From a new government committed to the principles of free enterprise and private property rights, to exceptionally strong recovery of manufacturing sales and imminent easing of lending rates - A brief “good news” outlook on the political and economic landscape in South Africa, from renowned and highly respected economist Dr. Roelof Botha.

GNU promises to kick-start the economy

After a month of intense speculation over the composition of South Africa’s second government of national unity (GNU), it finally transpired that the two parties with the largest political support would be the key drivers of national public sector governance over the next five years. The ANC, DA and eight smaller parties have all been accommodated in the enlarged cabinet, with the GNU firmly committed to the principles of free enterprise and private property rights – comforting news for the business sector, especially agriculture.

It has been made clear by Pres Cyril Ramaphosa that the GNU will focus on policies designed to lift South Africa’s growth rate and create jobs, which is the most effective way to combat poverty, reduce economic inequality, whilst also broadening the tax base. The road ahead will be full of bumps and some patience will be required before results become visible.

Conflicting opinions over economic vs ideological priorities are likely to slow down progress with the removal of unnecessary regulatory impediments to the expansion of private sector business activity. Nevertheless, if the GNU remains committed to close cooperation with the private sector, especially in improving the efficiency of transport logistics, a higher level of economic growth beckons for South Africa.

Upbeat expectations for the manufacturing sector

In June, the Absa/BER purchasing managers’ index (PMI) for business expectations in manufacturing in 6 months’ time reached its highest level since February 2022. The June reading of 68.1 represents a significant improvement on the average index value of merely 53.2 during the preceding 24 months and promises to further boost the exceptionally strong recovery of manufacturing sales since the middle of last year.

Further good news on the manufacturing front is the announcement by steel producer ArcelorMittal South Africa (AMSA) that it will continue to operate its longs business, the closure of which was deferred earlier this year (in steel industry terminology longs business refers to the manufacturing of steel products such as wire, rod, rail, and bars as well as certain types of structural sections and girders, mainly for use in construction).

Any closure of AMSA’s longs business would have impacted negatively on the whole of the country’s manufacturing and construction industries. Reasons for the decision to keep the plant fully operational include the securing of a working-capital facility of R1-billion for a 12-month period, some improvements in Transnet’s performance, and a provisional safeguard duty of 9% on certain hot-rolled steel products.

Welcome decline in bond yield

The decline of more than 100 basis points in South Africa’s ten-year bond yield in the aftermath of the recent elections holds the promise of an imminent lowering of the Reserve Bank’s repo rate. The chances for an easing of lending rates happening sooner rather than later have also improved, mainly because of further declines in the producer price index and the food price index, both of which act as leading indicators of the consumer price index (CPI). The latter has been comfortably within the inflation target range for a year and millions of indebted South Africans are eagerly awaiting a departure from an excessively restrictive monetary policy approach.

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