitating advice from someone who can guide them and provide reassurance – a trusted conversation with a consultant.

Our strategy, therefore, involves advancing digital and AI solutions broadly for improved efficiency and user experience while ensuring that experienced and trustworthy human advisors are always accessible for more intricate matters or tailored solutions.

The focus should be less about specific products and more about how an individual’s financial journey is supported throughout their lifetime.

The most successful financial services firms in the present volatile landscape will consistently emerge as quality advisory partners, aiding in decision-making and rewarding wise decisions that prioritize elements often overlooked, like saving over spending.

However, keeping businesses relevant in the future will be crucial as the environment evolves.

Iain Williamson is CEO of Old Mutual Group.

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