From a pro-business government, to a high performing Rand-Dollar and a recovering share market - Dr Roelof Botha weighs in on some of the good news for the South African economy.

New cabinet announced by the GNU

The appointment of South Africa’s first Cabinet under the new government of national unity (GNU) has been met with overwhelming positive response by business leaders, whilst also receiving a thumbs-up from global capital markets.

For the first time since the transition to democracy, the country’s second largest political party, the Democratic Alliance (DA) has the opportunity to introduce its track record of sound governance at provincial and municipal level, zero tolerance for corruption, and pragmatic policy making at the highest level of government in South Africa. In the economic cluster of the Cabinet, the reappointment of Enoch Godongwana as finance minister and David Masondo as his deputy was most welcome, especially due to the steadfast way in which National Treasury has been managing the country’s public finances, which have been under pressure ever since the occurrence of state capture and the lockdowns implemented during the Covid pandemic.

The decision to establish a separate energy portfolio has also been welcomed by key stakeholders and energy sector experts. This move is expected to facilitate more effective implementation of energy policies than was the case under a combined portfolio for mineral resources and energy. Closer cooperation between government and the private sector lies at the heart of the new economic policy approach, especially in the crucial areas of infrastructure repairs and expansion.

Rand remains in gold medal territory

Ever since the end of February, resilience has been the name of the game for South Africa’s currency. Over the past five months, no other currency has remotely been able to match the rand’s performance against the mighty US dollar. With an appreciation of 5.4% since 1 March, the rand has even left the Euro and the British pound in its wake.

Thus far in 2024, the performance of the US dollar has been quite volatile, with its value being largely determined by expectations surrounding an imminent cut in the Federal Reserve’s benchmark rate. In July, data on the US economy continued the habit of sending out conflicting signals, with the purchasing managers’ index (PMI) for manufacturing standing in contrast to buoyant second quarter GDP growth.

The US manufacturing sector remains under some pressure, with the relevant S&P Global PMI for July declining to just below the neutral level of 50 – the lowest reading so far in 2024. The latest data on employment in 2024 shows that jobless rates have increased in 336 of the 389 metro areas, a trend that would have enhanced the chances of an interest rate cut by the Federal Reserve in September. This may be matched by South Africa’s monetary policy makers, a move that is highly anticipated by debt-ridden households and businesses.

JSE all share index hits new record high

On 31 July, the all-share index (Alsi) on the Johannesburg stock exchange (JSE) closed at an all-time record high of 82,609. This represents an increase of 44% over the index value of 57,336 that was recorded on 21 February 2020, just before the brief Covid-induced downturn experienced by equity markets around the world.

The Alsi’s rate of recovery since before the Covid pandemic is positioned between the German Dax (35% increase) and the S&P 500 of the US, which has surged by more than 65%, but the latter rate has been made possible by the exceptionally strong performance of hi-tech companies, several of whom have embarked on substantial investments in the development of artificial intelligence (AI).

Viewed from the perspective of share valuations and dividends, it is evident that many blue-chip companies in South Africa currently offer more attractive price/earnings (P/e) ratios and dividend yields than several other key bourses. With the International Monetary Fund predicting global economic growth of 3.3% next year (marginally higher than in 2024), prices of South Africa’s key export commodities are bound to continue an upward trend, led by gold and other minerals, which could raise the Alsi to even higher levels over the medium term.

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