South Africa’s biggest surprise for 2024

Feel free to reach out to PSG Wealth Manager Schalk Louw directly.

If you had asked most economists in the beginning of 2024 about their outlook for the South African economy in 2024, it would have been quite negative. Expectations were so low that the International Monetary Fund (IMF) even lowered their growth forecast for South Africa from an already low expected 1.8% growth in October 2023 to 0.9% growth in April 2024.

Fast forward to July and again the IMF released their projections for 2024 and still there is no changes in their expectations. The graph below provides a better idea of what these IMF forecasts look like over the longer term. Note how they notoriously overshot South Africa's annual GDP up to the end of 2019. Since then, they have been too cautious.

South Africa GDP (at constant prices) versus IMF Forecasts

Source: Datastream and the IMF

Now, I might just “being blonde” here, but why do the low expectations persist? Could we see most of these low expectations being met by some positive surprises?

Before everyone jumps on my back again, stating that Mr Louwcal might just be overly optimistic here, I want to clarify: I know that one swallow doesn't make a summer. Let me explain.

South Africa's energy crisis, more commonly known as loadshedding, started in 2007. In early 2020, Eskom commissioned Nova Economics to quantify the economic impact of loadshedding between 2007 and 2019. The study found that the cost of loadshedding (CoLS) to the South African economy was nearly R35 billion during this period. In September 2023, Nova Economics updated their 2020 findings and reported that loadshedding cost the South African economy nearly R43.5 billion (in 2022 values) over the 12 years from 2007 to 2019 and R223.94 billion in the three-year period from 2020 to 2023. To put this three-year period into perspective, between the first quarter of 2020 and the first quarter of 2023, loadshedding cost the economy an estimated R223.94 billion in GVA (2022 prices) and subtracted a cumulative 15.3 percentage points from GDP growth.

These figures align with PWC's calculations in one of their 2023 South African Economic Outlook reports, which claimed that South Africa lost 2.9 percentage points of real GDP growth in 2021 due to the adverse effects of loadshedding and up to five percentage points in 2022.

In the April 2024 South African Reserve Bank (SARB) Monetary Policy Review report, it was mentioned that loadshedding continues to take its toll on the South African economy in 2023. They stated, “we estimate that electricity shortages took 1.5 percentage points off gross domestic product (GDP) last year (2023).”

From these expert reports, one can infer that if loadshedding could be avoided for an entire year, we might see an additional growth of between 1.5% and 5% in the South African GDP. Now, I know it would be my blondest moment if I were to think that loadshedding would cease for an entire year. However, the fact remains that loadshedding has been absent for four months.

What does that mean? It means that for a third of the year, we’ve experienced this positive surprise. Take, for example, the well-known South African food retailer Shoprite. In their 31 December 2023 half-year results, they attributed a monetary value to loadshedding by stating, “reported trading profit continues to be notably impacted by the R500 million diesel expense to power generators in our South African operations.” That’s half a billion Rand in six months for only one company.

By doing simple math for just one company like Shoprite, the savings in diesel costs without loadshedding for the past four months could amount to R333 million. Considering their latest trading profit of R6.7 billion, this would make a 5% difference alone, solely due to the absence of loadshedding.

As a country, we need to do more than just keep the lights on. However, as the saying goes, "How do you eat an elephant? One bite at a time." Therefore, don't be surprised if most forecasts for South Africa, as in the past few years, are on the more pessimistic side, with the actual results turning out to be surprisingly positive.